Google’s Chief Legal Officer, David Drummond, posted to the company’s corporate blog today announcing that Google has stopped pursuing an advertising agreement with Yahoo. In the post he writes about government regulators and some advertising expressing concerns with the proposal, and also talks about how he believes it would have been good by delivering more relevant ads to users.

I’m all for more relevant ads provided that my information is being protected and that personally identifiable information remains confidential. I also don’t want my personal information being used to deliver ads to others, even people I know.

Far more interesting than this particular partnership is Google’s next move. For all of their success in search they are still looking for that breakout next act. Microsoft had hardware and then software. Apple had the mac desktops and then the iPhone. Google certainly has many successes under their belt, but it is critical that they come up with their next act to maintain their leadership position over the long term. This is not a unique challenge to Google, but given their success and power they have a very bright spotlight shining upon them.