What's Facebook's cost in Bill bucks?

The chatter about Microsoft mulling a 5% stake in Facebook worth $300 million to $500 million is a sign of just how hyperinflated valuations have become. Consider, Facebook's revenue is an estimated $150 million this year, yet the price of that stake would value Facebook at a whopping $6 billion to $10 billion, less than a year after it turned down a $1 billion offer from Yahoo.

Of course, $500 million in Microsoft money is not all that much. This is the same company that paid $6 billion for aQuantive. (According to an executive familiar with the company's ad plans, Microsoft is also looking at Yahoo but said it's unlikely such an acquisition would happen.) The Facebook investment was reported by The Wall Street Journal, which cited unnamed executives and couched the claim by saying the discussions were still preliminary.

A Facebook investment could mean two things: It could signal how serious Microsoft is about data and targeting. It could also be a defensive play to keep Google out of the Facebook fold.

Michael Seidler, CEO of U.S. Corporate Ventures Group, called the stake's price tag "astronomically high" but said it is "indicative of the strategic value of a social-media network to Microsoft. ... It gives them strategic access at a relatively reasonable [total] price tag." In other words, $500 million is cheaper than $10 billion.

Regardless, it makes Interpublic Group of Cos.' investment in the summer 2006, when it received a 0.5% stake in Facebook in exchange for spending $10 million in advertising on the site, look like genius in its foresight. If Facebook is indeed worth $10 billion, a stretch according to many, Interpublic's stake would have quintupled in just over a year. And it got $10 million in advertising on the world's hottest social network to boot.

-Abbey Klaassen, Ad Age