Microsoft has officially dropped it’s bid to buy Yahoo. It took quite a long time for Microsoft to see the light and it may only have been Yahoo holding out for a higher price that finally killed the deal.

I was quite skeptical that this deal wood be good for Microsoft or Yahoo, and believe the major beneficiary of it would have been Google. Neither Microsoft or Yahoo has a product that effectively competes with Google’s search and advertising products. Combining two huge computer systems or choosing between the two would have tied them up in knots for years.

Yahoo has some great potential if they can truly integrate their social assets and open them up as a new type of application platform. Perhaps the Microsoft bid was the spur that Yahoo needed to get it’s act together.

Yahoo’s shares will drop on Monday and Yahoo will be sued by shareholders who are frustrated by their inability to close a deal. It will be interesting to see if Yahoo continues to pursue the Google deal and if Microsoft emerges as competition for an AOL deal.

If Yahoo doesn’t take this chance and start delivering performance, then Microsoft or someone else will be back and buy them for much less than the $37 per share Yahoo wanted to agree to the deal.

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