This is great. You need to start with foundational changes that positively impact the culture and morale of the staff. Providing free food is a good basic that should happen.

There needs to be a revitalization of the Yahoo staff if there is to be any success.

Then you take those thousands of reinspirired/invigorated people and point them at a problem.

Finding the right problem though is, well, the problem.

Personally, I have said several times here on HN that Yahoo should take YCombinator as their new directional model.

They should be seeking to foster startups in the valley VERY aggressively. Invest, incubate, incorporate.

Take the growth of the startup communities and incorporate their innovations into the Yahoo brand...