Microsoft and Google are really slugging it out in the search space. It seems like a real ware of one-upsmanship. The latest battle centers on local search and satellite-imaging technology.

Microsoft is now in the game with Virtual Earth, a new mapping services lets users zoom in on a local area and get information about local businesses including restaurants, cafes, hotels, and dry cleaners, using a core set of reference points, such as maps, aerial imagery, photos, consumer and business directories, and ratings and reviews.

Microsoft Virtual Earth, which is slated to be available mid-summer, will be an extension of MSN’s broader search strategy that extends local search into a deeply immersive search experience, company officials say.

The Web-based Virtual Earth will incorporate local search, directions, and satellite imaging from Microsoft’s TerraServer. The local search results are culled from Yellow Pages directories, and below the natural results, MSN will also include sponsored links.

The announcement from Microsoft’s Chairman Bill Gates at the “D3: All Things Digital” Conference in San Diego Monday, comes less than a \week after Google started a buzz by unveiling its search-mapping tool Google Earth.

But these two are not the only ones jockeying for position in the local mapping game. Amazon.com’s A9.com is working on a nationwide project to take digital photos of all U.S. businesses for an online service called BlockView, which pairs photos to business information. Yahoo has also integrated Yahoo Maps and local search to create a data-rich source of regional services.

Industry watchers agree that products of this ilk are likely to entertain users, but it’s still unclear how to generate revenue from these technologies.