A source close to Yahoo's strategic planning recently complained to us that Yahoo has "a fundamental innovator's dilemma."

What he meant is that while Yahoo has flat traffic, flat revenues, and increasingly limited growth opportunities, it can't innovate it's way out of the problem with bold new products because it has to fund, protect, and iterate on "a big existing business that is, let's face it, very profitable" -- display advertising on Yahoo.com and the company's other media sites.

So while there is, at Yahoo, "a core group of people who still want [and] believe that Yahoo can change things," these product directors and line engineers increasingly find themselves working not for a tech company, but for a media company content to serve ad impressions against an already huge Web audience.

Right now, this "innovator's dilemma" is mostly a mild inconvenience that makes Yahoo a less fun place for Silicon Valley engineers and executives to work (which is why so many are quitting). But someday soon, it could kill the company.

That's because Yahoo's entire big, existing, profitable business is dependent on consumers continuing to use the Internet and the "Web" the way they are right now for the foreseeable future. That may be a bad bet.

Just ask Google, which is cranking out $25 billion a year on desktop search, but is scrambling to develop a mobile business anyway. Ask Apple, which used to just make Macs, but now calls itself a mobile devices maker. Or ask our source close to Yahoo who believes "the Web is on a verge of a tectonic shift" and that "the [Web] page as a dominate paradigm is going away."

Our source believes this upcoming "tectonic shift" presents an opportunity for Yahoo to "leverage and benefit from the next disruption." We agree. But first Yahoo has to solve its "innovator's dilemma."

Here are four possible solutions Yahoo CEO Carol Bartz and Yahoo's historically inept board of directors could pursue:

Seek a leveraged buyout lead by a large private equity firm such as KKR or Blackstone. In theory, this would allow Yahoo to ignore the quarter-by-quarter scrutiny that forces it to protect its display business above all else and re-invest in innovation. To do it it, a PE firm would have to borrow about $30 billion. The problem is PE firms typically buy a company because they believe they can "strip mine" it down to a single, healthy business and then sell it back to the public as a more efficient machine. That doesn't sound a like a recipe for innovation to us. Finally, remember when Terra Firma acquired record label EMI in hopes of figuring out the Internet? That was a big nasty old bust.

Sell 20% or more of the company to a mid-stage private equity firm, such as Digital Sky Technologies, Elevation Partners, or whomever else Quincy Smith and CODE Advisers could con into the gig. The new part-owners could kick Carol upstairs into the chairmanship and bring in a product-oriented chief executive, who, unlike the last one (cofounder Jerry Yang) is also able to make decisions. The problem with this option is that it requires co-operation from Carol and the board. Also, it assumes shareholders will provide Yahoo some leash after the deal. The other problem is that the model to follow here is Palm, which brought on a ton of Apple execs after Elevation Partners invested. That experiment failed.

Buy Zynga and put Mark Pincus in charge. We've heard Facebook gamesmaker Zynga is cranking out $1 million of revenue a day, putting it at annual run rate well over $350 million selling virtual goods that make its games easier to play. That's ridiculous, and it's happening thanks to three factors:

Facebook's rapidly growing audience (over 200 million people check the site each day)

Consumers' willingness to pay small amounts of money to make the games they've been using for years to divert themselves slightly easier.

Zynga CEO Mark Pincus's relentless focus on building products that people will actually love to use. (Seriously, the guy will kill a product if there's any doubt about its popularity.)

None of those factors go away if Zynga merges with Yahoo. Yahoo has as much scale as Facebook, and its demographics align nicely with Zynga's. From the deal, Yahoo would get a product focused CEO, a toe-hold in the developing Facebook ecosystem, and -- here's the exciting part -- an overwhelming amount of immediate transactional volume in case it ever decided to launch a "Pay With Yahoo" product that could someday rival PayPal. The problem with this deal is that Zynga has plenty of money, little desire to sell, and patient investors.

Give up on innovation and merge with AOL. Limited innovation is only a dilemma if the company's future depends on innovation. It's a tech company problem. Maybe Yahoo is a media company. If that's the case, it needs to focus on increasing scale and cutting costs. The best and most immediate way to do that is to merge with AOL, keep the winning media properties from both sides, and cut all the redundant human resources between them (starting with ad sales). The best person to run this company is a champion salesman like current AOL CEO Tim Armstrong. Whomever's in charge of the Miley Cyrus empire at Disney wouldn't be a bad hire, either.

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