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The potential marriage of Yahoo (YHOO) and Microsoft (MSFT) is over. Check out the aftermath coverage here, here and here. I am not going to paste the entire letter that Microsoft's Ballmer sent to Yahoo's Yang; you can read it on the Microsoft press site. The net result is that the deal isn't going through (at least for now) and so now the next batch of speculation begins -- what will Microsoft do and what will Yahoo do?

I've said for years now (many years before CN) that Yahoo and AOL (TWX) needed to merge. It would have been a mega-merger years ago but would still be huge even today. I touched on it a year ago on CN. Both AOL and Yahoo are consumer-facing internet companies. Microsoft is not, and to try to just plug into Yahoo would be very difficult. While there is a good bit of overlap with AOL and Yahoo, the ability to maximize the mainstream is the key.

AOL is looking to launch a large number of content sites this year. They have Platform-A for advertising and the number one IM client out there. Don't forget Bebo as well. Yahoo brings some semi-powerful social apps and a huge content network along with some leading Web apps.

Yahoo working with Google (GOOG) is not a smart strategic move for Yahoo in the long-term. Sure it might boost their bottom line today, but it will hurt their consumer and business confidence levels over time.

Now let's make it happen.

Source: I Still Think Yahoo Should Merge with AOL