Facebook looks to Digital Sky for help with revenue potential abroad [UPDATED]
Facebook announced today that Russian venture capital firm Digital Sky Technologies had bought $200-million worth of preferred stock in the Palo Alto, Calif., social networking company, or just under 2% of Facebook based on a $10-billion total valuation. Digital Sky will probably also buy $100-million worth of common stock so that Facebook can use the proceeds to pay employees who wish to cash out on their vested shares.
Facebook Chief Executive Mark Zuckerberg said one of the primary reasons for the deal was Digital Sky's experience with social networks in various countries. The company's portfolio includes five Eastern European social networks, including Russia's Vkontakte and the company Forticom, which runs Odnoklassniki (Russia), Nasza-Klasa (Poland) and One.lv and One.lt in the Baltics.
On a conference call with reporters, Digital Sky CEO Yuri Milner said that his social networks were market leaders in 13 different European countries. "What we see over there is that the companies that are farther along the monetization curve are able to monetize significantly better than Facebook at this point," he said.
But, he added, "we strongly believe that the same pattern would follow with Facebook."
Zuckerberg said he was interested in how DST's social networks use a variety of successful monetization strategies, including advertising, virtual gits and direct payments from users.
"The fact that there’s so many different models for these social networks across the world is a demonstration that these products are really creating a lot of value for users, and therefore there are ways to monetize them very effectively," Zuckerberg said. "I'm really looking forward to learning and getting more of an understanding about how these models are working in Europe and Asia."
Facebook doesn't make its advertising revenue numbers public, but research firm EMarketer estimates the company's overseas ad revenue will grow to $70 million in 2009, a 75% increase over 2008. EMarketer projects Facebook's 2009 domestic ad revenue at $230 million.
Corrected, May 27th, 7:45 a.m.: Because of a typographical error, an earlier version of this post stated Facebook's valuation for this investment at $1 billion. The correct value is $10 billion.
-- David Sarno