10 Steps Yahoo! Must Take to Succeed

NEW YORK ( TheStreet) -- With a new board in place with Dan Loeb, and an "interim" CEO who is well-liked internally and externally in Ross Levinsohn, Yahoo! ( YHOO) seems ready to start taking a number of steps to unlock value.

The laundry list basically breaks down into two parts: internal fixes and external ones.
Yahoo
With a new board and interim CEO in place, Yahoo! seems ready to take steps toward unlocking value.

Internally:

1. Reiterate Yahoo's core business mission. Ross is the guy who came up with the line that Yahoo was "the premier digital media company" to finally answer the mission statement question. He needs to underline that and make it clear to advertisers, employees and investors.

2. Focus. Scott Thompson was right that the company can't be into everything. It clearly has to make hard choices on how it's going to spend resources. They can't be spread a mile wide and an inch deep. This means only doing stuff that Yahoo can be really good at and differentiated from Google ( GOOG) and Facebook.

3. Reconnect with advertisers. Arguably, the best thing Yahoo has done in the past year has been its ABC News partnership and launch of original content such as with Katie Couric. Levinsohn has to go back to Madison Avenue and show them that Yahoo will be their best partner. This means launching premium, immersive ad campaigns that are customized and tied around interesting original video.

4. Focus on premium content that's unique. ABC worked. Yahoo needs to do more deals like this, but it has to be smart. These kinds of deals can be very expensive and Yahoo doesn't have unlimited capital. Premium content can be a differentiator for Yahoo, even with YouTube trying to build itself up.

5. Pursue user-generated content. Assuming Yahoo gets some capital back for its Asian stakes and/or a patent agreement with Facebook, a lot of that will go towards stock buybacks and possibly a special dividend to shareholders. Some of it should be used to bolster the core business and allowing it to buy some interesting companies. User-generated content would be a great fit for Yahoo. It lends itself to mobile and is different from Google and Facebook. Companies such as Yelp ( YELP), Zillow ( Z), HomeAway ( AWAY) and TripAdvisor ( TRIP) are all a good fit -- though getting more expensive by the day.

6. Rework the Microsoft (MSFT) deal. The 2-year old search deal is not really working for either side at the moment. It needs to be reworked. On the positive side, search actually did better than expected last quarter, due to better "user experience" on Yahoo's side leading to higher click-through rates.

Externally:

1. Strengthen the Alibaba Group relationship. There isn't a more important relationship for Yahoo. There just isn't. It owns a 40% stake in a company that will likely be the first Chinese internet company valued at $100 billion. It also has a chance to grow significantly beyond that. There's no reason to sell all its stake now, but there is logic to selling part of it back to Alibaba now, to help its management feel more incentivized before doing an IPO. An IPO would serve the interests of Yahoo and Facebook.

2. Find a win-win with Facebook. Yahoo shouldn't fold its tent with Facebook with Thompson out, but there's clearly an opportunity to go back to the table with Mark Zuckerberg and Sandberg and find a solution that works for both sides. I'm sure Michael Wolf -- from Yahoo's board and an adviser to Zuckerberg -- and John Hayes -- also on Yahoo's board and starring in Facebook's IPO roadshow video -- can help here.

3. Monetize the Yahoo Japan stake. Yahoo's stake in Yahoo Japan is $6.4 billion. It seems like Softbank doesn't think it should pay that full amount because it's the only buyer. The two sides need to come to some sort of agreement. It's time to bring that money back to Sunnyvale so it can be used.

4. Raise debt and use excess cash to do a massive stock buyback and possibly small special dividend. Here's where the "financial engineering" from Dan Loeb and Harry Wilson can be especially helpful. There are 1.2 billion shares outstanding of Yahoo. Using roughly $8 billion in proceeds from asset sales could help shrink this share count by a third, to 800 million shares outstanding. That means each increment penny per share in earnings is worth 33% more.

These are all achievable actions. It's not rocket science.

It's not going to lead to some overnight 43% gain such as what AOL ( AOL) saw after its patent deal with Microsoft. But these kinds of actions -- taken over the next year -- will help rebuild the stock price, brick by brick, closer to the high $20s.
At the time of publication, Eric Jackson was long YHOO and YELP.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at eric.jackson@thestreet.com.