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Is Pavel Durov, Russia's Zuckerberg, a Kremlin Target?


Is Pavel Durov, Russia's Zuckerberg, a Kremlin Target?

Courtesy Vkontakte

(Corrects pronunciation of Vkontakte)

The Singer House on 28 Nevsky Prospekt occupies perhaps St. Petersburg’s choicest piece of real estate. The six-story building, a bronze and glass jewel of early 20th century art nouveau, sits alongside the Griboyedov Canal, a winding slash of water that leads to the onion domes of the Church of the Savior on Spilled Blood. It opened in 1904 to house the Singer Sewing Co.’s operations in Russia. After 1917, the Bolsheviks handed it over to a state-owned publisher that in turn opened the city’s grandest bookshop, which still exists.

Since 2010, the fifth and sixth floors of the Singer House have been rented out by VKontakte.ru, the most popular social network in Russia. VKontakte, which is pronounced v’kon-TAK-tyuh and translates as “in contact,” has more than 210 million users and is the third-most-visited site in Russia. It is a relatively small office—just a couple dozen programmers work at the Singer building—with all the familiar startup accoutrements: brightly colored couches, free soda and chocolate, and a workforce of mainly young male programmers who rarely show up before early afternoon.

When I visited one day in June, Georgy Lobushkin, VKontakte’s 25-year-old spokesperson and the only employee of the press-shy company to have much contact with the outside world, met me as I walked off the caged elevator. We passed rows of empty cubicles. At the end of a hallway was an office with its door open. Houseplants blocked a window; a pair of black, very expensive Bowers & Wilkins speakers sat on the floor. This, said Lobushkin, was the office of VKontakte’s founder and chief executive officer, Pavel Durov.

A handsome, 28-year-old onetime tech prodigy, Durov is an obsessive fan of the Matrix movies, and with his dark hair, sharp jaw, and taste for black clothes, he looks a bit like Keanu Reeves’s character, Neo. The Western press often refers to him as “Russia’s Mark Zuckerberg,” although by all accounts Durov is both more charming and mercurial.Courtesy VKontakte

Durov had not been seen since early April, when he fled the country after investigators opened a case against him for allegedly running over the foot of a traffic policeman in a white Mercedes. There were rumors he was in Italy, or maybe Switzerland, though the U.S. was also a possibility. Wherever he was, he wasn’t in his office, and with every day he stayed invisible, the future of the social network he built became more precarious.

It had been a tumultuous year for Durov and his company. Around the time he disappeared, two original VKontakte investors and longtime friends of Durov’s sold their shares—worth 48 percent of the company—to an investment fund with reported ties to the ruling clique around President Vladimir Putin. Irina Levova, a senior analyst at the Russian Association of Electronic Communications, said the purchase of a stake in VKontakte resembled the “standard Russian method” of a “legitimized raider attack with the help of the Investigative Committee and administrative pressure.” It appeared the Kremlin might have launched the beginnings of a hostile takeover.

That the state is newly interested in the Internet is undeniable. After being spooked by the emergence of anti-government street protests in December 2011, officials around Putin awoke to the importance of what was being said and shared online. The Duma, under the control of the pro-Kremlin United Russia party, has passed a series of laws to tighten control of theInternet and widen the rules under which providers would be required to block certain sites.

The question is whether the government will now attempt to exert control over VKontakte and other prominent social-media outlets. For much of the spring and summer, Durov’s elusiveness only fueled the suspicions. Standing inside a glass cupola on the top floor of the Singer House, Lobushkin, the company’s spokesman, tried to sound unconcerned. For either the state or VKontakte’s new shareholders to compromise the site, he said, it was “not enough to control stock in the company or even access to its profits.” For that, “You’d need to control Pavel. And to control Pavel is very difficult.”

Durov was raised in St. Petersburg. His father, Valery, is a renowned classicist who taught for some years in Turin, Italy, where Durov spent part of his childhood. Nikolai, his older brother, won medals in international math and programming competitions. As a student at Saint Petersburg State University, Durov created his first social network, a forum for teachers and students. From the beginning, he knew how things should look and function. “He always likes to be the architect who controls the whole system,” says Nikolai Kononov, who wrote a well-received biography of Durov. Kononov adds: “He’s an individualist, an egoist—he works only for himself, plays only his game.”

