Struggling with its online initiatives in the face of the Google onslaught, Microsoft is in talks to pick up a 5% stake in social networking site Facebook at the same time that Google is also considering investing in Facebook, according to the Wall Street Journal (subscription required).

If it goes through, the Microsoft investment could be in the range of $300 million-$500 million and value Facebook at about $10 billion, a huge valuation for a start-up that’s expected to report revenues of just $150 million this year.

Reporting on the preliminary discussions between Microsoft and Facebook, the Journal said:

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.

Founded by Mark Zuckerberg, Facebook has attracted funding of $40.7 million from a bunch of marquee investors including Founders Fund, Accel Partners and Greylock Partners.

Under an existing relationship, Microsoft currently serves display ads on Facebook’s web site that’s supposedly used by some 40 million people.