Mon, Jan 17, 2011 - Page 10 News List

FEATURE: Russian firm builds Web empire at home and abroad

AFP, MOSCOW

It’s a company with a stake in Facebook, the leading position in one of the world’s fastest-growing Internet markets and a listing on the London Stock Exchange.

However, this is not a firm from Silicon Valley or a high-tech Asian economy. It is from Russia, in recent years not a place known for cutting-edge corporate innovation.

While Russian President Dmitry Medvedev ploughs on with his state-sponsored drive to modernize Russia, the privately owned Mail.ru and its sister holding firm DST have grown with breathtaking speed.

Like other countries with a distinctive culture and non-Latin script writing, the Russian net market has allowed local Web sites to expand alongside established international players like Facebook and Google.

With penetration of broadband Internet now finally growing fast in Russia, Mail.ru has the capacity to expand its domestic e-mail, gaming and networking empire and set its targets high abroad.

“The Internet sector in Russia is one of the fastest-growing in the world,” analysts at the Renaissance Capital brokerage in Moscow said in a report on Mail.ru last week. “The Internet run has quite a way to go.”

Russia’s Internet penetration rate is still only 45 percent, compared with 84 percent in Britain, but broadband Internet access is now expanding fast, it said.

Mail.ru can boast full ownership of Russia’s No. 1 e-mail provider, mail.ru, its No. 2 social networking site Odnoklassniki (Classmates) and No. 3 Moi Mir (My World).

However, it has also acquired a holding of 32.55 percent in Russia’s top social networking site, Vkontakte (In Contact), and also 2.38 percent in Facebook itself, which still lags behind homegrown competitors in Russia.

According to Renaissance Capital, Facebook is only the No. 4 social networking site in Russia with 5 million users, compared with 21 million for Vkontakte and 17 million for Odnoklassniki.

“To date cultural factors in Russia — as in other countries such as Japan, China and South Korea — have favored strong local incumbents and this is unlikely to change immediately,” it said.

Mail.ru also has a minority stake of 1.5 percent in US online games firm Zynga and 5.1 percent in deal-of-the-day portal Groupon.

Mail.ru and DST Global were created last year after the split of what had been a single firm — Digital Sky Technologies (DST) — into an Internet company and investment vehicle.

The two firms are owned by private shareholders including Internet tycoon and Mail.ru chief executive Yury Milner and Alisher Usmanov, a billionaire oligarch who also owns a stake in Arsenal soccer club.

Meanwhile, Mail.ru also has new media giant Naspers as a shareholder and enjoyed a hugely successful IPO last November on the LSE in an IPO that valued it at US$5.7 billion.

DST Global also has its own stakes in Zynga, Groupon and Facebook and according to some reports the company now controls 10 percent in the US social networking giant.

The group also recently invested an additional US$50 million in Facebook, adding to a US$450 million injection from Goldman Sachs.

Milner is one of Russia’s -lowest-key tycoons whose avoidance of publicity is a stark contrast to the attention-hungry oligarchs who dominated Russian business in the 1990s.

However, in a rare interview with Russian business daily Vedomosti last month, he made no secret of the company’s global ambitions.

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