FrenchWeb a accueilli FaberNovel lors de l'atelier "Spécial Russie" organisé dans le ShowRoom de FrenchWeb.

1. •••
•••
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
••• Expanding to Russia with love
••• faberNovel 2012
©

2. •••
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
This research was conducted in partnership with Orange and East-West Digital News,
the international resource on Russian IT industries. www.ewdn.com.
••• faberNovel 2012
©

3. •••
Decades ago, Russian technology began impressing the
world. Now Russia is back!
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
1956, USSR put in orbit the first ever artificial satellite: Sputnik.
1961, Yuri Gagarin became the first man to orbit the Earth.
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.
Even NASA trusts Russian technology and does
business with the former "evil empire."
Why shouldn’t you?
••• faberNovel 2012
© 3

4. …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...
•••
So, what does the new Russian
technology sector look like ?
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...

5. ••• International Business Center, Moscow
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
•••
A booming market not fully monetized
••• faberNovel 2012
©

6. •••
Europe’s largest internet market by number of users...
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
57 42
Million Russian Million French
internet users internet users
(Spring 2012) (Fall 2011)
Strong growth potential.
e-commerce size: $10 billion e-commerce size: $45 billion
Online advertising: $1,5 billion Online advertising: $3 billion
Sources: EWDN .com (2011)
••• faberNovel 2012
© 6

7. •••
… and the market has yet to expand!
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
France
Europe
64%
Russia 58%
39%
Total 2011 Evolution of the Internet
internet penetration penetration in Russia
(Russian Academy of Sciences)
• Almost three quarters of all Russian Internet users live in the European part of
Russia: a huge market is still to be conquered!
• The Russian Academy of Sciences, has given a long-term forecast (2025) of
130 million internet users. (at 85% penetration rate)
Sources: ComScore, Russian Academy of Sciences
••• faberNovel 2012
© 7

8. •••
The e-commerce market is developing
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
The Russian e-commerce market is still emerging but is
expected to grow fast in volume and result.
$40 bn
to
$23 bn $60
To bn
$30 nb
$8 bn $10 bn
2010 2011 2015 2020
Sources: 2012 e-commerce report by EWDN.COM
Forecast
••• faberNovel 2012
© 8

9. •••
Russia is the largest mobile market in Europe
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
A strong mobile phone penetration:
186 million
Total mobile
phones
140 million
Total
population
There are 1.5 SIM cards per Russian inhabitant.
Still, smartphones penetration is low (11%) but is quickly growing: +118% in 2011.
Sources: newmediatrendwatch, emarketer, AC&M
••• faberNovel 2012
©

10. •••
A soaring penetration spreading internet technologies
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
• Households’ internet access grew by 10% in 2011 while
broadband penetration remained flat, proving that mobile
phones internet users account for most of the new internet
users.
• At the end of 2010, touch screen phones accounted for about
30% of all phones sold in Russia
• The Russian mobile content market could reach as much as
$1.8 billion this year
• In 2013, the overall mobile content market could exceed $3
billion.
Sources: informa telecoms&media, newmediatrendwatch
••• faberNovel 2012
© 10

11. ••• High Voltage Research Installation, Moscow
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
•••
A market backed by a genuine culture of innovation
••• faberNovel 2012
©

12. •••
Russia has a strong technological and engineering
culture…
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
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.
••• faberNovel 2012
© 12

13. •••
…in which social networks have and still play a major
role
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
After decades of social atomization under a totalitarian regime, Russians now
socialize more than ever, using social networking sites.
The internet has become, for all
connected Russians, the main free
source of information.
Sources: ComScore, American Journal of Political Science
••• faberNovel 2012
© 13

14. •••
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
Already some Russian internet
companies have been widely
successful
••• faberNovel 2012
© 14

