If Microsoft is fixated on the Web advertising business, other options might include Specific Media or ValueClick. Those two companies operate the largest independent online ad networks in the U.S.

Or if it really wants to get into social networking in a bad way, it could consider trying to entice LinkedIn to agree to a buyout. The professional networking site has 20 million members, and a deal with Microsoft likely would trigger less user backlash than one between the software vendor and MySpace would. On the other hand, LinkedIn CEO Dan Nye has said the company is aiming for an IPO next year and isn't interested in a buyout.

2) Focus internally. Microsoft's biggest online weakness is in the core Web search market. Its Live Search engine is used for just 9 percent of searches by Internet users in the U.S., leaving it far behind Google's 60 percent share, according to comScore.

Since no acquisition apart from buying Yahoo would quickly boost Microsoft's search position, "their best priority for now would be to work on innovating around their own search business," said Forrester analyst Shar VanBoskirk. "I'd stay out of the acquisition game for awhile and spend my money on my own R&D."

Although that approach has left Microsoft floundering in search, it has worked in other areas. A case in point: Microsoft was rebuffed by federal regulators when it tried to buy Intuit for its Quicken family of personal finance software in the mid-1990s. But afterwards, Microsoft "steadily improved" its own Money application, said Burton Group analyst Guy Creese.

Microsoft may need to look inward and rethink a lot more than just its search strategy -- much like IBM remade itself in the mid-1990s.

Colony wrote in his blog post that Ballmer "unintentionally dodged a bullet" when he withdrew the offer for Yahoo. What's really needed at Microsoft, Colony added, isn't a quick-fix acquisition; instead, the company has to change its culture, software development processes, and financial models in order to become a true online software vendor. If it doesn't, Colony warned, "Google is going to use its citadel of advertising to attack Microsoft's heart -- software."

3) Swoop back in and grab Yahoo after all. Microsoft is distancing itself from the proposed acquisition of Yahoo, which is no big surprise. But there's a possibility that the software vendor's public walkaway from its offer may ultimately end up being a high-risk but successful negotiating tactic.

The fact that as of this afternoon, Yahoo's stock price was off by only 11 percent from where it was prior to Microsoft's pullout -- and that it remains well above the price levels from before Microsoft launched its buyout bid on Feb. 1 -- is being attributed partly to investors remaining hopeful about a deal between the two companies.

Perhaps backtracking a bit under pressure from unhappy shareholders, Yahoo CEO Jerry Yang told multiple media outlets this week that a sale of the online services company remained a possibility if the purchase price was right.

But Creese noted that Yahoo needs to meet its financial targets over the next few months. "If it doesn't," he said, "Microsoft may be back with a lower offer price."