In Russia, Advertising Boosts 45% Growth In 2008

Yuri Milner head of Digital Sky and

How to turn a profit in online advertising? How about set up shop in Russia?, the most popular Russian language website in the world, just announced revenues of $74.6 million for 2008, a 45% increase over 2007. The email provider and Web portal’s net income was $34.3 million, a 29% increase over the same period. So how’d they do it?

  1. Lean and Mean: The site serves 40 million users a month, but has a staff of only 450 spread throughout the country. One of its nearest competitors, the search engine Rambler, had $110 million in revenues, but a mere 3% profit margin.
  2. Facebook Inside: is part of Yuri Milner’s Digital Sky Technologies network of companies. Digital Sky just made a $200 million investment in Facebook in exchange for about 2% of the company’s stock. But Digital Sky also runs its own social networks, including the “virtual knockoff,” Vkontakte. Not only did Milner’s investment in Facebook likely stave off any legal action against Vkontakte, it likely cemented its position as one of the most popular Russian language social networks.
  3. Growth in the Advertising Market: The Russian advertising market as a whole grew 55% over 2007, to $590 million. Both display and contextual advertising are booming, with car companies and consumer goods and services companies leading the way.

Cleary Milner and are benefiting from market conditions that are nearly opposite of what’s going on in the U.S. market, namely free flowing capital and burgeoning demand from advertisers.

But the company is also carefully controlling costs and growth. Milner, a Wharton grad, is taking advantage of flush times not to promote rapid and possibly unsustainable growth, but to lock down his position in the marketplace. With U.S. backers including Renaissance Partners, Tiger Global and Goldman Sachs, he could afford to pay a premium that valued his Facebook investment at $10 billion, below Microsoft’s investment valuation, but above the current market, earning him an ally in Facebook’s founder Mark Zuckerberg.

And with his impressive profit margins, Milner seems to be earning the trust of his Western friends to keep and develop the Russian market for himself. By driving traffic from the rest of his Digital Sky properties into, Milner has made a nice loop of a network that might become a partnership model for U.S.-based content Web sites trying to figure out how to survive in a down market.

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