Disclaimer #1: My job is technology evangelist for Yahoo! So refuting this is probably the definition of my job.
Disclaimer #2: This is my own completely unsanctioned opinion and does not necessarily represent Yahoo!'s views or opinions.
I'm obviously biased here, but I have a great respect for HN and PG so I wanted to talk about this.
PG accuses Yahoo! of two things right at the very top of the article and the rest of the article is more details on those things. They are a) access to easy money removed Yahoo!'s desire to find the next big thing b) ambivalence about being a technology company.
I'm not going to substantially repute a) because I think it is true. However, I think it's a pretty big ask to expect someone being successful to see past the current success to the next big win. PG admit's neither he nor Larry and Sergey really understood how big search was. As such I feel it's a slightly ad-homonym attack to blame Yahoo! for not being Google. We didn't win the big prize, but we also aren't AOL, Lycos or Ask.com either. Just because we didn't become Google doesn't mean Yahoo! has failed.
As an engineer though PG's second point strikes me as deeply unfair. I joined Yahoo! in 2004 in the UK. The team I joined was exceptional. For a team of 30 people there were about 15 book authored by the team. I personally had written W3C standards and multi Web Standards Project founders littered the team. The rest of the team were coders, much better than I.
Now I work in US for the developer network and I get to see the vast range of technologies that Yahoo! does from Y! Research through to the engineering teams. There is a reason 'Hack Days' started here, because the engineers here are passionate about those technologies and playing with them.
I'm also on the Yahoo! Open Source Working Group and I see all the open source we put out of the door. We should probably do a better job of telling people how much, but it's a lot more than you think. I find it troubling that PG who left the company 10 years ago, can now, accuse me and my colleagues of apathy about technology when it's so fundamental to what Yahoo! does.
I think what PG is really talking to is two things. Firstly, it's important for a company to have a 'core competency'. Describing ourselves as a media company makes it clear to our investors and our employees the field of play. Secondly, the ease at which a cash-cow, such as Google's search war chest, allows them to make their presence felt in the technology community reminds people about all the things they touch. I am both proud an envious that Google have the freedom to do that, but again, it doesn't mean Yahoo! failed because we don't.