nasty memories have been stirred up by this weeks reports that microsoft is in talks to buy a big stake in america online and why not last time when aol was involved in a big deal its 150 billion acquisition of time warner a media giant in january 2000 it soon came to symbolise the madness of internetcompany valuations during the turnofthecentury dotcom bubblenobody expects microsoft to repeat the nearsuicidal folly of time warner but if there is any truth to market rumours that its purchase will value aol now a shadow of its old self at over 20 billion or about 1000 per aol subscriber then the deal would certainly fuel fears that irrational exuberance is returning to the pricing of internetrelated firmsa microsoft stake in aol under which it would merge with its msn portal would come hot on the heels of last weeks purchase of skype an internetphone company by ebay an internetauction site there is no doubt about the commercial potential in internet telephony but how it will come to fruition and how skype will benefit remains open questions it seems like a deal with strikingly bubbleera economics a price of at least 26 billion for a lossmaking firm with unlimited ambition but expected revenues this year of only 60msuch a price is hardly unique among other rich priced deals contributing to the bubbly mood are barry dillers iacinteractives 19 billion acquisition of ask jeeves a search engine in july news corps purchase of ign a videogaming site this month and intermix media a social networking site in july for a combined 12 billion and yahoos 1 billion purchase in august of a stake in alibabacom a chinese internet site that prides itself on its lack of a clear business model the skype deal is a return to the 1999 mentality says pip coburn of coburn ventures a technologystrategy firmthis and other mooted internet deals seem to be based on little more than the belief of management that everything is going to change in the next few years in highly unpredictable ways and so all options need to be coveredcoburn says a manager can justify paying any price valuing a firm is tricky at the best of times but it is hard for a young firm the rationale of rajiv dutta ebays cfo for the firms valuation of skype does little to inspire confidence he first compared skype with ebays previous biggest acquisition of paypal an online payment system that is not comparable to a phone service and which unlike skype ebay knew intimately before the acquisition its current losses notwithstanding dutta thinks that skype will have a longterm operatingprofit margin of 2025 apparently for no other reason than that ebay also assumed that paypal would achieve that same marginnewspaper television and radio companies for instance have all started to understand the threat posed to their traditional advertising revenues by online advertising a speech by rupert murdoch earlier this year on the need for