An interesting idea, but the natural result would be for the web being segmented into multiple parts, as no one company will buy off all of the top sites. No one search engine would be clearly better, since each would give you its exclusive piece of the web. At this point, you would almost assuredly see third party sites or tools which would simply scrape and aggregate search results from all of the major engines. You used to see this back in the '90s before Google managed to out-index everyone else. These aggregation sites would. So not only would this idea be very bad for users, it probably wouldn't be sustainable.
Agreed also his numbers are flawed, We do around 1mm a year online and it would cost easily 10x valuation to buy us out - now think about amazon, best buy etc...
There's a scary side to this - what if Google themselves gave you better rankings or lots of free adwords if you agreed to only be indexed by them (selectively block the other crawlers)?
Of course they have no reason to now, and maybe not ever, and even if they did maybe there would be anti trust issues. But it's still a scary amount of lock in - probably even more powerful than Wintel.
"Would the top 1k most visited sites take a cool $1mm each, plus a committment from MicroSoft or Yahoo to drive traffic through their search engines to more than make up for the lost Google Traffic. After all, once consumers realized that Google no longer had valid search results for the top 25k searchs, that traffic would most likely go to MicroSoft and Yahoo."
The top natural results are worth a ton, and as the incumbent, Google could probably bid higher for them.
But more problematic for the strategy: if the top 5-10 results disappeared, wouldn't some enterprising we-try-harder also-ran in the same categories just rush up to fill the void with equally-good results? Most top results are probably not so proprietary they can't be rebuilt by others -- just look how many top results are from Wikipedia.
Finally, if this buy-out strategy actually did start to work, it could attract legal/regulatory attention as being anticompetitive or anticonsumer. Legal grounds for indexing sites even against their wishes could be found or legislated. Plausibly legal workarounds (like having users index materials as they visit, and forward summaries to Google, a law the old Grub project) would be devised.