Pavel Durov, founder and CEO of Vkontakte (Russia's biggest social network) prefers to keep a low profile in the media. He rarely gives interviews and almost never looks in the camera when his photos are being taken. Though he frequently addresses the 2.7M audience of his personal blog and this month Pavel gave an extensive interview to Forbes.ru. The article gives an insight on Pavel's early days and Vkontakte's future plans. Perhaps the interview itself was part of the company's strategy of raising its profile before entering other markets and possibly going public. Rumors about Vkontakte's IPO resurfaced a few weeks ago but has been unconfirmed so far. Vkontakte was founded in 2006 by Pavel and two of his friends. Today the social network attracts the largest audience with estimated 26 million unique daily visits. Read on to learn how it all started and where the company is at right now.
Though Pavel learned how to code already in school, he ended up going to St.Petersburg State University to study English Philology. While at the university, he wanted to build an online platform for students from different parts of town to meet online and exchange opinions and ideas. First he built a website Durov.com for students to upload and share essays and exchange opinions. Then he created a forum for the whole university and put a lot of effort into promoting it, online and offline.
By the end of his studies it became apparent that translation work is not for him and he wanted to work on his own projects instead. 'When I looked at people who go every day to their offices to perform routine jobs, I could not image that kind of life for myself', Pavel shares, 'running my own online projects and organizing events for students taught me to think independently and got me accustomed to the thought of not having a direct boss'.
Around his graduation from the university, Pavel got in touch with a friend (Vyacheslav Mirilashvili) who studied in US and saw the initial rise of social networks there. Year was 2006, social networks in Russia were growing but still had a very small audience. The largest social network at the time, Odnoklassniki, had far less than 1 million users. That spring Pavel, together with Vyacheslav and another friend Lev Leviev founded Vkontakte. The initial funding was provided by Vyacheslav's father, a famous Russian entrepreneur from the 90s Mikhail Mirilashvili. (Pictured below is Vkontakte's office, the company occupies top floors including the dome).
The social network was launched later in autumn and within the first few days it attracted 2000 users. Part of the success was attributed to a competition Pavel introduced during launch: users that add the most friends to their profiles get an iPod. Within one year Vkontakte attracted 3 million users. People enjoyed finding friends, tagging photos, posting events and streaming audio and video content.
Slowly but surely the need for more investments to buy servers and employ more developers arose. That is when DST knocked on Vkontakte's door. 'Our project was radically different from other start-ups since we were growing exponentially without any advertising'', comments Pavel. 'Yuri Milner offered us more than other investors and asked for less in return. Plus he himself initiated the process and approached us first'. That is how DST bought 24,99% shares in Vkontakte for $16.3M.
Pavel was resisting having advertising on the social network but the need for the return on investments was pressing. So Vkontakte introduced a possibility to increase profile ratings with paid text messages, later adding virtual currency and virtual goods like presents. However, that brought only a few million dollars in return so in summer 2008 the company signed their first contract for online advertising. Half a year later they also introduced a revenue-sharing model for game developers who built applications for Vkontakte.
Vkontakte attracts a lot of criticism from copyright holders who call it the biggest archive of pirated content in Russia. About half of videos watched in Runet are viewed through Vkontakte and that is their competitive advantage against other social networks. Pavel's response: freedom of information is an intrinsic part of Internet. Though he came up with a compromise: Vkontakte allowed copyright owners to delete pirated content and offered help promoting their pages. So far only 20th Century Fox agreed to the deal.
Resolving the issue of pirated content is key to Vkontakte's IPO, some experts believe. Perhaps that is why Vkontakte re-introduced invite-only registration and hinted plans of launching a stricter policy on distributing 'dangerous content' (especially pornography) next year.
Since Vkontakte so far limited itself to Russian-speaking audience, their potential to grow is limited. Out of about 170 million Russian-speakers the network has 135 million profiles. That is why Vkontakte recently launched a VK.com domain and announced plans of growing the network in Europe. Germany is said to be the first targeted market.
Vkontakte earns about $10M a month, half of that money comes from contextual advertising. In 2010 the company's total income was $94M and this year it is estimated to double. Last November Mail.ru Group bought another 7,5% shares in Vkontakte, estimating it to be worth $1,63 billion. By April this year the company's value rose to $1,84 billion.