What Should Yahoo Do About Social Networking And Search?

The New York Times asks, “Should Yahoo stop trying to beat Google at its own game?” and VC Jim Breyer says, “They should take a hard look at the search business, and it may well be the right time to stop trying to out-Google Google.” Wow, that sounds awfully familiar — probably just a coincidence.

In any case, the Times and others are reporting some radical notions that had been floating around Yahoo prior to Semel’s stepping down as CEO — acquiring MySpace from News Corp in exchange for a 25% stake in Yahoo and conceding search to Google.

The MySpace deal, which apparently never got past the kicking around phase, would have valued MySpace at $11.1 billion based on Yahoo’s closing price yesterday, which is 10X what Yahoo reportedly bid for Facebook last year.

With Facebook transcendent with innovation and MySpace apparently just resting on its laurels, the MySpace deal would seem the height of insanity on the face of it — not least because Yahoo already reaches half a billion people — it just hasn’t found a way to connect them. $11 billion seems like an awfully expensive price to pay for a terribly designed platform for connecting people — although it would have been a truly brilliant move for Rupert Murdoch, had he pulled it off. That would have been quite a return on his $580 million investment in MySpace.

As for conceding search to Google, this is probably a deeply emotional question for Yahoo, after everything they’ve invested in search and Panama. But according to the Times, Panama “starved many other projects of much-needed resources.”

Yahoo needs to look at search with its MBA hat on. If you concede that Yahoo is never going to catch up to Google on search advertising, then the question becomes what market share can Yahoo reasonable expect to grab, even with perfect execution going forward? And then, what are the opportunity costs of other projects that Yahoo might not be able to pursue? If Yahoo hadn’t been so focused on search, could it have become MySpace or Facebook?

No doubt that Yahoo needs to take some radical steps, and not just stay the course — buying MySapce for $11 billion or giving up on search entirely may not be the right steps, but that’s the kind of radical thinking that Yahoo needs to put into practice.