Yahoo's Search for a Vision

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That said, some layoffs seem both necessary and likely. Yahoo's major acquisitions over the past year, such as Right Media, BlueLithium, and Zimbra, surely created redundant positions. If they haven't been eliminated already, it's time.

Give in to Google. Lindsay and others also think Yahoo should give up on its search efforts and just pay Google to drive its search engine. It's easy to understand why. Yahoo keeps losing search market share to Google, whose engine handles from 56% to 66% of all queries, depending on who's counting. By contrast, Yahoo's share is usually from 18% to 21%. "The text-ad war has been lost," says Scott Rafer, CEO of ad network Lookery and former CEO of MyBlogLog, which Yahoo bought a year ago.

But others think Yahoo would be crazy to cede such an important front, not to mention control of the Web's most lucrative advertising opportunity. "It's a pretty critical component of getting people to start with Yahoo and stay there," says Ned May, director and lead analyst at market researcher Outsell. Just as important, data from searches, still the most important indication of a user's intention to buy, ultimately may prove crucial for targeting display ads to individuals as well.

Notably, marketers and ad firms are rooting for Yahoo because they want a stronger No. 2 just to keep Google honest. "I would hate to see Google become almost a monopoly," says Lee. If Yahoo can keep making even mild progress in search advertising—its revenue per search rose 20% in the third quarter—keeping it in-house seems worthwhile.

Sell out to Microsoft. If there's one rumor that keeps coming back again and again, it's this one. And with every replay, the speculation seems ever more driven by investors looking for a quick exit than by any actual deliberations by Yahoo or Microsoft. The software giant, which only last year spent the most it has ever put into an acquisition with the $6 billion purchase of aQuantive, seems unlikely to put up the upwards of $27 billion it would take to buy Yahoo. Such a deal would also carry big risks, as the merged company would likely lose even more ground to Google in the time it would take to integrate Yahoo's and Microsoft's operations and businesses.

Double down. In an impassioned call on the blog GigaOm on Jan. 22, Mitra advised Yahoo to forget about downsizing and "please put up a fight." She said Yahoo has an unmatched opportunity on the emerging new Web, which she views as being dominated by highly specialized services. So, she advises, Yahoo should consider buying jobs site Monster.com (MNST) to complement Yahoo HotJobs, photo service Shutterfly to go with Yahoo's Flickr site, travel sites such as Expedia (EXPE) or Priceline (PCLN) and more, to fill out the portal's strengths in these specialized markets.

Problem is, Yahoo doesn't seem to have the resources to get this aggressive. Its cash position of $2.2 billion trails laughably behind Google's $13 billion stash and Microsoft's $19 billion trove. And the stock market clearly isn't valuing Yahoo's shares enough to make them a powerful currency for deals. As much as Yang may want to follow this path, it's unlikely he can.

There's little doubt that very soon, Yahoo will need to focus on its potential advantages and jettison more operations that aren't gaining traction. It has already started to do that, by buying ad firms Right Media and BlueLithium and deemphasizing flagging operations such as music, auctions, and third-tier social networking efforts like Yahoo 360.

No doubt more will be announced or at least hinted at during the Jan. 29 earnings update. Maybe there will be a significant layoff that will cut the fat or the old guard holding Yahoo back. Perhaps there's a remote possibility of something more daring on the search front. But more than anything else, investors, partners, and employees will be looking to Yang for one thing: a clear, unmistakable statement about Yahoo's strategic direction.

Hof is BusinessWeek's Silicon Valley bureau chief .