Microsoft and Yahoo: Now what?

time for Microsoft to change course and stop vowing to catch Google in search advertising. "That game is over and Google won," Li said.

However, by focusing on unifying display advertising, such as banner ads, with search advertising in a single platform, Microsoft, as well as Yahoo, could compete more effectively against Google, whose display advertising business is very small, she said. The synergy between search and display ads can make both formats significantly more effective and valuable to advertisers, Li said.

While Google has said that it will make significant progress in display ads now that it owns DoubleClick, Li isn't so sure. "Google doesn't have a good feel for the display ad market, which is an old network of agencies and creative types and media people who all know each other from ages ago," she said. "Yahoo and Microsoft really had to earn their way into that space over the past decade."

Since it obviously has the cash, Microsoft should go shopping for other companies that could give it some of the products, services and innovative technology it was hoping to get from Yahoo, said Gartner analyst Allen Weiner. "I'm looking for Microsoft to get aggressive with a buying spree," he said in a phone interview.

In an April 25 report, Moran and his colleague Kevin Buttigieg [cq] listed some companies that, if the Yahoo acquisition failed, might make sense for Microsoft to consider acquiring: Time Warner's AOL, News Corp.'s Fox Interactive (which includes MySpace), ValueClick, CNet and Facebook.

For his part, Weiner thinks we might see Microsoft pursue an acquisition of a video platform provider like Brightcove and ExtendMedia, and an online presence company to complement its strong webmail and IM services like Twitter.

But whatever it does, Microsoft should take some concrete steps to move on in the public eye. "I think Microsoft should do something quickly to show the world that Yahoo bid wasn't a setback," Weiner said.