With Microsoft apparently walking away from any potential love-in with Yahoo; reports have suggested that the Redmond-based software giant has now got its eye on social networking site, Facebook.

The Wall Street Journal reported on its All Things Digital site that Microsoft has been communicating 'subtle signals' to see whether Facebook would be open to a full acquisition. Apparently, Microsoft investment bankers contacted Facebook, when it seemed unlikely that Yahoo's resistance would continue to hold firm.

First moves

Citing an unnamed source, the news site said that an informal approach had been made by Microsoft but it was not yet known whether Facebook would consider selling. In the past, the California-based social networking site has resisted selling the company, opting instead for a public offering. A recent number of high-level hires show signs that this trend looks set to continue. However, with possible fallout from a weaker economy, advertising revenue could drop, pressuring Facebook to look at over potential investments.

Microsoft already has a vested interest in Facebook, having paid $240 million in October last year for a 1.6 per cent stake, thereby valuing the social networking site at around $15 billion. Microsoft's apparent interest in Facebook is the first indications that it has looked at alternatives to Yahoo, which walked away from a potential $47.5 billion offer last week.

Why Facebook?

At only four-years old, the deal would mean a huge payout for founder and chief executive, Mark Zuckerberg. With 70 million users, Facebook has become one of Internet's hottest properties and continues to attract a huge following. In March, Facebook had around 110 million visitors, 240 per cent up from the same time last year, according to comScore. Revenue is also expected to double from last year to between $300 million and $350 million in 2008.

Beacon of doubt

Despite the impressive figures, Facebook has often struggled to monetise its huge potential. Its Beacon advertising platform has met fierce criticism and half of its revenue last year actually came from Microsoft itself.

Any potential deal has already met resistance from Facebook users. At the time of writing, there are at least 30 groups opposing any such deal - not to mention the countless general anti-Microsoft groups.

Deal unlikely

Duncan Parry, Director of Strategy at Steak Media does not believe that an acquisition would make sense for either party.

"A takeover would be expensive and may not please Microsoft shareholders. I think its more likely Microsoft are looking to strengthen their existing arrangement with Facebook, maybe by extending it and adding a Live.com search box," said Parry.

"This would gain them additional web search volumes and pay per click revenue and it could use Facebook profile information to demographically target adverts - Microsoft AdCentre already has some demographic targeting functionality, limited as it is. Facebook's new IM platform could also merge with MSN IM, too. So if this is happening, I think the motive is to safeguard and expand a relationship - and not acquire. Facebook's owner has said several times he won't sell - including saying that to Yahoo," he continued.

Hedley Aylott, managing director of Internet marketing company, Summit Media agrees that a full take over is unlikely. However, Facebook's data on its users would be extremely useful to advertisers, which is why there has been the interest.

"Facebook collects information about individuals and their activities that can't be 'crawled' by search engines and the community aspect of the site is also complimentary to search. Search engines target users who are actively looking for certain products or services, but social networking offers opportunities to seed messaging before active looking starts," he commented.

"However, the most salient point is that Microsoft has released a statement to say it plans to grow organically with no major acquisition, so Summit doesn't believe the acquisition will actually take place," he continued.