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It is fast becoming one of the great brand battles of the Internet age - Facebook versus MySpace - and the rivalry between the world's two biggest social networking sites may be ratcheting up with rumours that Microsoft Corp. wants into the mix.

Two years after Rupert Murdoch brought legitimacy to upstart social networking sites with the $580-million (U.S.) purchase of MySpace by his News Corp. media empire, Microsoft is reportedly in talks to buy a stake of its biggest competitor.

And perhaps most interesting, Mircrosoft looks willing to write a big cheque for what amounts to a small piece of Facebook, merely to get in the door. Reports out of the U.S. indicate Microsoft may spend between $300-million and $500-million to buy 5 per cent.

Microsoft's interest is not surprising, since Facebook has apparently been approached by several companies, from Yahoo Inc. to Google Inc., in the past year, but it has again highlighted the hefty values being placed on social networking sites.

That 5-per-cent investment would value the company at roughly $10-billion. Not bad for a website started in 2004 by Mark Zuckerberg and his Harvard roommates Dustin Moskovitz and Chris Hughes in their dorm room.

Originally designed to let users build communities of friends that can keep in touch and share music and photos, the sites are now being looked at as potential advertising bonanzas.

"Built into that $10-billion dollars is a lot of growth - but also the belief that advertising is going to work on Facebook," said Forrester Research analyst Charlene Li. "The key question is: Is Facebook worth that much money?"

The rise of social networking sites has been staggering. MySpace now has 114 million unique visitors worldwide each month, with much of its audience in the United States.

Facebook is second, with more than 52 million monthly users, but is growing faster in countries like Britain, Canada and Australia.

Trying to attach a value to them is murky. When Mr. Murdoch bought MySpace, he was criticized for overpaying for a website that was an Internet fad.

However, the head of News Corp. now figures the site could be worth 20 times that amount - which would peg its value at nearly $12-billion by his estimate, though some analysts would disagree.

But the sites are starting to bring in real dollars, with analysts expecting Facebook to make $30-million this year, on revenue of $150-million.

The mystery, though, is which site is poised to grow the most in the coming years? Though MySpace dominates the U.S. market, Facebook has made considerable inroads. It is the leading social networking site in Canada, where Facebook has exploded since last November to 13.4 million monthly unique users, compared to 4.9 million for MySpace.

"MySpace really rules in the U.S., but in Europe, Facebook is becoming very popular quickly. MySpace has a presence there but it's not as strong," said Andrew Lipsman, an analyst at U.S.-based Internet data tracker comScore Inc.

"And even though MySpace has grown strongly over a long period of time, in the last couple of months it seems to have finally levelled off in the U.S. Maybe it's gotten toward the point of saturation."

Microsoft is a better partner for Facebook than Google because they have "very deep relationships with display advertisers," Ms. Li said.

After reports of the talks emerged yesterday afternoon on The Wall Street Journal's website, a Microsoft spokesman said the company "does not have any comment on the story in question." A spokeswoman for Facebook also declined comment.

Facebook's founders have made it very clear in recent months they aren't interested in being bought out just yet, Gartner Inc. research analyst Van Baker said.

However, selling off small chunks allows the company to bring in capital while it also gets Microsoft in the door at Facebook, which other potential suitors have so far failed to accomplish.

"This is the logical alternative to [an outright sale]; beginning to sell pieces of yourself to raise capital and to have the money to be able to invest in additional functionality on the site without giving up control of the direction of Facebook," Mr. Baker said.

Because both Google and Microsoft have a number of products and services that either company would want to embed in a site like Facebook, he said it makes sense that both companies would be interested in buying in.

Meanwhile, controversy over the founding of Facebook has dogged Mr. Zuckerberg for some time.

Three former Harvard classmates who started a rival social networking site claim he stole their computer code when developing Facebook and have filed a lawsuit against the company. The courts have yet to rule on the suit.

Social networking

Facebook's rapid growth has caught the eye of several investors

SOURCE: COMSCORE MEDIA