15. •••
Yandex: Google… 6 years before Google
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
Founded by two Russian mathematicians.
They wrote a search algorithm for Russian-written files in
the early 90s.
That’s 6 years before Google’s Page and Brin started their
research at Stanford University.
Ilya
Arkady Segalovich
Volozh
622 million dollars revenues in 2011
60% growth (FY 2010 to 2011)
60% share of search-engine traffic in Russia (Google 2nd with 25%)
60% share of Russia’s online advertising revenues
80 web products in total (mostly the same offer as Google’s)
Sources: EWDN.com, Yandex Corporate Website
••• faberNovel 2012
© 15

16. •••
Mail.ru Group: the colossus of the Russian Internet
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
Mixed growth model from innovation, one fusion and acquisitions.
Multiple sources of investment, both local and foreign.
COMMUNITAINMENT INNOVATIVE SERVICES
Official objectives:
Communications
+ Improve the
Entertainment Internet market
$325 million revenue in 2010 from
11 %
diverse sources:
Market leader in display
39 % advertising, internet
20 %
communications, and in
Advertising
Games social.
Paid services
Other
30 %
Sources: Mail.ru Group Corporate Website
••• faberNovel 2012
© 16

17. ••• Skolkovo Innovation Center, Moscow
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
•••
A dynamic ecosystem is emerging
••• faberNovel 2012
©

18. •••
A network of incubators proving the recent dynamism of
the startup ecosystem
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
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.
…
••• faberNovel 2012
© 18

19. •••
Mass-scale public investment in innovation in Russia
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
• 120 billion rubles ($3,72b) from the • State funded venture capital company
Russian Federation created in 2007
• To give Russia a leading position on the • $1.25 billion capital to fund VCs
nanotechnology sector while accelerating investments using a 5% loan without
the commercialization of nanotech asking for stocks in the companies.
products (inside and outside Russia)
• Two goals: Investing in Russian tech
• 2010: 44 projects approved, 47.1 billion while attracting and developing VC
rubles invested, total budget of the networks in Russia.
projects 146 billion rubles
Sources: Rusnano’s 2010 Annual Report, CNET News
••• faberNovel 2012
© 19

20. •••
Mail.ru has given birth to a top international investment
fund: DST
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
DST then split into a venture arm, DST Global, and a leading Russian internet group, Mail.ru Group.
• DST is a major late-stage investment fund
• Invest minimum around $100M, for companies valuated at least $1b
• Goal: to give liquidity to tech companies in order to delay their IPO, so that they can focus on product
development instead of liquidity.
• Large network outside Russia via direct partnerships or co-fundings: Facebook, Zynga,… Accel, Greylock,
Kleiner Perkins…
An impressive portfolio,
including many of the
hottest tech firms of
the moment…
Sources: TechCrunch’s 2010 Yuri Milner interview
••• faberNovel 2012
© 20

21. •••
Russia is also a quick-win market
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
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 :
Original
company
The Russian
copy
“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
••• faberNovel 2012
© 21

22. •••
Business in Russia still faces many challenges
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
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.
••• faberNovel 2012
© 22

23. ••• Caviar, the luxurious Russian Specialty
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
•••
The Russian Tech Recipes
••• faberNovel 2012
©

24. •••
Lots of constraints means a lot of creativity
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
A sense of emergency in
Brilliant mathematicians bridging the technology gap
Grigori Perelman, the mathematician Constraints and speed lead to technological
who solved the Poincaré Conjecture. breakthroughs such as Displair.
Intense indoor usages Health issues
Russians digging a passage to their Alcoholism is still a major issue in
home after a snow storm. Russia, reducing male life expectancy.
••• faberNovel 2012
© 24

25. •••
Brilliant mathematicians create an expertise in algorithms
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
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.
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.
••• faberNovel 2012
© 25

26. •••
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:
Sources: Friedrich Ludwig Bauer, Decrypted Secrets
••• faberNovel 2012
© 26

27. •••
The Health sector is proving Russia’s ability to catch up
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
• The Russian Health sector has been facing many issues:
• A low male life expectancy
• Under utilization of the primary health care system by adult males
• A low quality of pre-natal and natal care
• High abortion rates, most of which performed outside health care facilities
• The Russian government has now seized the issue with multiple plans to
modernize the sector.
• Part of which is a 1 billion-dollar bill to digitalize the public health-service.
• And a partnership with the U.S. on health issues
• Many private initiatives have emerged from these opportunities.
Examples:
InErPharm
••• faberNovel 2012
© 27

