Report: Microsoft plans to invest in, not acquire, Facebook

This story has been updated with further commentary pertaining to Microsoft's strategic interest in Facebook.

The Wall Street Journal is reporting that Microsoft is in talks to acquire a stake of up to 5 percent of social-networking wunderkind Facebook.

Discussions over such an agreement with the Mark Zuckerberg-founded company are still preliminary, the story by Robert A. Guth, Kevin J. Delaney and Vauhini Vara notes, but if such a deal goes through, the much-hyped Facebook could be valued at up to $10 billion as it heads toward a long-rumored initial public offering. Both companies denied requests to comment to the Journal.

A stake of 5 percent in Facebook, the story continues, could be worth somewhere between $300 million to $500 million.

Earlier this month, word began to spread that Facebook was raising cash in a new investment round that could catapult its valuation into the $6 billion to $10 billion range that many analysts had been previously hesitant to believe. Microsoft was talked about as a potential investor at the time, and indeed, the Redmond, Wash.-based tech veteran is already intimately tied to Facebook through an advertising contract that won't expire until 2011. But Facebook is meanwhile working on a new ad strategy that reportedly relies on the extensive personal information that members entrust to the site.

The battle over social-media domination is heating up among the Web's biggest powerhouses. The Journal article noted that Google has also been talked up as a potential major investor in Facebook, but recent rumors have suggested that the Mountain View, Calif.-based company might be trying to outdo Facebook at its own game by taking advantage of its disparate Web tools and its in-house social-networking product, Orkut, which has failed to make a splash in most markets beyond Brazil and India.

In addition to further collaboration on advertising technology, Microsoft could also get a boost in its battle with Google, if Facebook were willing to integrate into its product more of Microsoft's Windows Live services, such as its Windows Live Messenger instant-messaging or Windows Live Mail e-mail programs.

Microsoft, Google, and Yahoo have all been talked about at one point or another as potential Facebook buyers. The Journal article writes this off for the time being, saying "Microsoft has considered trying to buy the company outright, but people familiar with the matter said it's unlikely at this time."

CNET News.com's Ina Fried contributed to this report.