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For some time now, slowing revenue growth at Yahoo! (YHOO) has been a source of concern for its investors. The primary culprit, of course, is Google (GOOG), which has become enormously popular, thanks to better search capabilities and a myriad of free, useful tools. Over time, it has taken a lion’s share of the market – more than 80% by some estimates. And this is reflected in Yahoo!’s numbers. The company will probably bring in a little more than $6.5 billion in revenues this year, only 1.5% higher than the level reached four years ago, before the recession began. Google, on the other hand, has enjoyed growth of nearly 160% over that time frame and is expected to pull in nearly $28 billion in revenues in 2010. Its rate of expansion has been an impressive feet, since its business, like Yahoo!’s, still depends primarily on advertising, which has been hurt throughout the recent economic downturn and is still depressed.

Other areas of Yahoo!’s business are suffering, too. Fee revenues have been on the decline and will likely continue in that direction. This operation, which includes services for small businesses, premium e-mail, sports, photos, games, personals, and music, has contracted 11% so far this year. It has become increasingly difficult to convince users to pay for these types of services, so the company has had to offer many for free and instead generate receipts from revenue-sharing arrangements, which are less lucrative.

So it seems that Yahoo!, once an innovator and trailblazer, has become a minor player. But time is on the company’s side. The Internet is young and evolving quickly. Today’s leaders are not assured of continued success.  As such, Yahoo! has the potential to return to its former glory if it plays its cards right.

In recent quarters, new management has been busy trying to get the company back in the game. For starters, it folded its search business, which is now outsourced to Microsoft (MSFT - Free Analyst Report). And taking its cue from Google, Yahoo! substantially slimmed down the once cluttered home page and transformed it to a simple, more elegant presentation that loads quickly.

And it has made other changes that allow for extra personalization, including connections with many third-party sites, such as Facebook and eBay (EBAY), that have generally made the site better. There have been feature upgrades to such services as Video, Music, Finance, and Mail. And these services are now better integrated with search results. These moves have attracted more visitors and increased page views. What’s more, they have led to the users feeling more engaged and consequently they are spending more time on the Yahoo! network, which is good for the ad business.

And to that end, the company recently purchased Associated Content, which boasts some 400,000 article and multimedia contributors that will be brought into the fold, substantially increasing the volume of content on the site at the rate of 50,000 articles a month, the company figures. It’s a pay-for model, but rates are low: typically $5-$20 per piece.

Not surprisingly, a quick sampling reveals that most appear to be amateur writers. What they lack in experience, though, they seem to make up with enthusiasm. To the content’s benefit, contributors are likely more apt to write about subjects they care about and have personally experienced. And the shear volume of contributors allows for a very wide range of highly specific topics, which traditional media cannot manage (there are only so many writers the latter can pay at market rates, so content topics must necessarily be broad).

Still, we figure Yahoo! likely will have to put rigorous editorial controls in place. On balance, though, this move should raise the number of daily page views, which should increase click-through rates. Additionally, it provides still another method (in addition to a number of previous innovations) for Yahoo! to offer advertisers more highly defined target audiences, which is valuable to marketers and, therefore, a more lucrative business.

Acquisitions will likely remain an important part of the growth strategy, which should benefit the company since it has made better M&A decisions in recent years (for the most part, anyway; we still believe it should have taken Microsoft’s $34-a-share buyout offer). In the future, purchases should provide opportunities to improve on the company's technology and human capital pool or help it to expand into new or underrepresented markets.

Even with these positive changes, however, we still feel there is a lack of vision. In order to be successful against the likes of Google, which, despite its size still behaves much like a start-up, Yahoo! needs a clearer sense of where it’s going. We believe this can be attained by taking another cue from its main rival: Hire talented software engineers, a major source of innovation.