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Facebook is just the first step, say Russians
|25 мая 2010|
The Russian investment vehicle that bought a $200m stake in Facebook last year is preparing to buy stakes in dozens of well-known internet companies as Russia turns to the internet to lead its future prosperity.
Digital Sky Technologies (DST) has already invested $1bn (£693m) buying up stakes in web companies including Zynga, the makers of the popular online social game FarmVille, and acquiring AOL's messenger service, ICQ, for $188m.
Yuri Milner, chief executive, said: "There are a few dozen companies globally that we are following. When you do late-stage investment focused on the internet your universe shrinks dramatically."
He said there were probably only about 100 full-developed internet companies around the world.
DST, which is 35pc owned by Alisher Usmanov, the Russian billionaire linked to a bid for the football club, Arsenal, has built up a war chest of more than $1bn to fund the next stage of its investment strategy. The company, which also counts Goldman Sachs and fund manager Tiger Global among its investors, was recently valued at $3bn when Tencent, China's biggest internet company, snapped up a 10pc stake for $300m.
So far DST has invested solely in Russia, eastern Europe and America, but Mr Milner said he is actively looking at companies in the Asia, Australia and the UK. He declined to name any investment targets, but pointedly refused to rule out buying a stake in Twitter.
Although Mr Milner is looking solely at internet companies, he said his strategy is to invest in disruption.
"Every single industry will get disrupted by the internet. This is permanent, not cyclical. Music will never be the same again, the newspaper business will never be the same again. No matter what happens macro-economically, the internet will continue to change the world. I am investing in disruptive companies, that just happen to be internet companies."
Facebook remains Mr Milner's most high profile and strategic investment. It is understood that he has been quietly building on the original 2pc stake bought last May in shares held by Facebook employees. Mr Milner refused to comment on DST's current Facebook stake.
Mr Milner dismissed suggestions that at a valuation of $10bn he overpaid for his stake in Facebook, especially given that the social networking site has yet to prove it has turned to profit.
"Many people thought Facebook at a $10bn valuation at the bottom of the market was expensive," he said. "But our thesis is to find the best companies in their categories and invest in them. The better companies that we look at tend to be expensive."
Although DST may have overpaid, Mr Milner's investment valued Facebook at $5bn less than when Microsoft bought a $240m stake in late 2007.
"Anybody can make a mistake," he said. "But this is a vision I am convinced [of]. My vision is that Facebook will change a lot of things about the world, particularly e-commerce payments."
Mr Milner believes that people will shift far more of their purchases online. He also predicts that social gaming, in which people pay money to play characters in a fictional online world, will "explode".
"Billions of dollars are already spent on social gaming." he said. "In China people spend a multiple of what they spend in cinemas on social gaming. That is what it is going to be like everywhere."
He acknowledges that it is a vast amount of money to spend on things that only have a virtual existence, but says people are already spending billions of pounds on other "unnecessary" goods, such as ties and fancy furniture.
"People spend a lot of money on non-practical things. They could save a lot of money if they did that on the internet instead," according to the 48-year-old former theoretical physicist and World Bank strategist.
"Everything you do in real life you can do for cheaper on the internet. We have a dating site in Russia, so instead of taking your girlfriend to a restaurant you can meet her online.
"If you want to meet people you could go to a nightclub, but if you spend a few dollars online you can promote your picture for everyone to see. For the same money you can be seen by more people," he said. "I would argue that it is much more efficient to meet on the internet.
"I met my girlfriend in the gym, that's not the most efficient way either, as gym membership costs $1,000 a month."
Is everything in life about efficiency? "For most people, yes. Economics are important, most people would rather do things cheaper."