Microsoft's recent failed bid for Yahoo has sent shockwaves through the industry. What will this mean for the two companies as well as Google's position in the market?

On May 3rd Steve Ballmer, CEO of Microsoft, sent his Yahoo counterpart Jerry Yang, a letter stating that he'd decided to withdraw the $44 billion previously being offered for his company.

This was an act that shocked many and surprised Wall Street analysts. It had been assumed that Bullmer wouldn't let this one slip away and that Microsoft was ready to make a major play in their ongoing battle to catch Google. So what does this actually mean for Microsoft and Yahoo? Who can walk away from this failed deal wiser and stronger -- if at all?

Microsoft are now faced with the daunting challenge (even for a behemoth of their magnitude) of having to tackle Google without the undoubted benefits that Yahoo's experience and services would have brought to the table. They are left needing to reinvent themselves and tackle Google in its strongest areas -- search, services and advertising. A seriously unenviable task, it could be argued!

Microsoft certainly have the talent and the expertise to tackle the most demanding of challenges but will it be enough for them just to plough resources into new technology when what is most needed, many argue, is a complete reinvention of their overall web business? They need to drag their products and services into the 21st century -- right now.

For many at Yahoo, however, this failed bid comes as a huge relief as it allows them the opportunity to reassert their independence in the search landscape and erase the mistakes of the past few years by driving forward greater coherence and relevance to users again. Many at Yahoo are also relieved because integration into Microsoft would have undoubtedly been a turbulent and difficult business to undertake, with changes in openness and working attitudes perhaps inciting the greatest cultural upheavals. But is this wishful thinking?

'With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximise our potential to the benefit of our shareholders, employees, partners and users,' remarked Yang on Sunday evening's Yahoo blog. Positive words from a man who then had to bear witness to a 19 per cent price crash in the value of Yahoo shares the very next day!

The result leaves Yang in a highly precarious position and his days could well be numbered if he fails to come up with an operable alternative strategy -- fast.

For Google, it means yet another moment of jubilation as they again face down what little opposition they have in the virtual universe. Instead of one serious competitor facing them off, they are still confronted with two 'ankle biters', with small web footprints and not enough vision to usurp them anytime in the near future.

Only last Wednesday it was revealed that Microsoft had been making approaches to Facebook, in which they already own a 1.6 per cent stake -- a clear sign that Ballmer is facing major pressure to act now and tackle the Google express train head on, whatever it takes. Some have even argued that Microsoft may try to patch up their differences with Yahoo, such is the necessity that they make ground on Google in the next year. Wall Street fund manager Bill Miller recently remarked on Bloomberg, 'I'm more puzzled by Microsoft's not going up to $37 [per share] than Yahoo's wanting to walk away.'

So, there could be time yet for Microsoft to take the plunge required and forge an alliance with a partner that just might help them to combat Google's supremacy.

It would be fascinating to learn what you think about this failed deal and about the implications it has for the industry overall. I'd be delighted to review your own responses and opinions and you can post them to me here.

Gavin Sutcliffe is editorial and content manager, iMedia Connection U.K.