The emerging market social-networking superpowers

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There is something going on in China, Russia and South Africa. Via various internet investments and creations, these three countries combined have built up major stakes in some of the world’s biggest sites and social networks.

Russian investment company, Digital Sky Technologies (DST), now owns about 7-10% of Facebook by various estimates, putting the company among Facebook’s biggest owners. Via its sister company Mail.ru, another 2.4% of Facebook is held. Recently, according to the New York Times, DST ploughed a further $50-million into Facebook.

DST also owns about five percent of the popular social gaming company Zynga and another five percent of the prominent shopping-coupon company Groupon. The company is now apparently eyeing a piece of Twitter, but then again who isn’t?

The Mail.ru Group, which has grown into the biggest Internet company in the Russian-speaking world, owns 100% of Russian social networking site Odnoklassniki, and has a significant stake in the country’s other major networking site, Vkontakte. DST also owns the early-web era instant messaging service ICQ, an interesting investment because the service is somewhat of a fading star.

The Chinese and South African connection
There is also a Chinese, and even a South African connection to the Russian group.

South African emerging markets media giant Naspers, an $18-billion company, also owns a stake (reported at 28.7%) in DST, and therefore indirectly holds a stake in Facebook.

Naspers also owns a chunk in TenCent’s QQ, China’s largest instant messenger and social network. In December 2010, QQ.com ranked 9th overall in Alexa’s internet rankings, ahead of Twitter which ranked 10th. According to Business Day, TenCent had about 637-million registered users in December 2010.

Ironically Naspers hails from a newspaper background, but started to make serious money via pay-TV operations in South Africa and throughout Africa. Naspers operates from a home market with a comparatively small internet user base of anywhere between 7-12 million South African users, so this may explain why the company has been aggressively fishing beyond its borders for internet properties.

Naspers is headed by a tough, shrewd and ambitious Cape Town-based CEO in Koos Bekker. At home, the company owns the largest internet media player in News24, which attracts a modest — by world standards — five million monthly users. It also owns a piece of the South African MXit, a mobile-app-based IM now claiming around 25-30-million world-wide users.

In 2001 Naspers bought the 46,5% piece of Tencent for $32m, making it the largest shareholder in the then three-year-old company. Then QQ had just 18-million accounts. As Tencent grew and turned into the world’s third-largest dot-com by market value, the value of Naspers’ stake jumped more than 400-fold to exceed R14bn.

With these impressive figures, it appears that Tencent’s QQ platform may be challenging Facebook as the world’s largest social networking platform. They are not exactly comparable platforms because QQ is an IM first and a social network second. For Facebook it is the other way round. But a broad definition of “social network” — a somewhat abused term these days — could put the companies in the same category.

In September 2010, Naspers snapped up yet another social network, but this time in the US. The company bought a “controlling interest” in social networking site Multiply. Multiply, headquartered in Boca Raton, Florida, reportedly has more than 11-million registered users.

Naspers also owns Indian social networking play Ibibo, as well as various ecommerce platforms in Eastern Europe, South America and other parts of Asia. The company holds 25% of Singapore-based BuzzCity, a mobile media company that runs a global advertising network on the mobile internet.

Memeburn has it on good authority that Naspers sometime back had an opportunity to buy a piece of business networking site LinkedIn, but turned it down at the time — a decision which has caused some regret at the company.

The Russians are not coming, they have in fact arrived
On the other side of the world, the other figure leading this new emerging markets internet charge is the low-profile Internet tycoon Yury Milner. Milner is also the chairman of Mail.ru.

The shaven-headed businessman trained as a physicist in Moscow before starting out as a manager at the World Bank. He began investing in the Russian Internet in the late 1990s and founded Mail.ru in 2001.

A report in The New York Times noted that if DST had invested 50 million dollars (37.5 million euros) more in Facebook, its combined stake with Mail.ru would be worth about 500 million dollars.

Mail.ru made its debut on the London stock exchange in November and was valued at 5.71 billion dollars on flotation.

In a rare interview with business daily Vedomosti late in December 2010, Milner said that Mail.ru had “chosen a strategy to have a global expertise in a very narrow sector”.

He said that in every Internet sector, there was a tendency for one single firm to become dominant, and that the company had picked Facebook as the leader in English-language social networking.

“On the Internet there is a tendency for ‘winner takes all’ and a leader emerges in every niche with surprising consistency,” he said. “This is the main issue that we look at. When we made our first investment in Facebook, it was not obvious that it was a winner.”

Milner said he planned to invest the proceeds of the IPO in Internet projects, which he called “one of the most promising areas for the next 10 years”. The Mail.ru Group and DST are part owned by Alisher Usmanov, a Russian billionaire of Uzbek origin who first invested in DST in 2008 and is also a major shareholder in Arsenal football club.

The Silicon Valleys of emerging markets
The first ten years were all about Silicon Valley — the undisputed king of web innovation and home to the great internet properties that have defined the online landscape of today. The next ten may see the famous Silicon Valley share its mantle with new and rising centres of internet innovation in key emerging markets like Asia, Eastern Europe, South America and Africa.

Disclosure: Matthew Buckland previously worked for Naspers’ News24.com. He is now involved in his own internet startup.

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