Update 2:36 p.m.: Facebook has killed this rumor once and for all with a spokesperson telling AllThingsD's Mike Isaac that the company has no search product in the works with Yahoo. The statement reads as follows: "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." So there you have it: Rumor debunked.
Original Post: One would think that sources ROFLOLzing in the face of a possible joint Yahoo-Facebook search venture would quiet the rumors that the two companies are thinking about working together, but it has only led to further rumoring. On Sunday, The Telegraph's Katherine Rushton started it all, when she cited sources saying that Yahoo CEO Marissa Mayer met with Facebook COO Sheryl Sandberg to talk about how the two companies can work together, specifically on a search product. Since, AllThingsD's Kara Swisher (who has a lot of solid Yahoo sources), has totally squashed that possibility. "Yahoo and Facebook are not currently in talks about forming a search alliance or building a search engine together, according to my sources, who scoffed about such a deal reported in a thinner-than-tissue-paper post by the Telegraph earlier today," she wrote. She also pointed out a big obvious problem with the idea of said talks: Yahoo has seven years left in its 10-year search deal with Microsoft. So, rumor over, then, right? Of course not. The rumorers have figured out a way to make sense of all the conflicting reports: Microsoft must be in on it all.
Here's that theory from Business Insider's Henry Blodget:
Microsoft should be part of these discussions. Microsoft, ideally, should be convinced to spin out its search division, which it doesn't need, and have the division managed by Facebook or Yahoo.
But even if Microsoft keeps its search business, Yahoo, Facebook, and Microsoft should all join forces here--and much more aggressively than they have to date. If Facebook makes search much more front-and-center in its product experience, the combined "Bing/Yahoo/Facebook" search market share will rise some more. And the more it rises, the more useful the platform will become for advertisers. And the more Bing's revenue per search should begin to rival Google's...
Bottom line, if Facebook and Yahoo aren't, in fact, talking about getting together on search, they should be. And Microsoft should be a part of those discussions.
Note: Blodget doesn't have any more information than the rest of us. He's just jamming the pieces together so they make sense, putting this one in rumor territory. Swisher suggests this as a possibility, too, calling it the "movie version" of possibilities. As far as facts are concerned, one set of "thinner-than-tissue-paper" sources says Facebook and Yahoo are talking. Meanwhile Swisher, who has better sourcing, says Mayer and Sandberg are probably talking about a different sort of partnership. And still Henry Blodget talks about Microsoft. Given all those data points, we choose to believe Swisher on this one. Or, you know, Zuckerberg.