Digital Sky Technologies (DST), an investment group with significant stakes in Eastern European and Russian internet businesses, has made a $200 million investment in Facebook. This is in exchange for preferred stock, representing a 1.96% equity stake at a $10 billion valuation.
In addition, DST has indicated that it is planning an offer to purchase at least $100 million of Facebook common stock from existing common stockholders that would facilitate liquidity for current and former employees’ vested shares in the company.
The details of the plan are expected to be announced to eligible participants during the summer. Consistent with Facebook’s practice with other recent investors, DST will not be represented on the Facebook board or hold special observer rights.
“This investment demonstrates Facebook’s ongoing success at creating a global network for people to share and connect,” said Facebook CEO Mark Zuckerberg. “We’ve worked hard to bring more than 200 million people – 70% outside of the U.S. – onto Facebook to share with friends, family, and co-workers. A number of firms approached us, but DST stood out.”
“Our investment experience in other regions reveals the tremendous value social networking companies create as they redefine how people communicate and interact,” said Yuri Milner, chief executive of DST.
Studies, however, infer that most social networking properties are struggling and are not quite viable. Although they’ve managed to make millions of members, social networks hardly have any definite revenue model. Advertising revenues are negligibly low on social sites, because most users are not interested in ads.
While 83% of the Internet population (ages 13 to 54) participates in social media – 47% on a weekly basis – less than 5% of social media users regularly turn to these sites for guidance on purchase decisions. A new report by Knowledge Networks revealed this on May 20.
According to the report, only 16% of social media users say they are more likely to buy from companies that advertise on social sites.
With similar findings research firm IDC says ads on social networking services (SNS) have lower click-through rates than traditional online ads and they also lead to fewer purchases. IDC expects that lower-than-average ad effectiveness on SNS will continue to contribute to slow ad sales unless publishers get users to do something beyond just communicating with others.
Even YouTube, a seemingly popular social media site for video sharing, is struggling and costing the owner Google $1.65 million a day. The revelation comes from Internet Evolution that discusses the future of Internet.
Founded in February 2004, Facebook is a privately held company and is headquartered in Palo Alto, Calif.