Microsoft is weighing up taking a stake in Facebook in a move that could value the social networking site at $10 billion (£5 billion) and trigger a bidding war.

It is understood that the world’s largest software developer is considering paying between $300 million (£149 million) and $500 million for a 5 per cent stake in Facebook. A move by Microsoft would almost certainly trigger counter interest from a clutch of rivals including Google, the leader in search advertising, and Viacom, the media giant.

Talks between Microsoft and Facebook are thought to be at an early stage and Facebook is believed to exploring alternative sources of funding, including venture capital money, to support ambitious expansion plans.

Figures released yesterday, which showed Facebook is now the most popular social network in the UK, underscored the site’s ascent since its launch in 2004.

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Background

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Facebook received 6.5 million unique visitors in August, compared with MySpace's 6.4 million, according to Nielsen//NetRatings, the analysts. Both sites are now visited by one in every five Britons with online access, the numbers show, and are continuing to extend their reach.

Facebook’s UK membership has grown more than 500 per cent in the past year and the average Facebook user in the UK spent more than 16 hours on the site during August.

The site’s founder, Mark Zuckerberg, who is 23 years old, has mooted a valuation of $15 billion but has so far insisted that Facebook will remain independent. Last year Mr Zuckerberg is understood to have rebuffed approaches from suitors including Yahoo!, which had offered about $1 billion.

However, Mr Zuckerberg is also said to have a close relationship with Ray Ozzie, who as Microsoft's chief software architect is at the heart of the company’s strategic vision. Microsoft also already has a deal in place to supply Facebook with advertising in the United States until 2011.

Facebook is widely thought that Facebook is far from achieving its commercial potential and the site is exploring how to exploit the wealth of personal information that users plug into their Facebook profile pages.

It has also transformed itself into a distribution platform for software applications built by outside companies – widgets that can be accessed through Facebook and possibly used to sell goods and services. However, there will be doubts over the implied value of $10 billion suggested by companies’ early talks. Despite soaring user figures, it is expected to achieve revenues of $100 million at most this year and little profit.

Om Malik, the technology blogger, said: “Rational thinking long ago flew out the window when it comes to anything Facebook." In a development that gestured towards the fickleness of social network users, yesterday's NetRatings figures also showed that Facebook is no longer the fastest-growing social network in the UK, an achievement now ascribed to Perfspot.com.

Alex Burmaster, of NetRatings said: “The suspicion that the next big thing in social networking could always be just round the corner is illustrated by PerfSpot. It wasn't even on the social network radar until April of this year but in the last four months its visitor numbers have grown at a greater rate than Facebook has across the last eight months.”

Social Service

— Facebook was founded in February 2004 and now has more than 42 million active users

— About 200,000 people have registered daily since January

— It is the sixth-most trafficked site in the United States, according to comScore, with more than 54 billion page views per month

— Britain is Facebook’s third-largest market with more than 5 million active users

— More than 14 million photos are uploaded daily to the site

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