London’s Telegraph newspaper yesterday carried a report based on unnamed sources that Yahoo! Inc. (NASDAQ: YHOO) and Facebook Inc. (NASDAQ: FB) were in discussions about how the two companies could work more closely together. The focus of the Telegraph’s article was search, and the point seemed to be that Facebook’s 1 billion users would be a jump-start to a reinvigorated Yahoo! search engine.

This is nonsense on any number of levels, but the most important is Yahoo!’s deal with Microsoft Corp. (NASDAQ: MSFT). Yahoo!’s search function no longer belongs to Yahoo! It is currently powered by Microsoft’s Bing search engine, and despite the billions of dollars that Microsoft has poured into Bing, Google Inc. (NASDAQ: GOOG) continues to get about two-thirds of all Internet search traffic, compared with around 12% for Yahoo! and 16% for Microsoft.

Now Microsoft could decide to work with Facebook on a new search engine, and Facebook’s CEO has said that it plans to improve its search capability. But Yahoo! brings almost nothing to the search table in its own right.

That is not to say that a closer relationship between Yahoo! and Facebook is impossible. A closer tie among users or tighter integration of services are distinctly possible. But search? Never gonna happen.

Yahoo!’s shares are up about 0.9% in premarket trading this morning, at $18.02 in a 52-week range of $14.35 to $18.16. A new annual high is definitely in the cards today, likely based on the rumor of a closer tie to Facebook.

And Facebook stock is up 2.7% at $24.19, but that is just as likely due to continued short covering based on last week’s addition of more than 800 million unlocked shares to Facebook’s float as it is to a possible search deal with Yahoo!

Paul Ausick

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