………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………........... ••• faberNovel 2012 Follow us on twitter @fabernovel ••• Visit our website and discover what we do: fabernovel.com ••• ••• Expanding to Russia with love
Reading this presentation will let you know everthing about the boiling digital market in Russia, from its roots in Russian culture, to the innovative startups of nowadays
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
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Decades ago, Russian technology began impressing the world. Now Russia is back!
In 2010, NASA and ROSCOSMOS agreed on a 1 billion dollar deal to send US astronauts to the International Space Station using Soyouz on Baikonur launchpad.
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Even NASA trusts Russian technology and does business with the former "evil empire."
Why shouldn’t you?
1956, USSR put in orbit the first ever artificial satellite: Sputnik.
1961, Yuri Gagarin became the first man to orbit the Earth.
So, what does the new Russian technology sector look like ?
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Russia has a strong technological and engineering culture…
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Mendeleev, Tsiolkovsky… Russia has a long history of scientific research.
« To catch up, and to surpass! » Soviet slogan for Science and Technology, introduced by Lenin.
Based on these pre-existing conditions, the fate of Soviet civilization has long been linked to its success in its Science and Technology field.
The Russian innovation model leverages world-class scientists, famous mathematicians, taught in Moscow or St. Petersburg Universities and science-dedicated schools.
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Copy/paste innovation: a perfectly well-accepted path to business success
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In its initial version, Russia’s leading daily deal site BigLion not only copied Groupon’s business model, but they also just ripped the site design and navigation off completely, too. The sites looked nearly identical, even down to the smallest details.
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We can find many examples of copy-paste innovation in Russia…
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“The Russian Internet could almost be described as tabula rasa with huge potential for opportunity and growth. [So] we just looked at what had been done in other countries, chose the models that proved their relevance and then adapted them to the Russian market.”
Marina Treshchova, CEO Fast Lane Ventures, interviewed by EWDN.COM
Original company
The Russian copy
Web initiatives in Russia are often perceived as pure and simple copies of successful Western companies, in which business models, designs and brandings are faithfully replicated. Here are a few examples of the most significant ones :
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… but they eventually leapfrog their original model.
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Vkontakte looks and feels very similar to Facebook, but…
… Vkontakte has developed some specific and local functionalities that might even raise strong barriers for Facebook. This example testifies of how Russian services can emancipate from the original model by leveraging on their own strengths to build a unique capability.
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Beyond a simple copycat, Vkontakte beats Facebook because of many key features
• Launched in 2006, it claims more than 110 million active accounts (vs. 5 million facebook users in Russia). It is the 4th most visited Russian website.
• Facebook faces difficulties penetrating the market for two reasons:
• Facebook's Russian users are generally of the wealthier, well-traveled, cosmopolitan variety, have foreign friends and tend to live in Moscow and St. Petersburg.
• Facebook does not offer content sharing services
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Vkontakte created a very efficient network, far from its model
• It is the most popular content sharing platform, including many illegal files. The search engine also allows users to look for the nearest ‘active’ single woman in the region, and escorts.
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• The website also plays its part throughout Russian protests through events like “Revolution Square Saturday” that took place after the December elections
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With rare exceptions, Russian companies don’t internationalize
But why do firms internationalize?
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Growth & Performance Ideas & Innovation New clients Tax Benefit Economies of scale …
Exclusive information Cultural mix Technological advantage …
There is plenty of both in Russia!
Their weak international presence is not necessarily a concern, as many examples show that Russian tech companies successfully internationalize when needed…
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Mass-scale public investment in innovation in Russia
• 120 billion rubles ($3,72b) from the Russian Federation
• To give Russia a leading position on the nanotechnology sector while accelerating the commercialization of nanotech products (inside and outside Russia)
• 2010: 44 projects approved, 47.1 billion rubles invested, total budget of the projects 146 billion rubles
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• State funded venture capital company created in 2007
• $1.25 billion capital to fund VCs investments using a 5% loan without asking for stocks in the companies.
• Two goals: Investing in Russian tech while attracting and developing VC networks in Russia.
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…and are spreading internet technologies!
While households’ internet access grew by 10% in 2011, the household broadband penetration remained flat: mobile phones internet users account for most of the new internet users
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Still, only 7% of subscribers have access to the 3G network Smartphones penetration is still low (11%) but is quickly growing: +118% between 2010 and 2011
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A network of incubators demonstrating the recent dynamism of the startup ecosystem
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…
A sample of the most active and significant Incubators launched in Russia, that show the willingness and dynamism of an emerging ecosystem dedicated to innovation and entrepreneurship.
