(Bloomberg) Mail.ru Group Ltd. (MAIL) is reducing reliance on advertising revenue in Russia and plans to expand against Facebook Inc. (FB) by luring mobile users with a combination of online communication and entertainment.
While online games in the U.S. and Europe have historically been based on subscriptions, the Russian company follows a free-to-play model developed in Asia by operators including Tencent Holdings Ltd. (700), Dmitry Grishin, chief executive officer of Mail.ru, the country's largest social-network operator, said in an interview.
"We don't say: pay $20 or you can't go to the next level" of a game, Grishin said at Mail.ru's new 26-story headquarters in northern Moscow. "People can play for free, but they can purchase some extra features -- for instance, better protective ammunition in our military game 'Warface.' This model aligns interests of users and the company and at the end allows earning more money without coercion."
Mail.ru, controlled by Russian billionaire Alisher Usmanov, saw revenue from Internet value-added services, or IVAS, including sales of virtual gifts in social networks and extra features in games, surge 51 percent to $369 million last year. Mobile users often have phone accounts linked to their credit cards to pay for applications and this encourages spending. That makes IVAS even more important, said 34-year-old Grishin.
"While advertising largely depends on economic booms and slowdowns, IVAS is a stable revenue stream," Grishin said. "It's a very sticky thing. When some holiday or someone's birthday is coming, people are buying virtual gifts. It's pretty much the same culture as you have offline."
Mail.ru plans to boost total sales by as much as 28 percent this year. In 2012, revenue climbed 39 percent to about $680 million as online advertising rose 23 percent to $239 million.
"Our 'communitainment' strategy works really well for mobile devices as that's what people do on them -- they interact with each other and play games," Grishin said. "For many Internet companies it's a problem that people don't use their product on mobile."