Microsoft blinked.

Software giant Microsoft Corp. of Redmond, Wash., and Intuit Inc. yesterday said they had abandoned plans to carry out what would have been the biggest merger in the software industry.

Executives from Microsoft said they were worried that they faced months of distracting litigation with the U.S. Department of Justice, which announced three weeks ago it would fight the deal.

Microsoft officials said they decided Friday to abandon their plans to pay about $2 billion to acquire Intuit, based in Menlo Park, Calif. Microsoft agreed to pay $46.2 million to Intuit for forfeiting the deal.

Helping clinch the decision was a memo filed Friday by the Justice Department, which requested the date of the antitrust trial be postponed for two or three weeks.

Calculating just how long the case might drag on was "the thing that brought us to the decision not to continue forward," said Bill Gates, chairman of Microsoft, in a telephone conference.

"We're disappointed not to be able to combine Intuit and Microsoft on a timely basis," Gates said, with a note of resignation. "It would have been a great combination."

Intuit's chairman, Scott Cook, said in a telephone interview that he had been ready to see the case through to its conclusion. "We haven't noticed . . . negative effects" on Intuit, during the seven months that the government has been investigating the deal. "It's true we couldn't team up with Microsoft yet but we never said that we needed that to do our jobs," Cook said.

The conclusion to the Microsoft-Intuit deal was hailed by many in the industry as a victory for the Justice Department and further evidence that competition in the emerging area of electronic banking will be fierce. Executives from the two companies maintained, however, that together they could have put better, less expensive products on the market more swiftly.

Microsoft and Intuit announced their plans to team up in October. Microsoft, which has more than $5 billion in annual revenue, dwarfs Intuit, which last year posted $194 million in revenue. But in the area of personal finance software, Intuit had raced ahead of Microsoft.

According to market statistics cited by the Justice Department in its complaint against the merger, Intuit's "Quicken" program commands an impressive 69 percent of the market, while Microsoft's "Money" has 22 percent.

Yet Microsoft's interest in Intuit went far beyond the market for personal finance software. Software companies, as well as banks and credit card companies, are speeding to get into the still nascent markets of "on-line banking," and "electronic commerce." Although these markets have yet to be defined, businesses hope consumers will use their personal computers and modems to do everything from tapping into their bank accounts to buying goods and services with a click of a computer mouse.

By teaming up with Intuit, which has been focusing on this emerging market, Microsoft had hoped to leapfrog over a host of other organizations, principally banks, that it believed would become important players in the market.

Microsoft had hoped to skirt criticism that the deal would hurt competition by pledging to turn over its "Money" product to Novell, the No. 2 software company in the industry. But on April 27, the Justice Department rejected that solution, opting instead to block the Intuit and Microsoft deal in court.

Ironically, both those favoring and opposing the deal seemed relieved that the companies would be set free to build products -- rather than remaining entangled in a lengthy and complex legal tussle. "I'm glad to see that Microsoft walked away," said Steve Salop, a professor at Georgetown University Law School, who has been collaborating with the Justice Department. "The case would have been a diversion from its main task, which is to compete aggressively in a way that will lead to lower prices and consumer benefits."

Gates pledged that Microsoft would "vigorously" pursue opportunities both in personal finance software and in electronic commerce. "In the next few months we'll really gather our thoughts because our focus was completely on the deal. The decision we took {Friday} really changed our direction."

It's still a matter of debate whether consumers ultimately will be better or worse off by having Microsoft and Intuit competing for business -- the question that would have been at the heart of the trial.

Steve Sunshine, a deputy assistant attorney general in Justice, asserted that the government's investigation had indicated consumers received lower prices and better products when Microsoft and Intuit competed head-to-head. "This shows how the antitrust laws benefit the American consumers -- by resulting low prices and better products," he said.

Cook of Intuit said that he doubted prices would rise, but they may decline more slowly. "By getting our two companies together, we would have had a faster pace of new products and faster decline of prices," he said.

And even Cook conceded that cheers broke out in some of the meetings at Intuit when employees learned that the corporate marriage with Microsoft was off. As Cook put it, his colleagues were shouting, "Now, let's go out and partner with the world!"

Reactions from the software industry were largely jubilant.

"I'm actually very happy," said Esther Dyson, an industry analyst who runs EDVenture Holdings in New York. "I think it's great for Intuit and for the marketplace as a whole." Dyson pointed out that by wooing Intuit, Microsoft significantly boosted the personal-finance maker's credibility, particularly in the banking industry.

From a banking perspective, Dyson said, "the notion of teaming with Intuit alone became a lot more appealing."

At the same time, Microsoft may enjoy an unanticipated public relations glow, she suggested. The deal's demise makes the software leader look "a little less nasty, a little less invincible. . . . They'll be perceived as more humble," she predicted.

Still, there were pessimists as well. "This is probably not good for the industry," said Gordon Eubanks, chief executive of software-maker Symantec in Cupertino, Calif. "The industry needs to be able to consolidate and we need to find a way to make that happen."

After the Justice Department filed its suit against Microsoft, the software company and the government had some discussions about a possible settlement. "They offered us a bunch of band-aid restrictions on what Microsoft and Intuit would do after the merger," Sunshine said. "We had a very fundamental concern about combining Quicken with Microsoft. Short of preventing that from happening, we didn't see a solution."

The Justice Department, said Microsoft's general counsel, William Neukom, "couldn't discuss a settlement in any reasonable terms that made sense to us."

Yesterday, officials at Justice, which has had its own string of antitrust deals gone awry, were elated at the news of the end of the Microsoft-Intuit deal. "We achieved today 100 percent of the results that we could have possibly attained from the court," Sunshine said.

He would not comment on whether the Justice Department would now take a closer look at any other Microsoft practices, including complaints from on-line companies about how Microsoft is planning to distribute the software for tapping into the "Microsoft Network" via its forthcoming operating system, Windows 95.

Still pending before the federal Court of Appeals is the antitrust consent decree negotiated between the government and Microsoft in July.

Don Baker, a Washington-based lawyer who is consulting for the on-line company, CompuServe Inc., described the broken merger as a coup for the Justice Department. "They get marks for a thorough investigation and they get marks for courage on the trial front," he said. "So I think Anne {Bingaman} ought to think it's a good showing." Bingaman is head of the antitrust division at Justice.

Although the legal wrestling match clearly did not go the way Microsoft and Intuit had hoped, they remained upbeat about their future -- albeit separate -- prospects in electronic commerce.

"I have some regrets about not being able to work with Bill Gates," Cook said, "but shoot, the things that most excite me are the effects {our products} have on people."