Funds Flow for Facebook from Digital Sky
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.
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