For everyone who considers Microsoft Corp. [MSFT] the victor for walking away from Yahoo! Inc. [YHOO] rather than raise its bid, many others are focused on the multiple challenges the software giant faces, now that it has apparently eliminated one of the few partners that would have given it a decent chance to compete against Google Inc. [GOOG]. While Yahoo! CEO Jerry Yang risks losing his job over the handling of the merger talks that left his company's stock vulnerable to a steep fall, Microsoft CEO Steve Ballmer will come under pressure to develop an alternative Internet strategy, at a time the company is facing numerous challenges from its core software operations.

In a Wall Street Journal interview on Friday, Ballmer himself conceded Microsoft's MSN online business did not have the scale to take on Google, and said there were only a handful of businesses that had that kind of scale. "Look at all the properties on the Internet -- everything on the Internet. There's really only five or six that really have any scale," Ballmer said, citing News Corp.'s [NWS] Facebook Inc., Google, Time Warner Inc.'s [TWX] AOL as well as Yahoo!.

This Marketwatch story stresses how the collapse of the Yahoo! deal puts Ballmer "under intense pressure to find a fix for Microsoft's unprofitable online services unit," while Valleywag goes so far as to suggest that Ballmer could lose his job for what it calls his "dithering approach" to the merger.

A more likely outcome is that Ballmer will keep his job, but without the Yahoo! talks serving as a distraction, he will come under fire on multiple fronts. "Windows needs work. Vista has image problems. The operating system is under attack from multiple fronts and needs to become more lightweight and modular. Windows is what made Microsoft and there are serious questions about its future," notes ZDNet, in a piece that concludes abandoning Yahoo! was probably a good idea, if only for eliminating one distraction for the company.

And as far as Yahoo! was a distraction, that distraction may not be gone for long. Plenty of pundits on Sunday said it was not game over but only round one in the merger talks, with Microsoft still intent on acquiring this property it badly needs.

"It's like a couple trying to break up," one analyst explained in the Marketwatch story. "They say they're done, but you know they will get back together." - Andrea Orr

See story from Marketwatch.com
See post from Valleywag.com
See post from ZDNet.com
See post from TechConfidential.com