Why Facebook Suddenly Likes Russia

Business Insider

Facebook CEO Mark Zuckerberg is in Russia and just visited with Russian prime minister Dmitry Medvedev.

Medvedev is the official widely viewed as a figurehead who swaps jobs with Russian president Vladimir Putin to help Putin get around term limits. But he's also been taking the lead on technology initiatives. He recently toured Twitter headquarters in San Francisco, for example.

What's up with Zuckerberg's visit?

Russia is one of the few countries where Facebook isn't a major player in social networking.

Local companies like VK.com and SUP, which owns LiveJournal, a U.S.-based site popular in Russia, are dominant instead.

In May 2009, Russian Internet giant DST invested $200 million for 2 percent of Facebook. At the time, Facebook's advertising engine hadn't taken off, the economy was in the grips of the banking sector's implosion, and Facebook could really use the cash. DST offered a lower valuation than Microsoft paid in 2007, but with easy, hands-off terms.

At the time, Forbes noted that DST owned a big stake in VK.com, then known as VKontakte, a Russian clone of Facebook. Facebook had sued StudiVZ, a German clone, but left VK alone. Facebook also allowed Russian Internet users to sign up, but didn't invest in the market.

We don't think there was a quid pro quo for Facebook to stay out of Russia. From what we understand, it was just far easier to spend money going after other markets and thereby avoid Russia's troubling political environment and not ruffle a major investor's feathers.

What's changed?

Wall Street wants Facebook to show growth oppportunities. Russia is a major Internet market.

DST no longer has control over VK. Through a subsidiary, it handed its voting rights to VK founder Pavel Durov in May.

The Russian government is keen to promote its tech sector. Facebook is a marquee name, and Russia wants it to open up some kind of R&D center in the country. Although the company says it currently has no plans to expand in Russia, that could easily change.

Facebook has an unceasing need to hire more engineering talent. Russia is a great source of engineers—and it's one of the few countries where local sites have successfully competed with Facebook.



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