Congrats on the idea!

Now do the same for Silverlight and sell the company to msft.

btw: I like the part about Investors on you website :-)

Would you need to sell Silverlight indexing to msft?

As long as they don't buy Yahoo, you don't need to sell msft anything, they will buy it, so you are right :-)

In fact VC's should start a fund, similar to Iphone apps fund, called "msft not buying yahoo, so lets make them use that 44 billion" fund ;-)

Notice that what they are suggesting is the key component of your solution (taking links from a page and producing the parts to index) not the indexing itself or the search term parsing &c. I think if you offered that aspect (as a web server or licensed, shared-source software) then you could carve out a good nice whithout having to rebuild the rest of the "search" infrastructure. Basicly, I am suggesting that you forget about

"Our search results are not very good right now. We are in the very early startup phase of our website. The crawler has only been crawling for a while, we only have crawled a handfull of websites, and our search query technology is only in the keyword phase. All of these things require time and money to implement. As things progress we'll improve our infrastructure and ramp-up as quickly as we can."

and focus on what you are apparently good at.