Lots of press (mostly negative) about Yahoo! at the moment, along with comments on how they can turn things around. Thought I would weigh in with a brief strategic analysis.

Strengths:

• Yahoo! is still the dominant player in display advertising.
• They’re still highly profitable, and are throwing off a lot of cash
• Several of their portals (Yahoo! Finance comes to mind) are #1 in traffic in their area.

Weaknesses:

• Highly silo-ed structure, with poor internal communication
• Some dubious assets
• Exodus of talent

Opportunities:

• There’s got to be something they can do with all of their data and existing infrastructure!

Threats:

• All of the big players are eating their lunch
• Their partners in China are a big black box

My Take:

• Sell the 40% stake in Alibaba now. They can still get a decent price for it. If they wait, it will be worth nothing. Then they can use the revenue from the sale to either cut debt, or fund new research, or save it up for a rainy day.
• Re-read Michael Porter. They’re probably a declining asset, but their industry allows for reasonable profits on the way down. That means they should sell off pieces that they don’t need, and treat other pieces as a cash cow.
• Open source some of their more interesting internal projects. That may attract some talented geeks. Might even be enough to restart “fusion”.
• Don’t bother with acquisitions until they can fix their in-house culture. They’re not alone in this respect, but they tend to squash any entrepreneurial attitude in their purchases. This means they’re probably wasting money doing so. Sell, don’t buy.
• I’m assuming they must have decent internal HR systems. They need to use them to identify talented and entrepreneurial staff. Then set them up in separate offices somewhere (in small groups > 200 people) with reasonable (not lavish) budgets, and let them do interesting things without too much supervision. Something valuable might just come out of that. Hiring people for this purpose is probably not going to work, for the same reason that buying companies won’t. If they can’t get things going internally this way, they’re in bigger trouble than anyone thought.
• Focus the budget on the stuff that is working. Yahoo! Finance is one. I’m sure there are others.
• Continue cutting waste. They’ve already been doing that for years, but this isn’t time to stop.
• Somehow, some way, get people internally talking to each other. From what I’ve heard, people have been trying for years. Throw a big BBQ, for goodness’ sake. Or implement an internal social media / FAQ site. Or something.

Will all that turn their ship around? Not a clue. It will, however, maximize their earnings on the way down, and it will also at least give them a decent shot at fixing things.

Lastly, everybody should quit hassling Carol Bartz. There’s every indication that she’s already doing many of the items above. That may not make a lot of news, but seriously its probably the best thing for the shareholders (even if they disagree).