28. •••
One of the fastest countries in technology adoption
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
This fast technology adoption is driven by two main factors:
At home At work
Russians have a very intense Russian top managers believe in
use of Internet, explained developing technologies that
mainly by their lack of trust in do not strictly follow their
regular information channels. company official guidelines.
Sources: Internet World Stats, TNS , PC.org, EWDN
••• faberNovel 2012
© 28

29. •••
Social media is the spearhead of technology adoption
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
VS.
10M users connect daily 23.4M users connect daily
(25% of French online population) (30% of combined RU, UA, KZ, MD, BY
online population)
4h30 monthly use average 10h monthly use average
Russian Twitter users…
… have tripled in one year
… are more active than the international average,
with 27% posting at least one tweet in four months
Sources: Internet World Stats, TNS , PC.org, EWDN
••• faberNovel 2012
© 29

30. •••
Russian Internet is reaching milestones before Western
Internet
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
advertising
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
Sources: Internet World Stats, TNS , PC.org, EWDN
••• faberNovel 2012
© 30

31. •••
Technology gap forces Russia to explore alternative and
innovative solutions
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
• While Western Europe was catching up on the on credit cards penetration in the late 80s, credit
cards remained unknown in USSR until the mid 90s.
• The aversion for non-physical money inherited from decades of comunism didn’t help the
penetration of credit cards in Russia.
• With the rise of Internet payments and e-commerce, they had to find new ways to pay…
From cash payment terminals
to mobile-payment
Sources: Finextra, Moscow Times
••• faberNovel 2012
© 31

32. •••
Cash payment terminals, a solution invented in a society
without credit cards
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
• Facing a surge in the number of internet users, internet companies tried to invent a way to
pay online without a credit card.
• They invented these cash payment terminals where you can credit your virtual account
directly with cash.
• This process explains a lot why the Russian e-commerce market is still positionned so far
behind the Western one.
••• faberNovel 2012
© 32

33. •••
Mobile payments are pushed by the industry leaders as a
way to catch up on non-physical money
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
• 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:
Use of mobile payment
31% VS 6%
(12% contactless)
Russia UK
• MasterCard Worldwide ranked Russia top tech-savvy for new payment technologies.
••• faberNovel 2012
© 33

34. •••
•••
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
••• Summary
••• faberNovel 2012
©

35. •••
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).
••• faberNovel 2012
© 35

36. •••
Russia offers clearly identified specialties
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
• Algorithm expertise solving Big Data issues
• IT Security and Defense (Cryptography, Hacking, Hackproofing)
• Agile infrastructure deployment in emerging countries
• Innovative technologies in Health and e-Health solutions
• Fast technology adoption
• Large adoption of mobile payment
Whether you are an industry leader or a startup, here are 3 ways you can
benefit from Russia:
Russia as a Russia as a Russia as an
Pool of Experts Test Laboratory Observatory
••• faberNovel 2012
© 36

37. …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...
•••
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.
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...
David Waroquier, Mangrove Capital Partners

38. •••
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
Our Moscow office
helps you evaluate your
potential in Russia.
Moscow
meet_moscow@fabernovel.com
••• faberNovel 2012
© 38

39. •••
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........
Cyril Vart Caroline Pandraud
VP Strategy & Development Project Analyst
cyril.vart@fabernovel.com caroline.pandraud@fabernovel.com
Kevin Smouts Tom Boeken
Junior Project Analyst Junior Project Manager
kevin.smouts@fabernovel.com tom.boeken@fabernovel.com
…………………………………………………………….…………………………………………………
Contact
…………………………………………………………….…………………………………………………
17 rue du Faubourg du Temple
75010 Paris
+33 1 42 72 20 04
www.fabernovel.com
April 2012 • Expanding to Russia with love •
••• faberNovel 2012
©