It's official: Microsoft is the mystery buyer of Farecast, the Seattle online travel startup. Responding to an inquiry from the P-I today, Microsoft issued this statement from spokeswoman Whitney Burk:

"We are pleased to announce that we have acquired Farecast, a Seattle-based smart travel search engine, and we welcome them to the Microsoft family. Farecast has been a partner of ours on MSN Travel and we look forward to working closely with the Farecast team to incorporate and apply its technology in new and interesting ways."

We reported earlier this week that the company had been sold for more than $75 million, but the buyer was not known at the time. Microsoft did not confirm the purchase price, but a source says the figure is in the $100 million range.

Farecast is an online travel search engine that attempts to predict whether airfares will rise or fall on specific routes. It is backed with about $20 million in venture funding from Madrona Venture Group, Par Capital Management, Greylock Partners and others.

MSN Travel has some familiarity with Farecast, having inked a partnership with the travel startup last summer.

More to come.

UPDATE: Microsoft is paying a hefty price for Farecast. A source with knowledge of the deal puts the price tag at $115 million.

Meanwhile, Todd Bishop notes some of the other local companies that Microsoft has acquired over the years. (aQuantive, Visio and Seadragon). And he quotes Microsoft analyst Matt Rosoff who says the purchase price seems high.

In a short blog post, Farecast Chief Executive Hugh Crean said "this acquisition creates tremendous opportunities for the Farecast team and our customers." He declined further comment.

UPDATE: Madrona Venture Group's Matt McIlwain, the earliest venture investor in Farecast, said the company entertained multiple offers and that the investment returned more than five times the money invested. It was a "very nice financial return for us," he said.

"If deals like Amazon are home runs, this is more in the double or triple range," said McIlwain, whose firm was an early investor in Amazon.com. "That's a pretty high bar, but we like to have that high bar."

However, he said the deal represents a "home run" since it touches nearly every part of the innovation economy in the Pacific Northwest.

Matt McIlwain

Farecast was started by University of Washington computer scientist Oren Etzioni, initially bankrolled by Madrona, built with people from local companies such as Alaska Airlines and AdRelevance and, ultimately, acquired by Microsoft.

Though Farecast had multiple bidders, McIlwain said Microsoft was a good fit since the two companies had worked together in the past and had a similar vision for online search. The proximity of the two companies also played a part, he said.

The acquisition follows the merger of Kayak.com and SideStep, the market leader in next generation travel search. That deal led to new opportunities for Farecast, including discussions with Microsoft which heated up in the past 90 days.

"That consolidation presented opportunities for Farecast ... partly differentiated because of their predictive capabilities but also because of who they might have been able to align with in the industry to be a strong and differentiated number two, hoping some day to overtake and become number one," he said.

Madrona has produced a number of hits recently, with the sales of ShareBuilder, World Wide Packets and iConclude.

That has led to some speculation that the firm would use the momentum to raise a new fund.

McIlwain declined to comment on current fundraising activities.

UPDATE: Tom Romary, chief executive of Yapta, a Seattle online travel startup, called the acquisition a great deal for Farecast considering the problems in the airline industry and the general economy.

"My thought is that innovation gets rewarded," said Romary, adding that Farecast's airfare prediction technology set it apart from competitors and made it an attractive acquisition candidate.

Romary had heard rumors that Google, Expedia and Microsoft were interested in Farecast -- three deep pocketed companies that could have driven the price up. But Romary is not surprised that the Farecast executive team got the price they did.

"Those guys know how to keep a poker hand close to the vest," he said.

Romary declined to comment on whether his company had been approached with acquisition offers, though he said the $160 billion U.S. travel market still has a lot of room for innovation.

UPDATE: Here's the full story that is running in the paper, which includes much of the information above along with more details on how the Farecast service works. Meanwhile, Motley Fool wonders if Microsoft could use the Farecast technology to predict whether the Yahoo bid will go up or down.

And speaking of Yahoo, a reader in the comments makes a good point. If Microsoft ends up buying Yahoo, coming along for the ride will be the travel search site FareChase. So why own two travel search sites? Yahoo acquired Farechase in 2004, but earlier this year started promoting the service more on its travel property.

This is yet another wrinkle in the rapidly changing world of online travel (another is that San Francisco-based TripIt just raised $5.1 million from Travelocity's parent), but could it mean something deeper about the prospects of the Microsoft-Yahoo deal. Probably not, since the $115 million that Microsoft is paying for Farecast is a tiny blip when compared to the $44.6 billion it has offered for Yahoo.