Microsoft, Yahoo! Keep Playing Chicken

And both companies acknowledge that a hostile merger would reduce the deal's value.

Martin Pyykkonen, an analyst for Global Crown Capital, says that every day that Yahoo! sits on its hands, it runs a greater risk of alienating its shareholders. But by letting Microsoft's deadline pass with no action, the Internet giant may have made a strategic move.

"Yahoo!'s calling their bluff for the time being," he says.

For Microsoft, three weeks probably seemed like enough time to work out a deal while also giving some sense of finality to the ongoing dance between the two companies, Pyykkonen says. Microsoft's deadline may have been based on its expectations that Yahoo! would blow its first-quarter results. Instead, Yahoo! managed to beat estimates and maintain its guidance.

Nonetheless, there is still pressure for Yahoo! to act, whether by negotiating with Microsoft or coming up with an alternative, which thus far it has been unable to do.

Yahoo! has been in talks with Time Warner's(TWX Quote) AOL division, and has outsourced some of its online ads to Google, but none of these options has proven to be a long-term solution.

What Yahoo! has working in its favor is Microsoft's desire to reach an agreement sooner rather than later. And that could help it to squeeze more money out of Microsoft.

"They're banking on [the fact that] Microsoft probably doesn't want to conduct a hostile takeover," Friedland says.

Microsoft, on the other hand, wants to acquire Yahoo! at the lowest cost possible and hoped to accomplish that with its three-week deadline.