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Tex Drive
• Founded in 2011, TexDrive is a member of the Techstars network, and is supported by Springboard, two worldwide well-known start-up accelerators.
• TexDrive offers 12-week programs that help start-ups define a business model, find investors and solve legal issues. Selected projects get $25K at the start, then $100K at the end of the program, while TexDrive gets a small share of the company in return.
• Own funds and TexDrive investors network represent potentially $3B in venture capital funds. Investors are local wealthy individuals, entrepreneurs and investment managers.
• First program launched in January 2012
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MOSCOW
Sources: Official website, Marchmont Capital, EWDN.com
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Skolkovo: Russia’s answer to Silicon Valley
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• The Skolkovo Innovation Centre, still under construction and completed by 2014, is the most remarkable and emblematic example of the Russian initiatives to foster innovation and put Russia on the global “technology map”.
• The strategic goal of the Skolkovo Innovation Centre is to concentrate international intellectual capital, thereby stimulating the development of break-through projects and technologies. To help Russian innovators liaise with international VCs, Skolkovo has also opened offices in UK and in the Silicon Valley.
• Mainly fund by the Russian government, Skolkovo gathers innovation clusters, a technopark, a university and a city-laboratory, near Moscow. The innovation centre cooperates with a number of foreign tech giants, including Cisco, Ericsson, Nokia. Microsoft and SAP are launching R&D centres in Skolkovo.
• The innovation clusters cover the following
fields : • Information technologies
• Energy Efficient technologies
• Nuclear technologies
• Biomedical technologies
• Space technologies and communication
• At the moment, the Skolkovo Foundation already supports an estimated 350 Russian innovation companies, with 220 of those coming from 30 different regions in Russia. Plans are to increase the number of residents to 500 companies this year.
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Already some extremely innovative companies are coming out of this ecosystem
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A selection of some highly innovative start-ups “made in Russia” that offer a disruptive value proposition, and testify of the dynamism of Russian entrepreneurs.
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Yota • Yota (4G internet) is the first Russian high-speed wireless network based on Mobile WiMAX.
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Yota offers fixed, nomadic, and fully mobile wireless broadband Internet access, through dedicated mobile devices. Yota also offes to stream movies, TV programs, and online music in its mobile services catalogue. It focuses on high density urban areas.
• Those actors have entered the telecom market by providing access only, differentiating with disruptive distribution models.
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Displair
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• Displair’s interface can be seen, heard, smelled and touched in a fully interactive 2D or 3D experience.
• The device shows potential for use in advertising, events, gaming, education, medicine the mobile and the consumer electronics industry.
• A startup from Astrakhan, Southern Russia, Displair won numerous innovation contests. It has become a resident of both Skolkovo and Kazan’s IT Park
According to Mashable, DisplAir’s 'air screen' technology has made the screenless interactive user interface magic seen with Tom Cruise in Minority Report a working reality.
DisplAir image technology offers a breakthrough in static and animated 2D and 3D image display with far reaching implications in currently available image and screen technologies.
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Good Roads
• Goodroads is a mobile mapping service that collects data about road surface quality. The system is paired with an iPhone application which gathers data and runs an algorithm that evaluates road conditions.
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The project was launched in 2011 and won the Opera Software Startups Award.
The site was created by a team of students at the St Petersburg State Polytechnical University, helped by the QD incubator.
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Business in Russia still faces many challenges
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Foreign investors and business developers are often prejudiced by the historical barriers that are still attached to the common image of the Russian economy :
• “Rules of law that fail to match countries such as the U.S. and Western Europe”;
• Bureaucracies are confusing and cumbersome;
• Corruption is still a common practice;
• Powerful oligarchs dominate key industries;
• Few Russian people actually speak English;
• And secrecy in R&D is the norm…”
Even if those challenges are still somewhat a reality, it’s yet possible and attractive to do business in Russia.
Thanks to public and private initiatives to align with Western standards and enable Russia to attract foreign investors and develop international partnerships, those barriers have been substantially lessened.
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Intellectual property
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• Since the dissolution of the Soviet Union, the Russian Federation has sought to address important issues surrounding intellectual property and its protection. In a number of areas these efforts have led to greater recognition of intellectual property rights and now provide for a greater degree of protection.
