UPDATE 3-Microsoft in talks to invest in Facebook -WSJ
(Adds analyst, details)
SEATTLE, Sept 24 (Reuters) - Microsoft Corp (MSFT.O) is in talks to buy up to 5 percent of Facebook in a deal that could value the fast-growing online social network company at $10 billion or more, the Wall Street Journal reported on Monday.
The move could give maturing Microsoft more access to young users and let Facebook get closer to a major software maker at a time when its growth is increasingly tied to a proliferation of small applications from independent developers on its site.
Citing people familiar with the matter, the Journal said the world's largest software company sought to buy a stake of up to 5 percent in Facebook for $300 million to $500 million.
Facebook, led by its 23-year-old founder and Chief Executive Mark Zuckerberg, may insist on a valuation as high as $15 billion and is considering raising up to $500 million in cash to expand its operations, according to the Journal.
Such a deal could help Microsoft better compete against Web search leader Google Inc (GOOG.O) for a growing base of online advertising and put one of the Internet's hottest names in Microsoft's camp.
Facebook, which already has an advertising deal with Microsoft, would benefit from closer ties with developers as it seeks to turn its site into a full-fledged Web platform where users can play games, interact and read news about each other, said Forrester analyst Charlene Li.
"If you are building a business around building a platform there is one company that has done it better than anybody else -- and that is Microsoft," she said. "People have been just assuming that Google would be the best partner and that is not necessarily the case."
Google has also expressed an interest in investing in Facebook, the Journal report said.
"It would probably be pretty good for Microsoft since it has not had the best success in creating really hip, young-people-grabbing stuff on the Web," said Kim Caughey, a senior analyst at Fort Pitt Capital Group, which oversees more than $1 billion, including Microsoft shares, for clients.
Representatives for Microsoft and Facebook declined to comment.
Zuckerberg has repeatedly said his company wants to remain independent and is seen as preparing to float itself on the stock market eventually.
Facebook has grown to 39 million members, up nearly 63 percent from 24 million in late May, and is quickly gaining ground on larger rival MySpace, which was taken over by News Corp NWSa.N in 2005 for what is now seen as a bargain price of $580 million. MySpace has more than 200 million users.
Facebook's explosion popularity has also drawn increased scrutiny, including a 50-state investigation into the company by attorneys general concerned about Web sexual predators.
New York Attorney General Andrew Cuomo said on Monday his office had subpoenaed Facebook and accused it of not keeping young users safe. Facebook said it was preparing a statement about the issue.
Redmond, Washington-based Microsoft already has an exclusive agreement until 2011 to broker display advertisements for Facebook. The Journal said Microsoft and Facebook are discussing expanding that agreement beyond the United States.
After relinquishing an early advantage in the lucrative paid search market to Google and Yahoo Inc (YHOO.O), Microsoft is trying to catch up by clinching deals to broker display advertising to some of the leading names in "Web 2.0."
Yahoo and Google are also maneuvering. Earlier this year, for instance, News Corp chief Rupert Murdoch said he had discussed swapping MySpace for a 25 percent stake in Yahoo.
Web 2.0 is a catch-phrase for a new generation of Internet services that run on interactive software and typically rely on content generated by users to attract more visitors. Microsoft also has an agreement with popular news site Digg.com.
Microsoft shares rose 1.5 percent to $29.08 on Nasdaq. (Reporting by Daisuke Wakabayashi, with additional reporting by Michele Gershberg and Yinka Agedoke in New York, Peter Henderson in Los Angeles; editing by Braden Reddall)
