What strategy should Yahoo adopt in order to counter the competition
from Google and MSN?

Google clearly outperforms yahoo on the technical aspects. 
MSN has more capital but bad service.

Yahoo directors in a recent interview have expressed their commitment
to customers. I think that's what will prevail in the end, making a
giant all emcompassing portal personally servicing different customer
niches.

I agree with yiferic.  Google does seem technologically advanced.  The
thing Yahoo has going is their wide array of services.  They have had
Y! email, messenger, personals, music, finance, fantasy sports,
shopping...  all for years.  They built an internet empire long ago
and it's still very much used.

Google moved in very quickly dominating the search engine, but Google
has been (in my oppinion) very slow to compete on other levels of
internet marketing.  I think if Yahoo advertises their many services
more (perhaps TV and magazine ads) they could keep their market share
huge in that respect even as Google tries to move in on their other
markets.  This large market share for various services does of course
bring many people to their search engine as well (name brand
recognition).