• Although the level of IP protection in Russia does not yet match the sophistication of most European jurisdictions, fundamental IP rights are recognized in Russia. A substantial basic regulatory framework exists within which companies may attain protection of their intellectual property assets.
The case of pirate softwares
Pirated software accounted for 65% of the volume of all software units installed on PCs in Russia for the year — down 2% from 2009 but nevertheless representing a commercial value of approximately $3 billion.
A survey conducted by BSA as part of its study of piracy levels in Russia indicates that the majority of Russian respondents understand the benefits of licensed software, including the factors of reliability (86 percent) and access to technical support (69 percent). However, more than half of Russian respondents do not have a clear understanding of what constitutes legal and illegal use of software.
Sources: Business Software Alliance (BSA) in its 2010 report on global piracy.
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Russia’s Underground e-market
• Russian social networks host the biggest illegal media library in the world. Experts estimate that Majors are losing up to 10 million dollars per day on that market. The website was sentenced to fines at the beginning of 2012 for copyright infringement.
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Sources:Les echos, 2012 e-commerce report by EWDN.COM, thecmuwebsite
Informal Commercial Vkontakte groups
Dec 2010 Nov 2011
Mobile devices 170000 256000
Fashion 105000 170000
Watches 102000 150000
Children's goods 80000 16000
Cosmetics 70000 105000
Services 55000 83000
Jewelry 35000 74000
• Vkontakte groups enable illegal trades and e-commerce. 150 informal groups have more than 100,000 members on the website.
• Oborot.ru, Russia’s leading online resource and event organizer for e-commerce, announced in October 2011 the creation of the Electronic Commerce Association, which aims “to facilitate the development of online retail businesses and define the principles of civilized business.”
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Payments are still an issue
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Sources: EWDN.com
• While the Russian economy is still dominated by cash, electronic payments are on the rise; but due to a lack of standardization, Russia may appear as a payment jungle.
• Russian online businesses face a lack of user trust. Cash-on-delivery is the rule in e-commerce as far as physical goods as concerned.
• A Russian invention, cash payment terminals (e.g. Qiwi) are widely used, essentially for services or virtual goods.
• The e-currency market has been so far dominated by domestic players (Yandex.Money, WebMoney), but PayPal announced it will come to Russia in 2012.
• Mobile payment offers have developed to a considerable exent over the last few years, with commission fees now suitable for all types of goods and services.
• No universal recurring payment solution has been available so far, making impossible the localization of some business models in Russia.
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Brilliant mathematicians create an expertise in algorithms
For example: Yandex’s search algorithm is said to be better than Google’s.
Why ?
Due to the specificities of the Russian language (strong inflectivity of the language), they had to devise a way to understand the meaning of a sentence by splitting the assembled words and then read each one of them.
Results ?
Even though this technology is not required in Western languages, it has proved to be more efficient on research. Something Google lacks in its Russian search.
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The crafting of high precision algorithm is one of the most mathematical part of IT Services. In Russia, the training of top-notch mathematicians in specialized schools has permitted the emergence of a field of expertise in algorithmic.
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Brilliant mathematicians know how to crack the code… and protect it! The expertise developed by Russian mathematicians in algorithmic is not only used in data analysis, it has been used for a long time in cryptology and hacking.
Russian hackers are world-known for their creativity and expertise.
And when it comes to data security, who is the most relevant expert if not the person who knows how to hack into your system? Even some cryptographic technics are named after Russia: Russian copulation, for example, is a method of rearranging plaintext before encryption.
It is now a business in Russia: groups of hackers are paid to test the security of IT infrastructures.
Examples of Russian cryptography and hacking expertise:
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Sources: Friedrich Ludwig Bauer, Decrypted Secrets
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Crypto AG is a Swiss-based company, but Russian-based technology • Crypto Telecommunication Security is «the preferred top-security partner for civilian and
military authorities worldwide ».
• Its business office are located in Switzerland, but its technical teams are based in Russia, tapping into one the best security experts pools in the world.
• They conceive and commercialize top-security communication solutions.
• They are about to launch a new product: Nume. It will allow mass market to benefit from encryption-based technology to secure their personal lines.
• Nume is certified on multiple Defense standards across the globe (China, South America, Indonesia, India, Middle-East,…).
