Yahoo! (YHOO) should outsource search advertising to Google (GOOG)

According to the Wall Street Journal, Yahoo! (NASDAQ: YHOO) gave serious consideration to outsourcing its search function to either Microsoft (NASDAQ: MSFT) or Google (NASDAQ: GOOG). The paper writes: "Such a move would likely give Yahoo an immediate revenue bump representing hundreds of millions of dollars annually, because Google, for one, generates about 40% more revenue for each consumer search than Yahoo! ..."

Yahoo! has spent a huge sum on developing its own Panama technology to improve its competitive position with Google, but there is not much evidence that this program has worked well. Another quarter or two of bad results could send Yahoo! back to Google to pick up the additional revenue.

The idea that Yahoo! would turn to a rival for its key search function shows how badly off the company is and how little management may be able to do about it. When Yahoo! decided not to make search a major part of its business, before Google had become a big company, it sealed its fate as a display advertising company, but the display market is no longer growing quickly.

Not matter how much pride Yahoo! would have to part with to set up a partnership with Google for search, it should do so. It needs the revenue and Wall Street needs a revival of the stock.

Douglas A. McIntyre is a partner at 24/7 Wall St.