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MySpace's bizzare flirtation with Yahoo; Yahoo exiting search?

I was surprised in yesterday's news splashes on the potential swap of MySpace to Yahoo for roughly a quarter of Yahoo.

I am blogging on this because the news follow-up does not appear to have connected the dots about how bizarre this combination sounds economically and competitively.

While on the surface it seems logical because Yahoo was reportedly in talks to buy MySpace before NewsCorp did.

What makes this bizarre is what has transpired since.

  • NewsCorp took the no revenue MySpace exploding growth audience and did a deal with Google which guaranteed MySpace a minimum of $900m in ad revenue over four years.
  • Isn't it bizarre that:
    • Yahoo would pay a quarter of its company for a web service powered entirely for the next four years contractually by its biggest search competitor... Google?
    • Yahoo has a third of Google's audience so its ability to monetize MySpace going forward would be two thirds less than MySpace enjoys now. How would moving revenue growth backward and down warrant such a huge premium?
  • The only thing that makes sense with this deal to me is if the other big Yahoo story reported by the New York Times yesterday is true -- that Yahoo is considering exiting the search business and outsourcing search to Google -- like it did in the earlier years of Yahoo.
    • That's something to ponder isn't it?