In 2006, Vyacheslav Mirilashvili, a schoolmate of Durov’s who had studied at Tufts University, got in touch with him and proposed starting a Russian social network. Lev Leviev, a friend of Mirilashvili’s who had graduated from McGill University and worked at Ernst & Young, came on as another investor. They were joined by Durov’s brother Nikolai, then studying for a Ph.D. in mathematics, who would serve as chief developer. Much of the initial capital came from Mirilashvili’s father, a businessman in St. Petersburg.

VKontakte owed its early gains to its first-mover advantage on the Russian market. At the time, Facebook (FB) was limited to those with American college e-mail addresses. Even more, says Yuri Saprykin, the editor-in-chief of the publishing company Rambler-Afisha, the site was made by “brilliant programmers.” VKontakte’sinterface is arguably more intuitive than Facebook’s; load times, especially on the mobile application, are noticeably faster. It’s also hard to underestimate the appeal of the free, unlicensed music, films, and television shows available on the site. VKontakteusers spend an average of more than eight hours a month watching videos on the site, making it one of the largest copyright violators in Russia, if not the world. According to ComScore (SCOR), it has 46 million monthly users, compared with Facebook’s 11.7 million in Russia.

Even as VKontakte grew and Durov became an emblem for Internet-era success in Russia, he rarely appeared at public events or spoke to the press. He did agree to be interviewed for Kononov’s book. After it was published, a number of Russian production companies began inquiring about film rights. Durov tried to buy them himself, to prevent the project from being made. In the end, Russia’s AR Films acquired the book; the movie is in pre-production.VKontakte lounge at corporate officeCourtesy VKontakteVKontakte lounge at corporate office

Durov’s behavior can veer between the idiosyncratic and the aggressive. Last May he tossed handfuls of 5,000-ruble notes (around $150) out of a window of the Singer House during a city holiday. (The Russian press has estimated Durov’s worth to be more than $200 million, but that’s never been confirmed.) He fought with his partners to keep advertising to a minimum, which is one reason VKontakte’s revenue per user is estimated to be a seventh of Facebook’s. When Alisher Usmanov, an Uzbek-born Russian mogul who owns 40 percent of VKontakte, tried to buy out Durov and his partners, Durov posted on Twitter what he called his “official answer”: a photo of him holding up his middle finger to the camera. Usmanov later ceded his voting rights to Durov.

In the beginning, the state left Durov and his company alone. As Putin was consolidating his power in the early 2000s, the Kremlin focused on gaining influence over the country’s broadcast stations, replacing oligarchic ownership with state control. It didn’t care what was happening online.

The one official who did have an inkling of the Internet’s social and political relevance was Vladislav Surkov. A close adviser to Putin and a deft political manipulator who oversaw the Kremlin’s media strategy, Surkov made some informal overtures to Durov—perhaps, for example, he would like to meet from time to time and talk about what was happening on social networks. A person who worked on media projects under Surkov says he and his team thought Durov could help advise them on Internet issues. But Durov kept his distance. He knew that what he already had was more important than political connections, the former Surkov staffer says—being apart from them is exactly what gave him leverage.

In December 2011, fraudulent parliamentary elections brought to the surface a festering sense of discontent among Russia’s urban middle class. Moscow saw the largest street protests of the Putin era, shaking the city from its long political hibernation. Suddenly the Internet, and social media in particular, had very real implications for the state. “The opinion of the blogosphere is having a growing influence over the most serious political, economic, and social processes,” a spokesperson for the Investigative Committee, a body equal to the Federal Bureau of Investigation, would later say to a state-run news agency. “There are information wars being waged here aimed at undermining people’s trust in the state.”

During the protests, the St. Petersburg office of the FSB, Russia’s internal security agency, sent Durov a request to close seven groups on VKontakte that were organizing and publicizing opposition demonstrations. In response, Durov posted a photo on Twitter of his “official reaction” to the FSB’s demands: a dog in a hooded sweatshirt with its tongue out. Police in camouflage uniforms and carrying submachine guns came to Durov’s apartment, but retreated—shockingly—when he refused to let them in. His defiance made him an instant hero in opposition circles.

