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It was only about a year ago that Microsoft

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[MSFT  Loading...      ()   ]  invested in Facebook, paying $240 million for an equity stake in the company that put Facebook's valuation at $15 billion. So the big question now is, if Facebook wants to use its stock to buy another company, what's it really worth?

Facebook has been in talks with Twitter, a private micro-blogging start-up (it allows you to easily update your contacts with messages or "tweets" of up to 140 characters). Negotiations put Twitter's value at as much as $500 million. Whether or not this deal goes through, which is looking unlikely at this point, these talks speak volumes about both Twitter and Facebook.

Twitter is the "it girl" startup in the world of social networking. Twitter's not making money and there's no clear profit model, though some other startups like Twitterise and Twittad design marketing tools with real revenue streams around Twitter's service. Twitter's co-founder, Biz Stone, has indicated that the company wants to remain independent to build its on its business model and grow its user base. But even so, can a company with a great idea that hasn't hit a tipping point in terms of users snag $500 million in this market?

Now Facebook was planning to use $500 million in stock, but is that stock based on its $15 billion valuation? The deal could have put both Facebook and Twitter's value much lower, but this deal does put Facebook's value in the spotlight. Twitter seems like a natural fit for Facebook-- it's effectively a status update system, and combining with Facebook would instantly make Twitter a huge hit, though Twitter's early adopters probably wouldn't be too thrilled.

• Facebook wins $873M suit against spammer

According to the Silicon Valley blogosphere Facebook offered up to $100 million in cash for Twitter, but apparently that wasn't enough. Does Facebook care that Twitter doesn't have a significant revenue stream? Facebook is itself just starting to get its revenue going, and has a lot of work to do before revenues catch up with users. I'm not surprised talks broke off. Both companies are hard at work building out their models.

• Facebook targeted Twitter

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