FacebookMicrosoft has approached Facebook in recent weeks and the two companies are in talks about Microsoft making an investment in the social-networking startup. Microsoft’s investment would give them up to 5% in the company and that would value Facebook at $10 billion or more according to a report in The Wall Street Journal.

Microsoft’s approach to Facebook in recent weeks with proposals to invest in the fast-growing site is part of the software giant’s effort to catch up with the Internet rival Google. If successful, Microsoft’s talks with Facebook could give it an up-to-5% stake in the closely-held startup—a stake potentially valued at roughly $300 million to $500 million, the people familiar with those talks said.

The article states that this is likely to lead to another battle with Google, who has also expressed interest in Facebook.

Last year, Microsoft and Facebook signed an exclusive advertising deal that allows Microsoft to serve ads on Facebook. That agreement covers only the U.S. and expires in 2011, but the companies are discussing whether to extend it for a longer period and expand it beyond the U.S. sources said.

In July, Microsoft signed an exclusive advertising deal with Digg, another hot social network. Google was the previous provider for Digg and this was looked at as a “win” for Microsoft.

One question that needs to be asked here is: Where is Yahoo in all of this? A year ago they were looked at as the front-runner to acquire Facebook for between $800 million and $1 billion but the talks broke down. And now there is no mention of Yahoo which seems to be the norm lately….

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