Talks with Yahoo are for now off, Microsoft CEO Steve Ballmer said Thursday, but he left the door open just a crack.

"It didn't work out, fine, we're done, we can move on," he said, speaking at Microsoft's corporate headquarters in Redmond, Washington, at the company's annual analyst meeting. "Does that mean nobody will ever talk to anybody again? I suspect the answer to that is also no. It's a long time and a big world, but we are moving on."

Microsoft first made an offer to buy Yahoo in February but was rebuffed. The companies have since had on-again, off-again discussions over various deals, including one where Microsoft would buy Yahoo's search business. Microsoft has also had discussions with Carl Icahn, a wealthy investor who owns many Yahoo shares and had tried to replace Yahoo's board in order to make some sort of deal with Microsoft.

Ballmer pointed out the downsides to a Yahoo deal and reiterated that Microsoft will do fine without a deal with the company. "Yahoo for us was always a tactic, not a strategy," he said.

Yahoo would have helped Microsoft improve the number of advertisers on its network in order to deliver more relevant ads to users. Yet, a Yahoo acquisition would have had some downsides, he said. "Frankly, without the big commitment to buy Yahoo, our flexibility in reinventing the search and ad model, we have more flexibility," he said. After putting nearly US$50 billion into an acquisition, Microsoft to some degree would have been locked into building on the same model that Yahoo had created, he said.

Microsoft is currently working internally on alternate ways to increase ad relevance, he said.

In addition, Yahoo largely has a presence only in the U.S. and Japan, so it wouldn't have helped Microsoft in other areas of the world, he said.

Ballmer again also touched on why timing was such a crucial issue in completing a deal with Yahoo. The company didn't want to do a deal that wouldn't be able to complete the regulatory review before an administration change in the U.S., he said. "At the wrong price and two administrations of regulatory review, it was not a good tactic," he said.

Ballmer also seemed to try to downplay Yahoo's future potential for innovating and causing big changes in the search market. "In the search business, let's face it, this is not about Yahoo. This is a two-horse race, it's Microsoft and it's Google," he said.