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Russia BEYOND THE HEADLINES
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Special Report
03
E-Commerce Russia’s answer to Groupon wants to diversify its product offerings before the market for daily deals is saturated panies here have built their business on an old-fashioned C.O.D. (cash-on-delivery) model that carries a big risk if the client decides not to buy a product after the company has spent a lot of money delivering it. We insist all payments be made online, but we accept all forms of e-payment, including Web money. One of the leading factors driving e-commerce is Russians’ changing mindset about the safety of electronic payment methods.” Meanwhile, a war has broken out in Russia’s e-commerce space. KupiKupon has a 20 percent market share and is doing battle with the incumbent, U.S. dailydeal giant Groupon, which entered the market after Russian businessmanYury Milner bought a 5.13 percent stake in the company for a reported $75 million in the spring of 2010. Milner owns
KupiKupon earned $400,000 in seven months in 2010; it is predicted to take in $110 million this year.
artem zagorodnov, ben aris special to rbth
Drawn by his Russian roots — his great-great-grandfather was a cabinet member under Tsar Nicholas II — and armed with a law degree from Georgetown University, Brian Konradi moved from Texas to Moscow in 2005 to work for law firm Akin Gump Strauss Hauer & Feld, LLP. Although Konradi found his work as an American lawyer in Mos-
cow challenging, he still nurtured a long-standing dream of becoming an entrepreneur. While working in the Moscow offices of law firm DLA Piper, Konradi became acquainted with a group of investment bankers based in Tashkent, Uzbekistan. “I did a deal with them representing a Canadian client; they had great chemistry and leadership skills. I kind of kept in touch after that,” Konradi said of the men who would become his future employers. The Uzbeks had heard of Groupon’s success in the United States, and in May 2010, “they decided this business model was right for
Russia, hopped on a plane to Moscow and opened a daily deal site within weeks,”Konradi said. And the American wanted in on the action. Konradi joined KupiKupon in November 2011 in the triple role of general dounsel for global operations, senior vice president for business development and director of the KupiPodarok division. KupiKupon earned $400,000 in its first seven months of operation; revenues hit $40 million in 2011 and it is predicted to take in $110 million this year. “It’s no coincidence this business took off after the crisis hit,” said Konradi. “Whether in Chi-
Russia Anticipates an E-Commerce Boom Analysts are expecting this year to be one in which Russians embrace the concept of online shopping, and more retailers are opening online shops. Victor Kuzmin Special to RBTH
Today the Russian market for online shopping is both the youngest and most dynamic in Europe; last year, Russia outpaced France and Germany in terms of unique visitors in Internet shops. Representatives of online retailers estimated market turnover for goods purchased online in 2011 to be 270 billion rubles ($9 billion), up from 240 billion ($8 billion) in 2010. According to Pricewaterhouse Coopers, in the coming years, market volume for online purchase in Russia will more than double. “We know that the time between when someone logs on for the first time to the Internet and when they make their first purchase is several years. We believe 2012 will become that year for a
huge number of Russian Internet users.We expect explosive growth in the market,”said Svetlana Sorokina, organizer of the Online Retail Russia Congress. This year alone, more than 30 traditional brick-and-mortar stores plan to open online versions. Traditional retail growth in Russia is much slower, averag-
While traditional retail growth is much slower, the share of online sales as a percentage of turnover is still small. ing between 5–7 percent per year. But for the time being, the share of online sales as a percentage of total turnover of retail sales in Russia is negligible: 1.6 percent. This is much lower than in other major European countries; in the U.K., for example, it is more than 10 percent. Only in Moscow, where the share of Web sales is around 20 percent, does
Russia’s E-Commerce Market
volume approach the global average. More and more though, large retail chains operating in Russia recognize that online stores are a full-fledged opportunity for sales. For example, last year the share of online sales for the Euroset mobile phone retailer increased from 1.5 percent to almost 5 percent. For individual product groups, a company’s share of sales over the Internet can reach up to 15 percent. Representatives of Euroset believe that over the course of five years, the share of Internet sales will reach 20 percent. M-Video, one of Russia’s largest sellers of electronics and home appliances, reported that online sales in 2011 increased by 90 percent. The company expects that by 2015, online shopping will make up nearly a quarter of its total revenue. According to studies done by OZON, Russia’s equivalent of Amazon.com, the most popular products to buy online are clothing (25 percent), electronics (15 percent), books (15 percent), cosmetics (13 percent), products for kids (9 percent), and music and movies (8 percent). The rapidly growing Russian market has already begun to attract the attention of international companies. Ebay, Amazon and Alibaba have shown interest in the Russian market. Groupon Russia announced that it intends in the second half of the spring to launch an online store that will operate under the “discounter” format and feature “products ranging from household appliances and consumer electronics to clothing and shoes.”At the moment, discount service Biglion.ru has this market segment almost to itself. During its first month of operation, Biglion sold 40,000 items, ranging from clothing and footwear to household appliances and electronics to tours.
