Facebook “announced yesterday”:http://www.facebook.com/press/releases.php?p=103711 that it had received a $200 million dollar investment from “Digital Sky Technologies”:http://www.dst-global.com/, a Russian internet holding company whose investments, according to its own website, already accounts for over 70% of internet page views in the Russian speaking world. While “much is being made”:http://blogs.wsj.com/venturecapital/2009/05/27/the-daily-start-up-sifting-through-the-facebook-noise/?mod=rss_WSJBlog of the fact that the investment essentially values Facebook at $10 billion – with the “NY Times”:http://www.nytimes.com/2009/05/27/technology/internet/27facebook.html?_r=1&ref=todayspaper in particular reporting that Facebook turned down other investments from US firms that would have led to a lower overall valuation – “Rafe Needleman at CNET”:http://news.cnet.com/8301-17939_109-10249699-2.html suggests another possible benefit to Facebook beyond the simple investment and its resulting valuation:
bq. if Facebook wants to be successful in Russia, DST can bring a lot to the table besides knowledge. DST is close to the government there, the source said, and while outright involvement (or obstruction) from the Russian government is highly unlikely, if Facebook wants its business to go more smoothly, DST can help. For example, should Facebook want to hire Russians, a connected investor like DST could help. DST influence could be even more important if Facebook wanted to acquire companies in the region. DST’s Alexander Tamas told me his company is private and does not have many interactions with the government. There is no government funding in DST. Still, our source says that DST’s connections to the government, subtle though they may be, are important because the Russian market is not friendly to outsiders. “It’s a market where you want a partner,” I was told.
It will be interesting to see how this ends up playing out in practice. In the past, the Russian government has shown it is willing to put great pressure on foreign partners of Russian companies, especially in the “oil and gas sectors”:http://www.american.com/archive/2007/january-february-magazine-contents/russia2019s-oil-woes/. Social networking is obviously a different matter, as the issue of physical assets that could be seized plays out very differently. That being said, it is worth asking what the necessity of having a connection to the Kremlin for a social networking business to thrive in Russia means for the potential leverage the Kremlin might have over Facebook in the future. Put another way, what’s going to happen when a Chechen independence group pops up on Facebook in Russia?
In a broader sense, this once again raises the issue of the types of compromises internet companies might need to make to gain access to markets in certain types of countries, much in the spirit of “Google in China”:http://news.bbc.co.uk/2/hi/technology/4645596.stm. To be clear, there is nothing in the current agreement that suggests the Kremlin will be able to meddle in Facebook’s business in Russia, but it is certainly worth keeping an eye on developments in this regard in the future.
