Microsoft finally withdrew itself from the brink of madness yesterday by formally withdrawing its proposal to purchase Yahoo, a conclusion which always seemed the likely one but which puts an end to nearly three months of fevered speculation and entertainment in the blogosphere.

After upping its bid to $33 per share, Microsoft apparently concluded that a protracted takeover battle (which had been implicitly threatened all along) wasn't worth the effort and concluded negotiations with a rather whiny parting shot from Steve Ballmer complaining that the "poison pill" concocted by Yahoo to outsource internet advertising to Google did, in fact, work as intended to drive Microsoft away.

This may, as Henry Blodget points out, be a temporary state of affairs; Yahoo stock is almost certain to take a hit in the wake of this withdrawal and Microsoft may have an easier go at a lower price in the next six months. If Ballmer is being straight about the Google arrangement scuttling the deal, then it won't matter... but if this is just a negotiating ploy, we could be in for more news soon on the subject. It's also possible that someone finally got through to Ballmer that the acquisition was always a stupid move and the price and Google deal are just face-saving excuses to explain why he didn't take things to the mat.

In any event, I think this was possibly the second best possible outcome for Microsoft (and Microsoft customers, for that matter)... the best being, of course, never having wasted three months on the debacle in the first place. The company retains the enormous amount of cash it was about to dump into a money pit for more likely investments, and may, as Ina Fried speculates, use it to acquire some smaller individual companies which have the capabilities Microsoft was hoping to acquire with Yahoo. The integration process will be easier with more, smaller companies, however, and the price of failure much lower, making the overall approach both faster and more prudent.

For Yahoo, it's more difficult to say what this outcome means, but on the other hand, who cares?