'Russian Zuckerberg' Sells to Putin Crony

Pavel Durov, Russia's answer to Mark Zuckerberg, sells his stake in Vkontakte, the social network he founded in 2006 more popular in Russia than Facebook to a trusted partner of Russia's richest man, Alisher Usmanov, known for his unswerving loyalty to President Vladimir Putin. 

Pavel Durov is often described as Russia's answer to Mark Zuckerberg, because the social network he founded in 2006, VKontakte, is more popular here than Facebook Inc. Unlike his U.S. counterpart, however, Durov has now sold his entire stake in the company he founded.

The decision to cash out might be no big deal, except that this is Russia. Durov sold to a trusted partner of Russia's richest man, Alisher Usmanov, who is known for his unswerving loyalty to President Vladimir Putin. The 29 year-old Durov appears to have been too independent to be allowed to run a social network that had a wider reach than the nation's tightly-controlled major TV channels.

According to the Web information company Alexa, VKontakte is the second most popular site in Russia, after search engine Yandex, drawing close to 60 million unique visitors per day. Worldwide, it's the 24th most popular site on the Internet, claiming eighth place in terms of usage minutes. That puts VKontakte amid the U.S. and Chinese giants of the Web: In November, VKontakte users spent 31 billion minutes on the site, compared to 327.7 billion for Facebook and 21.6 billion for China's Baidu Inc. Though it is only popular in Russian-speaking countries, VKontakte's monthly number of user minutes is about 10 percent of Facebook's, making it highly successful within its limited language market. Durov and his programmer brother Nikolai are credited with making the network more attractive than Facebook to Russians, not least by allowing unhindered access to pirated music and videos.

Durov -- still chief executive of VKontakte, but probably not for long -- until recently owned 12 percent of the company. He was also allowed to vote the 40 percent stake held by Usmanov-controlled Mail.ru Group Ltd., giving him free rein to manage the social network as he pleased. Durov, however, came under growing pressure over the last two years. Some of his old partners sold 48 percent of the company to a Russian investment fund, which has waged war on the chief executive, accusing him of spending too much time on side projects and not enough on monetizing VKontakte. "They do not believe anyone, they are paranoid," Durov said of the fund, United Capital Partners, in October. "If I did not know them to be financiers, I would have supposed they were FSB," (Russia's Federal Security Service is the successor domestic intelligence agency to the old KGB).

By December, the pressure became too much for Durov, an avowed libertarian and prankster known to have floated large-denomination bills out of a window to see how people below would react. "What you own sooner or later gets to own you," he wrote in a VKontakte post announcing the sale of his stake for an undisclosed sum, believed to be between $300 million and $400 million. "In the past few years, I actively rid myself of property, giving away and selling all I had, from furniture and things to real estate and companies. To achieve the ideal I had to get rid of the biggest piece of property I owned, the 12 percent stake in VKontakte. I am happy to have recently achieved this goal, too, having sold the stake to my friend Ivan Tavrin."

Tavrin is chief executive of mobile operator OAO MegaFon, one of Russia's troika of market leaders. MegaFon is controlled by Usmanov, whom Bloomberg estimates to be worth $19.2 billion. Tavrin ran a media holding for the billionaire before moving to the phone company.

He and Durov may be friends, but the motives behind the deal are not necessarily friendly. "Before the Olympics," wrote Nikolai Kononov, author of a bestselling book about Durov, "a third of the nation hangs out on VKontakte: Who knows what enemies might whisper to them? An information hub must be controlled by reliable people." The first letters of each paragraph in Kononov's column on Durov's cash-out spelled: "P-U-T-I-N B-U-M-P-E-D D-U-R-O-V." The author said it was a coincidence.

VKontakte, with its young audience, has long been an venue for soccer fans and radical activists of all stripes to connect. Controlled by Putin allies, it represents a greater danger to them. Durov may have been forced to cooperate with the Russian intelligence services, but he famously refused to close down the pages of opposition groups at the peak of protests against a rigged parliamentary election in 2011. "Having lost Durov, the VKontakte generation will lose a venue that was protected from the authorities' interference," Kononov wrote.

When Zuckerberg visited Russia in 2012, he predicted that Facebook would gradually squeeze competitors out of the Russian market. "When people can be in contact with the whole world, not just their neighbors, won't they choose that?" the Facebook founder said, playing on the English meaning of VKontakte, "in contact." Now, Facebook and other foreign-based networks may become more attractive to Russian users for a different reason: While they may share information with the U.S. National Security Agency, they will be less likely to cooperate as closely with the Russian secret police.

Nikolai Durov, the programmer behind many of VKontakte's features, recently wrote on his blog that after Putin's allies "liquidate" VKontakte, "Russians will have to stop acting as if they were special and start using Facebook as the whole 'civilized world' does."

For now, however, the "liquidation" to which he referred may only concern politically active users, for whom even Facebook may not be safe enough -- it too has a Russian presence that's potentially vulnerable to government pressure. VKontakte remains the biggest social network in Russia, allowing Usmanov and his allies to aim for a high-profile IPO once the piracy issues are resolved.

Durov is already busy promoting his next product, the mobile messenger Telegram, a Whatsapp clone. According to statistics provided by Durov, his new brainchild is growing fast in Saudi Arabia and Oman. These notoriously restrictive regimes may yet prove more liberal than Russia, at least as far as he is concerned.

(Leonid Bershidsky is a Bloomberg View contributor. Follow him on Twitter.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author on this story:
    Leonid Bershidsky at lbershidsky@bloomberg.net

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    Marc Champion at mchampion7@bloomberg.net

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