Investing in networking: DST CEO, Yuri Milner

Digital Sky Technologies has made headlines with its buy in to global networking phenomenon, Facebook. Business RT spoke with the CEO of DST, Yuri Milner, about the potential of networking in Russia and abroad.

YM: “According to statistics which were released just a week ago, Russia is number one globally in social network usage and the rating was based on the time spent on social networks in a month. So Russia really rates number one. And it's not coincidental because there are a lot of high-quality Russian products that capture the attention of people. All have accumulated dozens of millions of users.”

RT: DST has shown an interest in Facebook. Do you foresee a shift in Russian users to that site from Russian ones?

YM: “It all depends on the quality of the product. One of the main features is the speed at which the site is operating. And so far there is a complete domination of local players and Facebook is only beginning to gain some limited ground but there is quite formidable competition locally and I believe that they local competition is strong enough to sustain long-term.

Outside of Russia there are not too many strong competitors and what we can see is that in the last few months Facebook is really gaining ground. In some countries Facebook is growing 30% a month. For us, Facebook was a way to gain exposure to this global trend.”

RT: How has the financial crisis affected the Internet business?

YM: “What we see in Russia and also globally is that advertising in all other media is really significantly slowing down or declining. But in Internet, it still keeps growing. Not at the same rate as it used to be, but there are still positive dynamics. It gives us the opportunity to believe the trend is so strong it's really in a way recession-resistant. Many Internet companies don't have any debt, so they don't have the issues of restructuring debt or debt repayment.”

RT: Now let's talk about value of social networking. Where does revenue come from?

YM: “Advertising is extremely important. But I think it's very early days of advertising as such on social networks. Really what they are about it targeting. You can do things you cannot do anywhere else. And that's targeting individuals or groups. And that trend is really in the early stages. Google was able to do effective advertising in global "demand fulfillment". But then there is a much bigger "demand generation" and Facebook can do very well here.”

RT: Target advertising. Okay, I get messages for Green Cards to go to the U.S. and finding a foreign husband. How effective is target advertising?

YM: “Obviously this is not very refined based on your particular interests. It's early days. I see this evolving very quickly in the next few years, so my bet is in 12 months you won't be seeing something like that.”

RT: Aside from advertising, where else does revenue come from?

YM: “One of them is payment by users for various user-added services….There will be more things like this, I guess, going forward. There is a lot going on in this mechanism. There are a lot of services on Vkontakte, Odnoklassniki, and mail that generate revenue for those sites.”

RT: What is your ultimate investment goal?

YM: “Social networks is dominant in allocation of capital and that's because they're developing into platforms. For example, if you are invested in a social network that allows applications – like Vkontakte – you get exposure to various businesses.

The overall revenue strategy for Russian sites is to diversify and try to tap all the various revenue streams including micro-payments, advertising, targeted advertising and also the trend will be revenue sharing with applications. …. I guess that might also apply to global social networks and I think over time you will see really diversified streams of revenues for the winners.”

RT: How important is user feedback for development strategy?

YM: “If there is any site where user feedback is relevant and important, its social networks. If you take Facebook there were a few instances when users voiced their concerns over certain things, listened to, and adjustments made.”

RT: What would you say about Russian investment into global networking sites?

YM: “I can basically comment on our strategy. As we got to know how local social networks work, that's where the idea to invest in Facebook come about. This is our first global investment. We had investments before, but mostly in Eastern Europe.”

RT: What is your outlook for the Internet business?

YM: “Through the end of this year I think we will basically be looking at this trend – how resilient the sector is. Our projection for the Russian side of the business is there will probably be 20 to 30% Rouble growth in advertising compared to last year. Going forward, I think everything will depend on the global economy and Russian economy, as such, but our call is that the growth will continue in our sector.”