Now it’s official. Microsoft withdrew its bid for Yahoo after a sweetened deal fell apart over the weekend. This morning, Yahoo’s share price tanked as expected. Is it game over?

No. This is just the end of the first episode of the four-way judo mentioned about three months ago. Already analysts and tech pundits are updating their scorecards of this game and debating whether Jerry Yang has made his biggest mistake of his life.

So what? After three months of gasping, waiting, wondering and venting, we are back to square one. Was it a better ending to have a deal consummated during the weekend? Not really. Sure, Yahoo’s shareholders will immediately incurred a 20% or more loss in their holdings, but the fiduciary duty of Yahoo’s management is for the long-term investors, not opportunistic market speculators. If a shareholder didn’t sell his shares when Yahoo’s price dropped to below $18 back in Jan 2008, and again didn’t cash out when Microsoft’s bid drove Yahoo’s share to above $30, he should not cry foul for the lost fortune. It goes back to whether he still has the trust in Yahoo’s management. In a stock market for short-term investors, the unfolding of the events of the last ninety days were all the risks and rewards of a fair game.

But longer-term, for Yahoo to prove its ability and the true value of the company to its long-term investors, it needs hard thinking and swift actions. How to revitalize its underperforming assets, revive employees’ morale, refocus the management attention to day-to-day business, and re-direct the company’s resources to exciting new growth areas like video, mobile, viral networks, virtual world, and international growth opportunities, is now a high order. Give Jerry a bit of time to prove himself that the company is worth $37 or more before making any judgments. After all, Rome is not built in a day.

For Microsoft, it is wise to walk away from the biggest integration risk potentially brought by the deal. It is an even wiser decision not to pursue a hostile takeover as a forced marriage is no good marriage. The main motivation for Microsoft’s Yahoo bid is to catch up with Google in search advertising. Yes, search is the crown jewel for Internet advertising, but not the only area that is growing fast. And search is not the only vulnerability that Microsoft has. It’s time that Microsoft have a balanced offensive and defensive strategy to counter against Google’s influence. Let aQuantive people crank up the ad business and Windows team focus on software development and deployment. The Internet war has just started and the final episode of the war is not written on the wall any time soon.