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Telecom sector proves Russian ability to adapt to important constraints
• Even with the high demand of Russian population for telecommunication infrastructure, telecom companies were facing two main issues in their expansion:
• Low solvability of the majority of the population
• High cost of implementation due to • Ancient buildings • Foreign and isolated Russian backcountry
• Russia now seems to have tackled these issues and numbers of landlines, internet users and mobile users are skyrocketing.
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Inango devised a new way to cut implementation costs
• Inango offers complete solutions for service providers looking to connect entire communities to the Internet.
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• Inango solutions are targeted at populations living in higher density areas (high-rise apartment buildings) and where sensitivity to cost is high.
• They connect to a high-speed backbone at a local point of presence (typically based on optical fiber) and provide ways of connecting to each individual house-holder.
• They use a simple yet efficient technology: they transmit and receive data over existing coaxial cables.
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Vimpelcom’s rise shows the effiency of Russian infrastructure development strategy
• In 2001, their strategy was to expand Vimpelcom’s infrastructure in all the regions of Russia. They quickly became one of the largest carrier in Russia in terms of subscriber base. They eventually used this experience to expand to emerging markets.
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Russia Ukraine, Kazakhstan,
Uzbekistan, Tajikistan, Armenia, Georgia,
Kyrgyzstan
Vietnam, Cambodia, Laos, Algeria,
Bangladesh, Pakistan, Burundi, Zimbabwe,
Namibia, Central African Republic
Example of a successful expansion in Cambodia: May 2009: Launch of commercial operations (9th entrant) December 2010: 80% of total population covered
650k mobile subscribers (3rd largest operator) Sources: 2010 Annual Report
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Maxygen Mobile DNA Tests
• Maxygen develops a technology of mobile DNA testing that can detect any infectious disease only in 10 minutes only for $10 with the use of a simple small device and a single-used cartridge.
• Part of MSU SBI, the three founders are alumni of Moscow State University. Valery Ilinsky, CEO, has a degree in Virology from MSU, and has multiple experience abroad, including the Institute of molecular Cancer Research (Zurich), Department of tropical and infectious diseases (Washington).
• The startup has ranked very wel l many competitions, including a second position in Intel’s Global Challenge.
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Russian Internet is reaching milestones before Western Internet
Russia has already reached the point where Internet ad spending has overtaken print (41.8 billion rubles vs. 40.4). In comparison: - UK reached this point in 2010 - USA is expected to reach it in 2012
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Sources: Internet World Stats, TNS , PC.org, EWDN.com
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Mobile payments are pushed by the industry leaders as a way to catch up on electronic payments
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• MasterCard Worldwide ranked Russia top tech-savvy for new payment technologies.
31% (12% contactless)
Russia
Use of mobile payment 6% UK
VS
• Russia’s three leading mobile operators (Megafon, MTS, Vimpelcom) have announced in January they will provide their subscribers with full common access to their respective mobile payment systems.
• ‘Easy Payment’ and ‘Ruru’, the most important payment systems, are already open beyond the respective subscriber bases of MTS and Vimpelcom. They are accessible to any bank card holder and can be replenished from the corresponding bank account.
• In comparison with Western countries, Russia is way ahead in m-payments adoption:
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Opportunities to seize
• With a skyrocketing number of Internet and mobile users, but a still underdeveloped commercial offer, Russia offers gigantic opportunities ready to be seized.
• Though ignored just a few years ago, Russia is progressively penetrating the innovation ecosystem of the world (USA, Europe, and Asia).
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Russia is a Test Laboratory
Russia is a Test Laboratory
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Benefit from Russian specificities and from the early-stage development of a booming market:
• Detect the glitches in your infrastructure security solutions with specialized hackers • Test efficiently new services thanks to Russians quickness of adoption • Anticipate the evolution of mobile and mobile-payment usages in Western Europe
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Russia is an Observatory
Russia as an Observatory
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Russia is an innovative place, with a growing number of initiatives to watch:
• Alternative solutions to well-known issues • Intensive use of social networks • A strong growth market • A fast building ecosystem
We believe in Russia, in its entrepreneurs who are hungry for success. We also believe in the Russian market. We look at Russia as a key investment market for us, and we are definitely committed to it.
East-West Digital News is the first English-language resource dedicated to IT and innovation in Russia. The site provides news, market data, business tools and updates related to the Internet, mobile and telecoms, digital TV and satellite systems, software and hardware innovation. East-West Digital News has recently published an international research study on Russian e-commerce. www.ewdn.com