DST Investments: Earth to Russia or Earth to U-S?

I am not claiming to know any more than you about the Russian Internet-focused investment group, Digital Sky Technologies (DST).  Yet it doesn’t even take a curious reader to notice a headline or two about DST’s noteworthy stake of roughly 5% in Facebook, and its fresh investment in Zynga.

I discovered two things from my recent visit to DST’s website.  Having invested around $1 billion in digital over the past several years, the firm certainly qualifies as a big player in the investment space, although not one of the all-time biggest, when judging by investment size.  My second observation was that the DST guys have demonstrated a “classic” taste in investments by choosing proven, established, trademark kinds of companies.  In addition to Facebook, these investors have placed their money in ”@mail.ru,” Russia’s largest free email service; “Vkontakte.ru,” a simplistic knock-off of Facebook in terms of content, but just as popular as the real thing among Russian youth; Forticom, which owns “Odnoklassniki.ru,” among others (this social network is positioned with “Vkontakte” pretty much like MySpace is with Facebook).

The “Vkontakte” site, like a fake bag missing some defining trinkets, resembles more of a computer program than the virtual universe that Facebook managed to create.  The Russian site doesn’t have as many features as Facebook or any of the social applications we are constantly being bombarded with as users.  Perhaps it isn’t too unreasonable to claim that nothing meaningful has been gained from any of the 300,000 active social apps on Facebook.  Yet the presence of this staggering figure implies that users must be using the apps, either by choice or maybe even “by accident,” as dozens of app invitations tend to surface on people’s homepages, begging for a click.  Zynga, DST’s most recent investment, owns 5 out of the top 10 apps on the site, including FarmVille, which many network users publicly claim to have gotten sucked into.   So it follows that Zynga has been growing more and more interlinked with Facebook, probably inspiring DST through its association with Facebook to also invest.

At the same time, DST must have considered the recent favorable trends in the Applications sub-sector of digital media, which Zynga relates strongly to, especially when considering the company in the context of its connection with Facebook.  The Web and social applications category dominated in terms of category deal value in 2009 with $2.8 billion, as well as in terms of deal volume, which also increased by a substantial 63% over the prior year.  Consequentially, DST was likely to see this point in time as a good one to invest in a social media application- related company.

Thus, it seems evident that DST’s investment strategy is quite logical, and the widespread speculation about the firm being poised to become an even bigger player in the investment field in 2010 is not irrational.  DST Investments: Earth to U-S.