CONSOLIDATION

Imagine if Gmail bought Facebook and they were both owned by the president’s buddy

Mail.ru, Russia’s most popular email provider, this morning announced that it has paid $1.47 billion for the 48% that it did not already own of VKontakte, Russia’s most popular social network. Mail.ru already owns Odnoklassniki, the second-most popular network. It’s as if Gmail (if it were an independent company) were to buy Facebook.

The deal completes the takeover of VKontakte by Mail.ru, a public company listed in London. Its majority owner is Alisher Usmanov (pictured above), the richest man in Russia and a well-known friend of president Vladimir Putin. In April last year, Pavel Durov, VKontakte’s founder, briefly disappeared after he was accused of hitting a policeman with his car; the following day, two shareholders in VKontake sold their combined 48% stake in the company to United Capital Partners, a private equity group linked to the Kremlin. This is the same stake now in the hands of Usmanov, via Mail.ru.

Durov was ousted as CEO a year later and left Russia, hinting at machinations from the establishment in a statement:

Today VKontakte goes under the complete control of [Putin associate] Igor Sechin and Alisher Usmanov. Probably, in the Russian context, something like this was inevitable, but I’m happy we lasted seven and a half years. We did a lot. And part of what’s been done can’t be turned back.

At issue was VKontakte’s free-wheeling nature. Like many social networks, pretty much anything goes on VKontakte, including political speech and pirated films and music. (It also has no problem hosting anti-gay neo-Nazi groups.) It was one of the services used by opposition groups to organize protests against Putin in late 2011. Durov apparently told a blogger (paywall) at the time that VKontakte was a “100% apolitical company that does not support either those in power, the opposition or one of the parties.”

In recent years Russia has put in place ever harsher measures to tame the internet. In 2012 it passed a law enabling deep packet inspection (DPI) of all internet traffic flowing through the country. (Mail.ru was fined last year for refusing to share the contents of users’ emails, but in principle DPI could make those visible to the state anyway.) Last year, the Kremlin stepped up its war on social networks after the Edward Snowden revelations. Opposition blogs have been blocked, and a new law that went into force in August requires that any blog with more than 3,000 readers must register with the Russia’s official media regulator.

But one reason such measures are possible is they benefit homegrown internet firms that are willing to play by the Kremlin’s rules. According to Mail.ru, completing the purchase of VKontakte will finally put an end to disputes between shareholders and allow the company to focus on product development. And from September 2016, all companies that hold data on Russian citizens will have to store the data on servers inside Russia or risk being blocked. That’s expected to have the effect of squeezing out foreign firms like Google, Facebook and Twitter—at which point Mail.ru, VKontakte, Odnoklassniki, and their homegrown brethren will reign unopposed. What’s useful for the Kremlin is also likely to be quite profitable for Usmanov and friends.

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