• Venture Beat, Friday, December 1, 2006 10:45 AM

A few weeks ago, Jerry Maguire came out of closet at Yahoo--his name is really Brad Garlinghouse--to tell employees that the Web giant has spread itself too thin and is now a shadow of its former self. To get back on track, it will take cost-cuts and renewed focus, he said.

Garlinghouse was right to sound the alarm, but wrong in his focus. Yahoo may be spread as thin but most businesses would kill to have Yahoo's broad diversity of content,commerce properties and worldwide brand recognition. The Web portal still ranks first on the Web in users and page views.

What Yahoo really needs to fix is its monetization.

Google does a better job of turning traffic into dollars, especially when it comes to search. If Yahoo was monetizing its traffic better, it could jack up the price, just like Google did every time Yahoo expressed an interest in buying something big.

Here are three things Yahoo should do to fix its problem: Ship Project Panaman, which is supposed to improve its search-advertising engine; implement a cost-per-acquisition advertising system (pays much better than CPC or CPM); accelerate acquisition activity as monetization improves.

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