Felicis Ventures Blog

Vkontakte.ru - Russian Facebook Clone Growing By Leaps & Bounds

If you've never heard of Vkontakte.ru before - you're not alone. It was shocking to discover that it rose all the way to Alexa #34 in very short order. The site is growing so fast and is so popular in Russia that the country's secret service FSB got concerned that it might become a security risk because the Russian soldiers are signing up in droves. Social networking keeps demonstrating phenomal international growth. This shouldn't be a surprise: according to comScore's "State of the Internet" report from March of this year, Social Networks are the fastest growing vertical on the internet globally (60% annual growth) with under 40% penetration rate (versus 90% for portals).

What's even more amazing is that as far as I can tell, the site seems to be a carbon copy of Facebook - but localized in Russian and cyrillic alphabet. According to third party sources, the company has a team of only 20 people. It ranks among the top ten sites (based on Alexa stats) in Russia, Ukraine, Belarus, Kazakhstan and Tajikistan.

Russia is the country in Europe with the lowest market share for Google at 32% (versus Portugal's 94%) and its top 3 sites are all homegrown: Yandex, Mail.ru and Rambler. Facebook might find itself fighting an equally uphill battle in this important BRIC internet market.

Top Social Networking Sites & Top 5 Countries Their Traffic's Coming From

Despite frequent claims of being over-hyped, social networking sites still comfortably claim 3 of the top 10 spots world-wide on Alexa (as of September 9, 2007) and their growth shows no sign of slowing down.

According to ComScore, the top 6 Social Networking Sites (Myspace, Facebook, Hi5, Friendster, Orkut and Bebo) grew between 56-270%, between June ’06 and June ’07. Five of those top 6 were ranked in the 16 highest Alexa sites globally as summarized below:

The unique user numbers for those sites range between an impressive 18 and 114 million, but where those users come from tell a more important story, especially when it comes to monetizing those eyeballs. 

According to Alexa more than 40% of the Myspace and Facebook users come from the US and the UK. Compared to those two leading sites, Hi5 seems to be getting most of its users from South America, Friendster from Southeast Asia and Orkut from Brazil. Out of the trailing social networking sites, Bebo is the only one that drives 83% of its traffic from English speaking countries:

In addition to monetizing traffic from emerging countries and non-English speaking visitors, the largest social networks will also have to deal with strong entrenched local players like StudiVZ in Germany. But there’s still huge value in dominating a key region or demographic like the Spanish speakers or Southeast Asia.

Case in point is the Hispanic Market. According to Lee Vann, CEO of Captura Group as quoted in Juan Tornoe’s Blog on Hispanic Trending: “The U.S. Market is growing at about 1 percent whereas the Hispanic market is growing at about 15 percent each year. $16 billion a year is spent on Internet advertising in the U.S. Only $150 million of that targets Latinos. But more users could mean more ad revenues.”

Moikrug, Xing and LinkedIn

Yandex, the largest Internet portal in Russia announced last week that it acquired Moikrug.ru (a Russian version of LinkedIn). By itself the move was not surprising, as Yandex, which offers every imaginable web service in Russia from search to free web-hosting, added a largely complimentary professional networking site to its group. The value of the transaction was estimated at about $1.5 million for about 100 thousand users. Given that Russia's Internet audience in 2006 is estimated at about 26 million users (more than Italy or France), the combined company still has huge potential for explosive growth.

While it's extremely difficult to value social networks, let alone compare valuations across different companies in different countries, if one looks at this transaction on a simple value per user basis in comparison with LinkedIn and Xing, the deal actually looks pretty reasonable.

Social networks are inherently local, so it's not a big surprise to see successful national or even regional social networks pop up in the global internet scene. It's a fact that a majority of the internet users are spending more time than ever within their social networks so we should expect more interesting consolidations or acquisitions of social networking sites around the world.