Updated below after the jump, response from CNET

The ultimate dis: CNET (NSDQ: CNET) is stuck in Web 1.0. That’s according to activist investor Jana Partners in a new white paper explaining its turnaround plan for the company. In it, the investor group argues that CNET’s existing management has presided over a significant destruction of shareholder value and that the backgrounds of CEO Neil Ashe and CFO Zander Lurie, as well as its current board of directors, are ill-suited to guide the company as it turns itself around: “We believe CNET’s Board and senior management lack the industry-specific experience and expertise to stop this shareholder value destruction.”

The basic argument starts by asking shareholders the following question: “Starting with a clean slate in creating CNET’s Board, would you choose the current directors, who have presided over so much shareholder value destruction without demonstrating any urgency until we called for change, or would you add the collective experience and expertise our nominees would bring?” Some highlights:

-- What CNET has done wrong (in Jana’s eyes): The Webshots.com acquisition is held up as an example of bad strategic thinking, as the company didn’t catch on to the trend of free online photo sharing, ultimately leading the sale of the unit at a loss. The report also slams the launch of BNET.com—the new B2B-focused site that Ashe has touted as a success—claiming that it hasn’t been able to grow organically, but instead has grown with high traffic acquisition costs.

-- What’s needed: Not 120 layoffs. The issue, argues Jana, isn’t costs. This is just a near-term band-aid. Rather the company needs a totally new strategic direction that acknowledge the changing trends in the industry. With regards to personnel, the report argues that Neil Ashe, with his PE background, isn’t the right man for the job. And it reiterates that its board nominees will bring greater web experience than the current sitting directors. As for some specific strategic changes:

-- A new focus on monetization: The company should ditch its in-house ad-serving platform and instead hook up with an outside service, offering the potential for better yield management. Specifically it should connect with aQuantive, DoubleClick, Platform A, or others.
-- Build an ad network: This is of course a super-trendy idea, and the report slams the company for not having explored the idea of building its own ad network sooner.
-- SEO: Jana says CNET isn’t doing enough yet on this.
-- Scoail media: Also a very trendy one. The report again cites the Webshots acquisition as an example of how CNET failed to exploit social media to get the most benefit of the asset.

-- CNET’s response: Jana sees CNET’s response to its overtures as indicative of what’s wrong with management. Rather than think about what’s best for shareholders, according to the firm, CNET sees itself as battling Jana, while mischaracterizing the firm’s attempts as a “takeover.” Also, CNET offered a settlement, which hasn’t been previously reported: a board seat to proposed nominee Jon Miller, and it the hiring of an outside SEO consultant chosen by Jana. But this proposal was rejected by Jana as insufficient. What’s more, the firm thinks it’s silly that CNET would bring in an SEO expert as part of a settlement, but not something that it would do in the normal course of business. Jana also says that an unidentified CNET directors has suggested holding confidential talks, outside the public’s glare and that Jana has agreed to it. So far, however, CNET itself has not agreed to hold such talks.

-- The upside: With just an improvement in the revenue optimization, Jana believes CNET could get as much as a 20 percent top-line boost to its 2009 revenues. In turn, this could lead to a 49 percent increase in EBITDA, holding everything else study. Ultimately, the report argues that CNET could easily be worth $11 per share, up from its current price closer to $7.

-- CNET shares are currently up around 2 percent.

Full Report (.pdf)

Update: CNET is out with a characteristically mild response, though it says it will fully review the white paper and figure out which of its suggestions are in the best interest of shareholders. But it claims that the report also contains various misstatements that mislead and that it will come out with a full rebuttal ‘in due course’. Release.