To the extent he has political views, Durov’s resemble the sort of techno-utopian, libertarian ideas popular in Silicon Valley. Last year he published a manifesto in the magazine Afisha that called on Russia to “rid society of the burden of obsolete laws, licenses, and restrictions … the best legislative initiative is absence.” He called the idea of national currency “anachronistic” and suggested the creation of autonomous “mini-states” within Russia’s borders.

A few days after the FSB asked VKontakte to shut down certain online opposition groups, Durov published an open letter explaining his refusal to do so. He meant to dampen the hopes of those who saw him as an open opponent of the Kremlin. The decision to disobey the FSB was really a business one. “If foreign sites continue to exist in a free state, and Russian ones begin to be censored, the Runet [Russian-language Internet] can await only its slow death,” he wrote.

Yet given the reach of Durov’s company and his determination to remain independent from the regime, it’s inevitable he’d become a political figure of some kind. He’s an icon to a young Russian generation that has outgrown the Soviet paternalist model and wants to create something on its own. Moreover, he enjoys a high level of trust, perhaps contemporary Russia’s rarest currency. “The machine of VKontakte appeared right before our eyes,” Saprykin says. “There’s a whole generation who could say they grew up together with VKontakte. And behind that is one person, one brain, who was able to create all of this.”The Singer House, 28 Nevsky ProspektCourtesy VKontakteThe Singer House, 28 Nevsky Prospekt

And that makes him a target. His troubles with the law began on April 5, when a white Mercedes registered to Ilya Perekopsky, a VKontakte vice president, disobeyed a traffic policeman’s orders in St. Petersburg. As dash-cam footage later leaked to the state-run media shows, the car tried to peel away from the officer. Investigators later said it ran over the cop’s foot before fleeing the scene, and they suspected Durov was behind the wheel. VKontakte released a denial claiming Durov doesn’t drive, but the evidence suggests he was, at the very least, in the car.

The incident created an easy opening to put pressure on Durov and his company. On April 16, investigators arrived at the Singer House to search VKontakte’s headquarters. They demanded files and tore through the offices. By then, Durov was gone: He had caught a flight out of Pulkovo Saint Petersburg Airport days before, beginning his period of wandering exile.

An even bigger shock was in store for Durov. On April 17 the private investment fund United Capital Partners (UCP) announced it had bought the 48 percent combined stake of Leviev and Mirilashvili. Durov found out about the sale only when a reporter for the Russian business daily Vedomosti sent him a message asking for comment. Usmanov’s group, which controls 40 percent of VKontakte, was also taken by surprise. It was certainly unusual that such a big stake would be bought by a fund that had never talked to the founder or biggest shareholder. That seems like a strange way of doing business, says one observer of the deal.

Immediately, speculation centered on the background of UCP’s manager, Ilya Sherbovich, a well-connected financier. He sits on the board of the state-owned oil giant Rosneft (ROSN:RU), whose CEO, Igor Sechin, is one of Putin’s closest allies. Although the terms of the sale are not public, it seems unlikely that UCP could have found all the necessary cash itself. UCP has around $3.5 billion under management; Forbes Russia estimated the size of its purchase of VKontakte stock at $1 billion. But with its government connections, UCP wouldn’t have had much problem nudging state banks to provide the financing. “The best way to get permission or protection from the Kremlin for a deal like this is to portray a forcible acquisition as a kind of [political] gift, in this case getting VKontakte under state control,” says Andrei Soldatov, a journalist who writes on security and online surveillance issues.

It’s quite possible UCP created a political pretext for a business transaction. In June, Sherbovich told Bloomberg News, “No one in the Kremlin, in the government, or in the business community asked me to buy the VK shares.” (UCP declined an interview request for this story.)

