After CEO Steve Ballmer wrote Yahoo's Jerry Yang over the weekend (love the "Dear Jerry" letter so casual) to inform him that Microsoft wouldn't pursue its offer for the company, you kind of have to wonder. What did Ballmer know? And when did he know it?

Did he, for instance, know that Yahoo's stock would tumble as it did this morning as investors commented on whether Microsoft's offer to pay twice Yahoo's trading value at the time of the initial offer was worth accepting? Or did he know that his Dear Jerry letter would send Yahoo shareholders, board members and Yang into a new world where the "spotlight" is on Yahoo, as Yang said. And that Yahoo might bend to outside pressure to partner with competitor Google on search advertising, likely giving up precious strategic intellectual property in the process?

Yang, like Ballmer, faces criticism that he does not have a clear and viable strategy for his company. But unlike Ballmer, Yang, who is said to have largely led the rejection of the Microsoft deal, against the wishes of some major shareholders has just cost his company a $40 billion infusion. Ballmer's Microsoft, aside from Windows revenue, is posting healthy quarterlies and has that $40 billion, or actually more, to spend.

Did Ballmer know, at least after the first Yahoo rejection, that he would walk away from the offer not only in a position to make alternative investments to bolster his shaky Internet strategy, but also having dealt a major blow to Yahoo and its leadership? That many would surmise that he'd come back to the table, but pay much less for the final deal?

For some time, analysts have been comparing Microsoft's battle with Google to IBM's battle with Microsoft in the '80s and '90s, as in this New York Times piece. During a shift in the fundamentals of computing, Microsoft didn't destroy IBM, but overtook it.

This battle, however, is far from over, and I'm not yet convinced that Microsoft must beat Google in Google's strongest areas to be seen as the winner. Work to your strengths, in other words. I tend to want to believe that Ballmer, as a student of his industry, did know he wouldn't end up sealing the deal that many of his shareholders opposed. As he says, Yahoo is not a strategy. As Todd Bishop at the Seattle Post-Intelligence outlines, the options for Microsoft's next acquisitions include everything from AOL to a slew of social-networking sites that might not bring the online advertising might that Microsoft feels it needs, but could grow into one heck of an interoperating online community, if all were housed under one big Redmond umbrella. (This is my personal preference and offers real bang for the buck in more than online advertising with key younger users).

Whether Ballmer now knows better what his strategy is for the next few years, and whether he's worked out the consequences of possibly pushing Yahoo further into Google's arms, I don't know.