There are reports this morning that Microsoft is planning to take a 5% stake in Facebook which would value the social networking site at $10 billion. This is quite an increase on the $7 billion that was mentioned in the last round of rumours surrounding Facebook, and makes the $1 billion that Yahoo! apparently offered to buy the whole site last year look positively rude.

Other than the fact that numbers like these are almost headache inducing there are a couple of interesting points here. The first is where is the value that causes such values to be set on a relatively new site, the second is why would Microsoft want to take such a stake in Facebook.

The answer to the first has got to be in the demographic data that Facebook collects on its users. The sale of the Where I’ve Been Facebook app for a reported $3 million put a value of $1.30 on each user who had installed it. And whilst the apps only give relatively limited access to the user’s details, it still seems like a big leap to the $238 value that this deal would put on each of Facebook’s users. But whilst Microsoft aren’t renowned for wasting money, it has to be said that $500 million is not exactly a huge amount for them, so maybe the value of the users’ demographics and the $150 million the site is expected to make in revenues this year are not the real reasons for the investment (if they actually make it of course).

It seems to me that the most likely reason that Microsoft would want a stake in Facebook, and one which was pointed out during the last wave of rumours, is simply that they have singularily failed to make any headway in the world of social media.

Whilst they may have killer products in things like email & instant messengers, they haven’t been able to find a great social product. And with Google looking at what it can do to come up with a Facebook killer (by opening it’s own social data up), shoring up Facebook with an investment that is probably equivalent to Bill Gates’ lunch money seems like a very canny move indeed.

UPDATE: It’s now being reported that Microsoft is weighing up whether to go with this Facebook investment, or whether it should make a public attempt to buy some or all of Yahoo! (or even AOL): either way it seems like the main thing on Bill Gates’ mind right now is how to get ahead of Google.

FURTHER UPDATE: Apparently Facebook has now overtaken MySpace in the UK in terms of visitor numbers. According to the latest Nielsen research, which is reported in New Media Age, Facebook received 6.5 million unique users in August, 100,000 more than MySpace. Maybe $10 billion isn’t so much after all?

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