A Western source who had contact with VKontakte’s executives over the past months said they were rattled both by UCP’s purchase of VKontakte stock and Durov’s legal troubles. For his part, Durov stayed largely silent. In St. Petersburg, I met with Elnara Petrova, a former journalist and now tech entrepreneur who is married to a top VKontakte programmer. These days, she said, “People are always asking me, ‘How is Durov feeling? How is his mood?’ Well, what kind of mood could a millionaire who is spending his time in Europe have? Probably pretty good.” Ivan Streshinsky, CEO of USM Advisors, the group that manages Usmanov’s VKontakte holdings, says Durov was “spending this time productively, traveling in different countries, looking for business opportunities, comparing IT business in other countries to Russia.”

On June 7, the Investigative Committee made a dual announcement: It had identified Durov as the driver of the Mercedes but was downgrading his violation to an administrative one, solvable with a small fine. The St. Petersburg news portal Fontanka declared the news akin to an official “welcome back to the motherland.” Within days, Durov was spotted at a party in St. Petersburg for MegaFon (MFON:RU), a mobile phone carrier partly owned by Usmanov. But that was the only appearance he made. In late June, I was sitting at a cafe in Moscow with Kononov, Durov’s biographer, when we decided to send Durov a message on VKontakte. He wrote back in a few seconds: “I’m back.” He didn’t respond to any follow-up questions.

Although Durov has apparently returned to Russia, the future of VKontakte and his role in the company is still unclear. If UCP were to remove its support for Durov as CEO, the company could be plunged into crisis. Sherbovich, the head of UCP, has said he wants to keep Durov and is only interested in increasing the site’s value—something he says is better done with Durov than without.

It seems unlikely that UCP will start tinkering with the site in an obvious way. But its share in the company does give it the opportunity to monitor what’s being discussed and by whom. “It’s one thing to send an official letter signed by the FSB to VKontakte,” Soldatov says. “It’s completely different if you don’t need any sort of letter but just a phone call.” More than anything, it appears that the state doesn’t itself yet know what it wants to do with VKontakte, other than figuring it’s better to have control than not. Above all, the government does not want to be caught unaware again. As Kononov puts it, the authorities likely view UCP’s ownership as “insurance in the case of any future political cataclysms.”

Graphic by Bloomberg Businessweek; Data: ComScore

The Duma passed another law calling for the blocking of sites with pirated content. Given VKontakte’s trove of free music and video, this legislation could be an even more immediate threat to the company. In mid-June, perhaps to get out in front of the pending regulations, it began a massive campaign to delete unlicensed songs on user pages at the request of a law firm representing Universal Music (VIVHY), Sony Music (SNE), and Warner Music.

The crackdown may be the first step toward what Sergei Zheleznyak, the deputy speaker of the Duma, has called “digital sovereignty.” That would mean even foreign Internet companies such as Facebook would be forced to place their servers in Russia, making such sites more liable to monitoring or blocking. Such a move would resemble the Chinese setup, in which the state simultaneously pushes users toward homegrown versions of social networks over which it has more sway—such as Baidu (BIDU) in China, or perhaps VKontakte in Russia—while demanding greater access and compliance from foreign companies operating in Russian territory. Before, says Soldatov, the Russian authorities would “ask to remove content, not to be given a back door.” That may be changing.

VKontakte may have become too big, and the political stakes too important, for it to remain beyond the Kremlin’s reach. Oleg Kashin, a prominent journalist who met with Durov at the Singer House this spring, says their conversation left him with a “tragic impression.” He said Durov would not look out of place standing next to the brightest minds of Silicon Valley. Instead of that, Kashin says, “he is forced to ‘come to agreement’ with Russian siloviki [security politicians] and line up relationships with Russian oligarchs.”

On June 23, Durov momentarily resurfaced to post on VKontakte his reaction to the Duma’s anti-piracy law. He praised the successes of technology companies in Russia, writing that this “miracle” was based on two factors: “a talented, educated population and the lack of excessive regulation in the Internet sphere.” Now, he wrote, “One of those factors is ceasing to exist.” He posed a question: Could a talented workforce, in spite of efforts at state control, enable Russia’s Internet to continue to thrive? “If the answer turns out to be positive,” Durov wrote, “then truly our strength is limitless.”

Yaffa is a Bloomberg Businessweek contributor.

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