Vericool Finance

At the peak of its success in the mid-Nineties, Microsoft came to be known as the “Evil Empire” – an aggressive, monopolistic outfit, prone to steamrolling any company that posed a competitive threat. Years later, when Google came to prominence, it adopted the slogan “do no evil” to deflect concern that it, in turn, would be corrupted by phenomenal growth.

Both those images are playing out now as the world digests Microsoft’s giant $44.6bn bid for former internet darling Yahoo! – its most blatant attempt yet to curtail Google’s relentless advance on the net.

Essentially, this bid is a public concession of failure: an admission that, despite its huge resources, Microsoft has failed to build up a presence to challenge Google, which now commands 81% of all internet searches and a whopping 60% of online advertising revenue.

But will Microsoft’s attempt to buy itself into the 21st century succeed? It has certainly rattled Google, which is going all-out to thwart the bid by lining up all manner of possible saviours for chief Yahoo Jerry Yang, as he desperately attempts to extract himself from Microsoft’s bear hug.

Google knows better than to doubt the determination of either Microsoft or its bombastic chief, Steve Ballmer, particularly since this deal would give Microsoft the critical mass to compete with Google head-on. That being the case, why was news of it greeted with such hoots of derision? Yahoo! might once have been king of the Valley but it’s been heading south for years and is now an empty bag of technology and talent.

And let’s not even talk about the clash of cultures that such a merger would create. Second and third players rarely combine successfully to defeat market leaders – and ill-advised giant mergers often mark the peak of market cycles. This could be Microsoft’s AOL / Time Warner.

But even the sniff of the mega-deal cheered the markets, particularly as it coincided with China’s strong cash move into Rio Tinto. Yet both these deals should be ringing alarm bells. China’s intervention in the metal markets is deeply nationalistic and geopolitical.

A Microsoft-Google duopoly, while more politically subtle, brings us close to a world in which corporations wield more power than governments. In both cases, massive issues of sovereignty and commercial freedom are being decided not in parliament but in boardroom negotiations. The West’s elected politicians have some serious catching up to do.

A profitless website started by three twenty-somethings after a late-night dinner party is sold for more than a gigantic sum, turning dozens of employees into paper millionaires.

It sounds like a tale from the late Nineties dotcom bubble, but it happened when Google paid $1.65bn for YouTube, the video-sharing phenomenon that is the darling of the internet resurgence known as Web 2.0.

Launched just 18 months ago, YouTube is still based in rat-infested premises above a pizza shop, yet virtually every big media and technology company has coveted it for its 35 million viewers. After the deal the two remaining founders, Chad Hurley and Steve Chen, posted a video thanking their users - then succumbed to fits of giggles.

As well they might: this second internet boom is exactly like the first one. As any YouTube junkie knows, the site can change viewing habits forever… why gawp at a programme schedule planned by someone else when you could be joyfully hopping from Bill Clinton’s recent explosive interview… through ancient newsreels of the Cuban revolution, and on the a Beatles video you’ve never seen before.

The business rationale is the same one that Rupert Murdoch bought into with MySpace: these sites create an instant club, and if anyone can transform that valuable commodity into a new marketplace, Google can. Even if YouTube never makes a penny, the damage will barely register on the $130bn behemoth that is Google, but there are bigger issues at stake.

Both Google and YouTube rely on free content to drive their businesses: neither can seems to care a fig about the law of copyright. And while some music and film companies have struck deals on the basis that if you can’t beat them you must join them, this business model remains dangerously exposed.

The truth is that it’s too early to say whether YouTube - or Google for that matter - is ridiculously overpriced. We should see this deal for what it is: a land grab.

There’s seldom been a day like it. A new US law has decimated an industry, inflicting the biggest share price fall in living memory.

When news hit London that Republican Senate leader Bill Frist had unexpectedly pushed through a bill to prevent banks from processing online gaming payments, the blood-letting was swift: 70% of market value was wiped off shares in the likes of PartyGaming, 888.com and SportingBet.

Big investors in the sector included Fidelity, M&G, New Star and Merrill Lynch - and through them thousands of small investors and pension funds have lost too.

Ultimately, shareholders haven’t a leg to stand on. Company prospectuses detailed the risks explicitly. Online gambling has always been a grey area under US law, and investors ignored repeated warning signs: insider stock sales, exotic domiciles, management departures and, latterly, the arrests of two British executives at US airports.

Gamblers are eternal optimists, but there’s no doubt this bet has failed spectacularly. Industry players have been frantically shoring up alternative markets in Europe and Asia to counter the US threat - but three-quarters of PartyGaming’s revenue comes from the US, and it would be naïve to think the non-US business can carry on growing at the same rate.

Poker sites need a big pool of players: the removal of 70% of them is a major turn-off for the players that remain. Some operators may now consider selling out to land-based players at a knockdown price. But for the foreseeable future, online gaming looks like a busted flush.

What’s shocking is America’s rank hypocrisy. The US cries foul when China tries to censor its search engines, yet thinks nothing of clamping down on the internet threat to its own physical gaming industry. It preaches morality, guns down these largely London-listed invaders - and then expects Britain to welcome US casino operators.

As with Prohibition, the effect of the new legislation will not be to kill off online gambling but to drive it underground - until it is eventually re-legalised in a regulated form, with most licences doled out to American firms.

Free trade? Fine… so long as it works to America’s advantage. This calculated attack is one of the worst examples of protectionism seen this century.