Yahoo! Inc. (NASDAQ:YHOO) and Facebook Inc (NASDAQ:FB) may be in the stages of working together on a new search engine. As per a report from The Sunday Telegraph, Yahoo CEO Marissa Mayer and Facebook Inc (NASDAQ:FB) COO Sheryl Sandberg have been talking about the two companies working together. The partnership of the two giants could produce ‘a social search engine that is ideal for mobile usage’, backed by Yahoo’s 700 million and Facebook’s 1 billion users.

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Marissa Mayer and Sandberg, are both former colleagues at Google and are both thoroughly aware of the importance of ‘search’ as a business opportunity. Apart from this, Mayer has been on a constant look-out for reviving Yahoo! Inc. (NASDAQ:YHOO), since she took the CEO post in July. Yahoo was also one of the earliest companies to integrate with Facebook Connect. Just prior to Mayer’s joining,the two companies resolved their patent spat.

Apart from Yahoo! Inc. (NASDAQ:YHOO), Mark Zuckerberg has also been hinting about search as a business for Facebook, over the last few months. He said in September this year, “We do a billion queries a day and we aren’t even trying. Mostly trying to find people or brand pages or apps. There is a big opportunity in search, evolving to giving a set of answers to a specific question and Facebook is uniquely positioned to do that. For example, ‘Which of my friends or friends of friends work in a company I might like to work at?’ At some point we will do it”.

Yahoo! Inc. (NASDAQ:YHOO) and Facebook Inc (NASDAQ:FB) can be an ideal partner, given Zuckerberg’s search vision. Yahoo currently has an agreement with Microsoft Corporation (NASDAQ:MSFT), which is not boring expected results for Yahoo, and Yahoo may exit the deal next year. Mayer’s former employer has expressed interest in replacing Microsoft Corporation (NASDAQ:MSFT) for that job, but that is legally tricky given Google Inc (NASDAQ:GOOG)’s near monopoly in search.

In such a scenario, a Yahoo-Facebook Inc (NASDAQ:FB) alliance is possible, but it could take years to develop a search engine to even challenge Google Inc (NASDAQ:GOOG). Mayer with her 13 years at Google knows the in-out’s of search. On search, Mayer shares a similar vision, as that of Zuckerburg. She described her ideal search engine to IDG News Service way back in 2009: “It would be a machine that could answer that question, really. It would be one that could understand speech, questions, phrases, what entities you’re talking about, concepts. It would be able to search all of the world’s information, [find] different ideas and concepts, and bring them back to you in a presentation that was really informative and coherent”.

However, some are terming the news as nothing more than a rumor. According to a report from Kara Swisher of All Things D, who has some of the best sources at Yahoo! Inc. (NASDAQ:YHOO), says that the two internet giants are in not in talks regarding a search partnership; also Microsoft Corporation (NASDAQ:MSFT) won’t allow Yahoo out of its long-term search contract. She says “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.