This article originally appeared in the July/August issue of INTERNET TELEPHONY.

Years back I was at a conference with a consultant who worked at Yahoo and told him his company needed to take on Google (News - Alert) more directly, and he was told, “That is not the Yahoo way.”

I still remember the dumfounded feeling I had when I heard this ridiculous comment. We all know that Yahoo is a company with outstanding assets but with major internal problems. CEOs seem to be ousted annually; the company is behind in just about every market it invented; and even with all its traffic, it seems to be all about yesterday’s Internet.

There are lots of stories about the company’s incompetence – one past high-level exec detailed the situation at a TMC (News - Alert) conference (at the person’s request I won’t share more detail), and his explanation of the corporate politics remind me more of a sitcom than a company looking to win.

Politics are nothing new, every company has them. Egos are fragile things, and people want to amass more power. But when a company lets ego and politics trump winning, they are in for trouble. Moreover, when that trouble comes from Google, Facebook (News - Alert) and a slew of new startups and your company is rowing with one oar, you are essentially screwed.

And then there are acquisitions. Yahoo made a bunch of them about a decade ago, getting ready to position itself as the leader of the next generation of Internet technology. But the company so screwed this up that you could write a business encyclopedia about what you shouldn’t do in an M&A situation.

Nadji Tehrani, my father and founder of the company where I am CEO – TMC, often says it is better to be first than best. His premise is no one remembers the second person to cross the Atlantic Ocean or to win the Triple Crown, etc. And because Yahoo was the first company to index the Internet, the company is still with us. Otherwise, it would have likely become Pets.com 2.0.

While much of the world is focused on the company’s ouster of its CEO over resume-gate, what they should be reading is about how the company took the last eight years or so to purchase an awesome company, Flickr, and then absolutely destroyed it. Matt Honan details how the leading web portal company did virtually everything it could to ensure it wasn’t successful as the web became social.

First of all, Yahoo continued to buy products built by user communities without caring about the actual communities. User-generated content is a treasure. The cost to the hosting company is merely storage, and if you can monetize this content– and certainly this was very possible in the middle of the last decade, you ideally want to keep the flow going by keeping users happy. But Yahoo made changes to Flickr that infuriated users, causing them to flee.

Shockingly (assuming you are new to Yahoo horror stories), when Yahoo managers were told about this potential problem they seemed to not care.

Moreover, because Flickr didn’t generate tremendous revenue compared to other Yahoo divisions, it was starved of resources and instead of being allowed to focus on innovation it was forced to concentrate of getting its service to work better with Yahoo. In other words, innovation was trumped by integration.

But still, the potential exists for Yahoo to integrate its products more effectively to become the Facebook competitor the market likely wants. But this would require the company to divide up into smaller teams with some sort of integration strategy that is loosely coupled.

Moreover, Yahoo needs more engineering control. This is something I have never written – I am an engineer and putting most of us in charge of product design/execution is a disaster waiting to happen. But in Yahoo’s case the situation is so pathetic, having more of a techie-led approach to products and innovation would likely be far more successful than what is happening now.

Finally, what is the company’s mission– its raison d'être? We know it is a hodgepodge of sites that allow you to compare cars, check e-mail and news, etc. but the company needs a mission – not so much for the outside as the inside. Even a generic tagline like “Making the Web Better” would help discourage a manager who wants to use his power to kill mobile app features that users would appreciate.

Yahoo is not unlike a company such as Nortel (News - Alert), which also had a dominant position and made acquisitions that helped sink the company. Purchasing companies is very difficult to do correctly and requires resources to ensure you understand not just the integration of the business but how to have it grow potentially larger than the parent.

In other words, if you swallow a team of developers, marketers and product people and then remove their oxygen, how will you ever allow this team to achieve its full potential? You can’t invent the next big thing if you are scrambling to find an oxygen tank.