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How Putin's cronies seized control of Russia's Facebook

pavel durov (flickr)

Pavel Durov, founder and CEO of VKontakte (VK), speaks at the Digital Life Design conference in 2012. Durov sold his remaining stake in VK earlier this week. (Hubert Burda Media / Flickr)

It's hard to imagine a situation in which Mark Zuckerberg would sell his stake in Facebook. It's even more difficult to imagine him fleeing from the police, battling takeover attempts from billionaires, or tossing $100 bills from his office window.

Yet that's exactly the scenario that's unfolded over the past few months in St. Petersburg, where Pavel Durov, the eccentric founder of social networking site VKontakte (VK), is suddenly persona non grata. Durov, 29, sold his remaining stake in VK this week, officially ending his tenure at the helm of Russia's most popular social network and turning the page on more than two years of turmoil and political strife.

Durov's departure effectively transfers majority control of VK to business magnate Alisher Usmanov — Russia's richest man, with an estimated worth of $20.2 billion, and a close ally of President Vladimir Putin. Durov sold his 12 percent stake to Ivan Tavrin, chief executive of telecom provider MegaFon, which Usmanov controls. (The exact sum of the sale was not disclosed, though it is believed to be between $300 and $400 million.) That means that Usmanov and his Kremlin-friendly allies now control 52 percent of the company, raising concerns over the future of VK and the freedom of its users.

Under Durov, VK became Russia's most popular social network and second-most visited site overall. The network saw nearly 50 million unique daily visitors as of July, 2013, compared to just 7.8 million for Facebook, according to ComScore's data on Russian social media use. Over time, VK became known for its permissive attitude toward digital piracy — something that no doubt boosted its popularity among younger users — and for its similarly liberal approach to free speech. The reason, experts say, is because Durov was at the helm.

"They will not protect users' information as strongly as Durov did."

"When Durov became CEO, VK was independent," says Nickolay Kononov, editor-in-chief of Russian business news site Hopes & Fears and author of a bestselling book on VK. "He was the only person who made decisions about everything — about product, about marketing, about strategy. And especially in some questions of security and connection with the state, with the Kremlin."

Shifting power to Usmanov could change that. In 2011, the oligarch fired two senior managers for publishing anti-Putin photos in an online newspaper that he owns.

"The new management, I think, will be more flexible," Kononov says. "They will not protect users' information as strongly as Durov did."

A staunch libertarian and devoted fan of The Matrix, Durov is seen as a hero in Russian startup circles, despite being something of a media recluse. He rarely gives interviews, and hardly ever looks at the camera when being photographed, but when he does appear in public, controversy usually follows. In 2012, he was seen tossing paper airplanes made from 5,000-ruble (about $140) notes from the window of VK's St. Petersburg offices, and was reportedly laughing at the people scrambling to pick them up from the street. Last year, Durov offered to hire former NSA contractor Edward Snowden just hours after he was granted asylum in Russia, criticizing the US for "betraying the principles it was once built on."

His deep-seated contrarianism and libertarian beliefs won him supporters among certain groups, though it ultimately led to his downfall. When anti-Putin protests broke out in 2011 amid allegations of election-fixing, Russian authorities asked Durov to shut down VK pages operated by activists. Durov refused, and responded by posting a picture of a dog wearing a sweatshirt to his Twitter page — a characteristically defiant poke at the intelligence officers who sent the request. In an open letter, he explained that the decision was motivated by business rather than politics, insisting that he was neither pro- nor anti-Putin, though the episode marked a turning point for VK. Rattled by the protests, the Kremlin began taking a greater interest in social media, beginning with VK.

Usmanov

Alisher Usmanov, Russia's richest man, now has majority control over VK. (Gulustan / Wikimedia Commons)

Slowly but surely, Durov lost control over his company through nebulous back-room deals and a bizarre run-in with the law. In April of last year, police raided Durov's home and offices after accusing him of driving a white Mercedes over the foot of a traffic cop. Durov denied any involvement and by the time police arrived at his doorstep, he had already fled the country. For months, no one knew where he was or what he was doing, and he remained in hiding after the charges against him were dramatically downgraded in June.

Just days after the raid came an even bigger blow: two VK co-founders had decided to sell their 48 percent combined stake to United Capital Partners (UCP), an investment firm managed by purported Putin ally Ilya Sherbovich. The deal took many by surprise, including Durov, who only heard about it when a reporter reached out for comment. Sherbovich insisted that the sale was completed without pressure or interference from the government, though Kononov, in an investigative piece published last year, reported that it was orchestrated by Igor Sechin — head of the state-owned oil giant Rosneft, and one of Putin's closest allies. (Sherbovich sits on the board of Rosneft.)

"The goal was to put VK under the control of businessmen who are friendly to the Kremlin."

Durov didn't lose complete control after the sale; he had earlier secured voting rights on the 40 percent share owned by the internet giant Mail.ru, which, combined with his personal stake, gave him a 52 percent share. But internal tensions began bubbling, as UCP urged Durov to focus on monetizing the site through more advertising, and Mail.ru — which is partially owned by Usmanov — began pushing for a larger stake. Financial concerns, however, were nothing more than a pretext for pursuing larger political goals.

"All these claims about monetization, it's not the main problem with VK," Kononov says. "The goal of this deal was to put VK under the control of businessmen who are friendly to the Kremlin."

For other Russian startups, that may send a dangerous signal.

"It essentially means that there's a glass ceiling to how big you can grow your company, and how influential your company can be in the Russian internet space before the government begins to take interest in it," says Samuel Greene, director of the Russia Institute at King's College London. "And I think the likelihood is that it will have a chilling effect on entrepreneurs."

Ultimately, Kononov says, Durov became fed up, and decided to "go global." He resurfaced to the public late last year to promote Telegram — a WhatsApp-like mobile messaging service — and plans to launch new products down the road. (Kononov says he's particularly interested in ephemeral messaging apps like Snapchat.)

Although he's technically still the CEO of VK and insists that he'll retain influence over the site, it's expected that he'll step away for good. In a post published to his VK page this week, Durov, true to his enigmatic form, managed to sound both weary and sarcastic.

"What you own sooner or later gets to own you."

"What you own sooner or later gets to own you," he wrote. "In the past few years, I actively rid myself of property, giving away and selling all I had, from furniture and things to real estate and companies. To achieve the ideal I had to get rid of the biggest piece of property I owned, the 12 percent stake in VKontakte. I am happy to have recently achieved this goal, too, having sold the stake to my friend Ivan Tavrin."

For VK, the future remains muddier than ever. It's unlikely that its new pro-Kremlin owners will implement drastic changes, but their very presence could be cause for concern for activists or opposition members. The idea, Greene suggests, is to simply make sure that the government is "in a position to control things if and when something happens."

The timing of the announcement is curious, as well. Kononov thinks the Kremlin wanted to secure the sale of Durov's stake prior to next week's Winter Olympics, which has been marred by terrorist threats and security concerns. Securing Putin-friendly leaders at the top of VK could make it easier for the government to monitor the site for terrorist activity, though it's impossible to say whether Sochi factored into the announcement at all.

"I think the only way you can judge that is to get inside the heads of people at the Kremlin," Greene says. "And that's not a comfortable place to be."

The Verge
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