Failed Yahoo Talks Leave Google on Top

Yahoo might also seek to acquire AOL, Time Warner's Web unit, said Marianne Wolk, an analyst with Susquehanna Financial. So might Microsoft. And Google, which has a 5 percent stake in AOL, could try to enlarge its holdings in order to block a Microsoft or Yahoo takeover, Wolk said.

"We expect to see AOL emerge as the primary target in the race among the major players to reinforce and build their presence in the emerging high-growth branded ad market," Wolk said in a note to investors yesterday.

Microsoft is similarly facing questions from investors: Without Yahoo, how will the company bulk up its online business?

It could be done by acquiring other Web companies. In an interview last week, Microsoft chief executive Steve Ballmer said that few Internet companies have the size that Microsoft would need to get a quick boost for its market share in Internet advertising.

Among them, he mentioned social-networking start-up Facebook, AOL and MySpace, the social-networking service owned by News Corp.

While some analysts said Microsoft was right to walk away from the Yahoo deal because the price Yahoo was holding out for was too high, several said the tech titan must now formulate a new strategy before it falls too far behind as a Web company.

"It's hard not to be disappointed that one of the main ways to get the company to a very strong competitive stance seems to be non-negotiable," Pride said. "It's hard to say you're happy about things when the upside has been taken off the table."

Several analysts said a union of Microsoft and Yahoo might still come to pass, however.

With share prices slumping, Yahoo shareholders could force management to lower the company's asking price, allowing Ballmer to resurrect the deal.

"Microsoft may be using the crocodile strategy," said Todd Dagres, general partner at Spark Capital in Boston. "Rather than try to eat its prey while it's warm and tough, it's dragging it down to the bottom of the river, sticking it under a rock and eating it later."