Assuming Microsoft doesn’t take another run at Yahoo, what does it do now? I don’t love big mergers, but I understood why Microsoft wanted Yahoo. Yahoo was the best way for Microsoft to:

– Gain share in advertising fast
– Put its search technology in front of a lot more eyeballs
– Try to integrate and scale ad-buying and -selling marketplaces and targeting and tracking technologies across both display and search
– Try to integrate two big bases of communications users, and establish standards in contact and presence management, and possibly unite core identity, authentication and authorization services
– Achieve commanding leads in key online media categories: personal finance, entertainment info, and automotive, and beef up strong positions in news, sports, games, maps, and jobs
– Double down on consumer mobile offerings

All from a profitable company with a huge group of loyal users. Buying AOL, or integrating MySpace or Facebook doesn’t do nearly as much. Hey, Viacom’s market cap is only $25 billion (Disney or Time Warner are worth more than $50 billion). I’m only half-kidding.

As I’ve said too often, this is about Microsoft vs. Google for platform dominance, and all the other Internet and media players are pieces in that game. Google has replaced Microsoft as the most important company in all of IT, as consumer and Internet technologies ripple into enterprise IT and consumer electronics. Search is a more powerful user interface metaphor than Windows, and Google’s APIs and web-based services are starting to attract serious numbers of developers. And as Microsoft CEO Steve Ballmer told the Financial Times over a year ago:

    Today, the big phenomenon that we can embrace – the big fat thing for us to think about, embrace, endorse, compete with – is what does ad-funding mean? Whether it is for search, or whether it is for business-services, or whether it’s for other online services, what does that funding mean as a competitive business model and do we embrace it as is? Do we modify it? Do we just compete with it, with more of a transaction or subscription model? But how we deal with that is a Job One issue.

That’s why, unlike some observers, I believe Microsoft needs to be in the consumer Internet media business to compete against – and take profits from – its most dangerous threat: Google. Other than Yahoo, what are its options?

– Attempt to wall off Google in search, by winning the display ad platform and network battles. AOL and Facebook would help here, or MySpace.

– Attempt to wall off Google from enterprise IT. I don’t get paid to analyze that industry any more, but I don’t think this requires buying Oracle or SAP. But I don’t see any obvious path to diluting Google’s impact on network services, cloud computing, and the very real threat of a marginalized desktop OS as the source of UI conventions and navigation/interaction APIs.

– Minimize the impact of ad-based IT technologies and services by owning small business computing – small business is where ad-based IT plays out. Intuit would help, as would Adobe.

– Keep Google technologies out of mobile, and off of the TV set. I think it’s too late for Microsoft to do something with Nokia; Microsoft has long struggled with carriers and telcos (so will Google); and what do you think Xbox is for?

See how hard it will be? See why Yahoo, difficult as it might be, at least makes logical sense? We need to hear from Microsoft how it intends to beat or fend off Google post-Yahoo.