Microsoft is apparently gathering 20 "Rockstar" developers in Silicon Valley to develop a new search engine to compete with Google.

The team is supposedly based at Microsoft’s Silicon Valley headquarters in Mountain View. Microsoft's Sanaz Ahari is supposed to lead the project. Ahari was previously on the Live.com team, and was reportedly the youngest lead product manager in Microsoft history at 23.
More details on TechCrunch.

The big question is though what is a better search engine? It must be tremendously better in whatever to break the Google dominance.
See also this report giving some insight on how Google tweaks their search engine.