Microsoft is said to be looking at buying a 5 per cent stake of Facebook for $500 million, valuing a website rooted in helping Ivy League college kids to navigate the dating game at a staggering $10 billion. Is it worth that much? Well, that depends on the answer to a different question: is Facebook an AOL or a Google?

AOL started out as the internet service for people who did not know the first thing about the internet. One of the early features it offered was a chatroom - a means for people to talk over the web. Thus was the germ of online social networking sown. Times were good. Then, in 2000, AOL merged with Time Warner in what has become regarded as the worst deal of all time. A culture clash between Time Warner’s old-media stalwarts and AOL’s upstarts ensued. Customers left for alternative internet providers.

Amid all this it emerged that AOL had been vastly overvalued. Jerry Levin, the Time Warner chief executive, headed for his yacht to spend more time redressing his work/life balance. AOL’s value plunged tenfold.

Google, by contrast, makes a lot of money - $3.7 billion in revenues in its most recent quarter. Remarkably, it has not marketed itself in any meaningful way: Google’s users come to it, the company then defies all e-commerce logic by getting rid of them as quickly as possible by pointing them at a destination outside its plot of cyberspace. It dominates a market - search advertising - that it largely invented and its shares are up nearly sevenfold since their 2004 debut.

At this stage, it is hard to say with any confidence that Facebook will emulate Google. It is far from the only social network on the block and not the largest. In the UK, its fastest growing market in terms of members, it is no longer the fastest growing site of its kind - a mantle taken yesterday by PerfSpot, according to web analyst NetRatings.

True, most of Facebook’s information comes from well-heeled youngsters - an adman’s dream.

This, after all, is a business born from Harvard’s yearbook. Its decision to transform itself into a distribution platform for software applications built by outside companies looks very smart. If it were to be bought by Microsoft, a culture clash may be eased by the fact that Mark Zuckerberg is said to be close to Ray Ozzie, Microsoft’s software guru. And there may be benefits to Microsoft taking a stake as part of its bigger battle with Google.

But, for all that, this year Facebook will make an estimated $100 million in revenues, about $2.50 per current member. That makes it very hard to justify a $10 billion tag. There are shades of AOL-style hype. Facebook needs funds to bolster its efforts at turning vistors into cash. Microsoft, once the upstart, now looks increasingly like the old guard trying to find its way in the Web 2.0 era.

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