cago or Moscow, we in the daily deal business offered companies a chance to drive traffic with no out-of-pocket expenses at a time when marketing budgets were slashed.” Russia became the biggest Internet market in Europe in November of last year, and, according to Konradi, KupiKupon is“at the forefront of converting a large base of Internet users into e-commerce users.”“Over 45 percent of our shoppers are making an Internet purchase for the first time,” he said.“We’re an engine for generating a class of e-shoppers.” Konradi sees both opportunity and great responsibility in this
Above: KupiKupon’s management team — (from left) Djasur Djumaev, Brian Konradi, Komil Ruzaev, Shavkat Khatamov and Bek Kamilov — hope to build their daily deal site into a multinational e-commerce empire.
position.“Any first-time Internet shopper who has a bad experience is unlikely to return for some time,” he said, explaining KupiKupon’s social role. The company prides itself on having Russia’s best customer service department.“Try calling anytime and you’ll wait no more than four seconds,”Konradi said.“It’s cheaper for us to refund a client who was unhappy with a meal at a restaurant and retain his or her business for the future than try to attract a new customer.” In addition to the reluctance of some Russians to make purchases online, another challenge is Russians’ longtime distrust of credit cards. In this country of 140 million people, there are only 11 million cards in circulation. “Payment methods are a huge barrier to doing e-commerce in Russia,”Konradi said.“Most com-
Russian Internet Audience and Penetration (estimated)
source: J’son & Partners
Yandex E-Currency Teams Up With MasterCard Russia’s digital money market took a major step toward integrating with major credit cards in a deal announced last month. Adrien Henni
East-West Digital News
In April, Russian search giant Yandex announced a new step toward integrating its electronic currency,Yandex.Dengi — which translates as Yandex.Money — with bank systems. Users of this virtual currency can now obtain a MasterCard debit card tied to their Yandex.Dengi account and make payments using funds from Yandex.Dengi. The co-branded card can be used worldwide online and offline, wherever MasterCard is accepted. In addition, authenticatedYandex. Dengi users can withdraw cash from A.T.M.s using a PIN. The card is available to Yandex.Dengi customers anywhere in the world and can be ordered free of charge at theYandex.Dengi Web site. The Yandex.Dengi card is issued for a three-year period with no service or transaction fees (except a 3 percent-plus-15 rubles fee for cash withdrawals). Users can track their transactions at the Yandex.Dengi Web site or via text message.
The card is issued by the Tinkoff Credi t Sy s t e m s bank, a partner of Yandex. Yandex began integrating its virtual currency with bank cards as early as July 2010, when it made a virtual MasterCard available to customers. This card could be used only for online purchases, but became a useful tool for Russian Internet shoppers on foreign sites such as Amazon and eBay. In February of last year, Yandex.Dengi customers became eligible to register their bank cards to make online purchases using Yandex.Dengi — an arrangement similar to the one PayPal offers its users. Yandex went even further last February, when it enabled fund transfers fromYandex.Dengi accounts to any bank accounts with a Visa or MasterCard card. Although cash remains by far the most widely used payment method in both offline and online retail in Russia, electronic payments have developed at a remarkable pace over the last few years. Mobile operators have launched payment systems that go far beyond the settlement of bills, while offline payment ter-
getty images/fotobank
Texan Brian Konradi is part of the team behind one of Russia’s most successful new e-commerce ventures: the local answer to Groupon.
ruslan sukhushin
Latest E-Commerce Success Story Wants to Make a Deal
Mail.ru, which services about eight out of every 10 emails sent in Russia. The exclusive in-body email advertising that Groupon gets as part of this partnership has allowed the U.S. company to surge ahead in the Russian e-commerce marketplace. According to market rumors, however, this exclusive deal is due to expire in September. “We don’t need new money to get growth, but simply to keep ahead of the competition,” said Djasur Djumaev, one of KupiKupon’s founders. “Currently, the three main players are all growing very quickly, but we are eating into an untapped market. There is a ceiling on this noncompetitive growth, and there are about two years left until it is all gone. Then the only way to grow will be to eat into each other’s market share.” Konradi wants to beat the competition by diversifying Kupi Kupon’s business. In addition to Konradi’s own division, KupiPodarok, which acts as a third-party reseller of gift cards, Kupi Kupon has also launched platforms KupiOtpusk (“buy a vacation”) and KupiMart (consumer goods) in the last year. Said Konradi, “Our goal is to become a diversified e-commerce group of companies operating in the whole of the post–Soviet territory.”
minal operator Qiwi has developed its electronic wallet system into a full-fledged competitor with traditional ecurrencies. All these payment operators have sought integration with bank accounts and bank cards. The latest example is Megafon, a major mobile operator that last December introduced a new virtual payment card in association with Visa. Among other recent movers is Rostelecom, the national telecom operator, which has teamed up with MasterCard to issue Russia’s first bank card with e-government access.