Yahoo Rumor Patrol: MySpace, Nope! Google? Maybe So.

Please see this disclosure related to me and Google.

Things have quieted down at Yahoo of late–thankfully for new CEO and co-founder Jerry Yang, who seems to be doing a good job at calming the waters at the company that has been in turmoil over the last year, due to management upheaval and lackluster financial results.

“We have our heads down and we’re focusing,” said one executive there, echoing a common sentiment these days, as Yang and his second-in-command, new President Sue Decker, look over the company as part of the 100-day review he promised during a recent quarterly conference call with investors.

In mid-July, Yang said he would be busy making a long-term strategic plan, which would include major changes if need be. “There will be no sacred cows and we need to move quickly,” he said.

No sacred cows, indeed. According to rumors circulating around the company, Yang and other executives at Yahoo are even considering something as massive as offloading some of its search monetization business to rival Google.

I have suggested this option here in this column many times. Such a move, even if done in part, could instantly add a whole lot of dollars to its bottom line, drastically cut tech costs and remove the focus on its constantly losing fight with Google as a tech leader.

Better still, it would put Yahoo in a position to focus on its more competitive assets, such as outstanding media properties like Answers, Flickr and a range of tools and features that Yahoo does better than Google and many others.

As I wrote in this post in April:

Rethink your whole approach to search. You have certainly put a lot of powder behind this new online advertising system called ‘Panama’ and have promised big results in upcoming quarters. Maybe it will deliver, but the fact of the matter is that it is likely you will be running behind search leader Google for the foreseeable future. It’s not that they have such much-bigger brains over there (they don’t, except for that one guy they hide in the back) or that the food is better (well, it is), but that Google is and always will be a technology company that dabbles in media. Yahoo is almost the exact opposite, starting out as a directory and not as a technology superstar. All this wrangling with Google in a nerd version of ‘Highlander’ is only going to get you to the reality: ‘There can be only one!’ ”

While the idea might seem ludicrous, given how much time and effort Yahoo has put into redoing its search monetization system, which is just now showing stronger results, if true, it is interesting that the company is considering its options as broadly as this.

In fact, despite their much-hyped rivalry, Google and Yahoo have met many times on this issue, said sources, about what such an arrangement would look like.

Google execs like CEO Eric Schmidt have long been keen on the idea. Add to the mix: Many attending told me there was reportedly an unusual level of friendliness between Yahoos and Googlers at the recent Allen & Co. media mogul fest at Sun Valley, Idaho.

And why not? Yahoo essentially gave Google its first big break. Google used to do Yahoo’s search and owes its early and critical growth to the company.

Seeing that development, though, Yahoo bought its Overture and others to get its own search business on track. Except it never did until recently–which many think has come much too late.

In that same recent investor call, Yahoo did note that revenue per search had risen 15% to 20% from the year earlier, which is a good sign, since it is the sweet spot in the industry.

But Yahoo is also losing the market-share battle to Google and even Microsoft, and improvements in its search ad sales won’t matter if people are not using it to search as much. And it is hard to put lipstick on that pig.

Speaking of making things look pretty, Rupert Murdoch and News Corp. (new owner of this site, once a recent deal to buy Dow Jones goes through) have been deft in pumping up the volume on MySpace of late. It might be simple bragging or perhaps a crafty way to get a deal going related to the powerful social-networking site.

In its recent investor call, Murdoch trumpeted the recent results of its Fox Interactive Media division, which includes MySpace. FIM earned $10 million on revenue of $550 million in its recent fiscal year, which is a nice performance and is mostly due to MySpace.

But Murdoch upped the ante by noting that he foresaw the possibility of reaching $1 billion in sales and $200 million in profits. I imagine that FIM execs must have been choking on hearing that pronouncement coming from on high and quickly started looking around at every chair in the place to sell to get to that number.

Because while the big $900 million, three-year ad deal with Google will fuel that in part, sources at Google note that the company will likely not recapture those guaranteed payments to News Corp., forking over the dough in what looks to me like a classic grab at market share for a price.

Still, all this MySpace-is-great talk feels like something else is going on or that News Corp. is perhaps banging the drum to get noticed. That could be due to the fact that smaller rival Facebook is now considered to have the momentum (whether true or not, perceptions are important) as the prettiest little Web 2.0 company around.

So why wouldn’t Murdoch, who obviously loves to make a deal, tout MySpace? In June, for example, Murdoch floated the idea that he had had talks with Yahoo’s former CEO Terry Semel about trading MySpace for a big stake in Yahoo, rumors that persist now.

Some sources note such a deal might include other investors taking a stake, too. It’s not a bad idea, given, as I have written before, “Murdoch gets to unload a service that is increasingly going to need a major dose of technology expertise and own a big chunk of what could be a drastically undervalued property.”

But Yahoo execs I spoke to pooh-pooh the idea and said they are not interested in making any deal to sell itself or part of it in the midst of a possibly promising turnaround.

“It would be good for MySpace,” said one Yahoo exec. “But we’d look like losers in the end.”

And, I think I can safely say, Jerry Yang has had just about enough of that kind of label.