Why Facebook and Yahoo! Need to Start Talking

For a time on Sunday, the tech world went nuts over the prospect of Facebook (Nasdaq: FB  ) and Yahoo! (Nasdaq: YHOO  ) working on a search deal. London's The Sunday Telegraph newspaper reported that Sheryl Sandberg and Marissa Mayer had met to talk details.

By Monday, Kara Swisher of AllThingsD had doused any remaining enthusiasm for the rumor with a story that quoted anonymous sources who "scoffed" at the idea of a search deal. Facebook followed Swisher's report with a formal denial of its own. 

"People expect a better search experience on Facebook. We are working on improvements to better meet those expectations but are not in talks to enter into a new search partnership," a spokesperson told Dan Farber at CNET News.

Fine. But let's at least admit why the Telegraph story got as much play as it did: At heart, most of us believe that Facebook and Yahoo! are going to be working together more closely in the future. They've no choice but to team up against their common rival, Google (Nasdaq: GOOG  ) .

There are several ways the companies could partner:

  • On mobile. Yahoo! has a longer and more successful history developing mobile software than does Facebook, whose app is only now gaining traction. Why not allow users of successful Yahoo! apps -- think Finance, Fantasy Football, and the like -- to log in using Facebook Connect? The resulting data sharing might result in better ad targeting for each. Meanwhile, Google says more than half the 150 million who regularly visit Google+ log in via mobile. 
  • On browsing. Facebook doesn't have its own browser, but it does have ambitions to create an ecosystem whereby users navigate back for discussion, news, and entertainment. An ecosystem, in other words. Imagine if you had a Facebook navbar in Yahoo!'s Axis browser that offered quick access to friends, apps, and pages. Make it exclusively available on Axis, and you've suddenly got a reason for users to set aside Chrome for part of their day.
  • And yes, on search. Advertising is a data game. On the Web, no data is more useful for understanding desire than search and browsing history. Yahoo! has Bing via its partnership with Microsoft (Nasdaq: MSFT  ) , while Facebook has Exchange, a technology that uses browsing history to improve ad targeting. Lately, we've seen signs that Yahoo! wants more than Mr. Softy is willing to give.

What do you think? Will Sandberg and Mayer get together and talk about a deal soon? Or should we be thankful that, at least so far, these two have left well enough alone? Weigh in using the comments box below.

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