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Why Russia doesn’t have eBay?

January 2009

Russia is the single market in the entire world that still doesn’t have a major online marketplace

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?

Different people give different reasons for that…

Myth 1: There is no suitable payment systems

Myth 2: The logistics in Russia is very rudimentary and challenging to

build

Myth 3: The internet penetration is too low for a marketplace to take off

Myth 4: The trust among online users is too low

Myth 5: Russians simply lack necessary mentality to adopt that kind of

service

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Payment: there are plenty of online services but to start a marketplace one doesn’t really need them

We have counted over 50 online payment systems in Russia. They serve less

than 10% of online transactions. Once a dominant marketplace emerges this

share will gradually grow.

Credit cards are responsible for another 10% of transactions. The number of

credit card users is also growing but…

Like the majority of developing countries, Russia remains a

cash-dominant economy. More than 80% of online

customers prefer to pay cash. One can build a marketplace

around cash-paying customers. It has been done multiple

times over the last 8 years…

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As in other markets, cash-paid online transactions will work perfectly in Russia

There are three ways of accepting cash for ecommerce:

1.Cash on delivery – already being practiced by Ozone in

Moscow

2.Instant terminals – currently being used for a limited

number of services (such as internet, cell phones, etc.) but

have potential to evolve in a major payment tool

3.Banking transfers/direct deposits without opening a bank

account – works perfectly in Latin America and already

exists in Russia

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Logistics: already developed and not that challenging

Overwhelming majority of online transactions in any developing country takes place within large cities

Similarly, there are strong reasons to believe that same-city transactions will constitute up to 80% of Russian online transactions

Thus, to build an online marketplace one needs local carriers Today every large city in Russia has at least a dozen of carriers that

provide delivery services for local businesses There are also many national-wise service providers: EPS, Pony

Express and others Combining this already existing infrastructure with cash-on-delivery

approach with solve all logistical problems altogether. The rest job will be done by an army of local retailers in every Russian region

Those small local retailers have micro-logistics solutions that are far efficient than any centralized solution may ever be…

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Internet penetration increases by 3-4 % annually which makes Russia one of the fastest growing markets for e-commerce

Drivers of growth: 2000-2008

Rapidly growing computer penetration in households, workplaces, classrooms and Internet cafes;

Exponentially increasing availability and decreasing prices of broadband Internet;

Significantly increased Internet security protection, including telecommunications networks and systems;

Availability of advanced electronic or other payment systems, including credit card, instant terminals and online banking systems;

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Trust: how much trust does one need to spend $100 online?

Answer 1: Depending on one’s disposable income. Then it becomes

not an issue of trust but an issue of growing disposable income of the

Russian customer.

Answer 2: Depending on where one is shopping. Why on earth 16M

Russian internet users that were buying online in 2008 should trust an

online marketplace less than they trusted unknown online shops?!

Answer 3: Probably similar to that in other supposedly low-trust

economies (such us Panama, India) where the issue of trust doesn’t

prevent people from massively engaging in online transactions.

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Mentality: is it true that Russians are that different from the rest of the world?...

Argentina

Mexico

India

Panama

Poland

Japan

Brazil

China

Australia

New Zeeland

UK

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Countries where a marketplace became a major means of online shopping:

South Africa

South Korea

Germany

France

US

Holland

Hungry

Belgium

Uruguay

Malaysia

Switzerland

Chili

Denmark

Philippines

Turkey

Singapore

Czech Republic

Italy

Taiwan

Ireland

Canada

Austria

Rapid economic and infrastructure development created necessary conditions for an online marketplace to take-off

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36% Internet penetration

Russia becomes the second largest Internet country in

Europe

Russia becomes the largest Internet country in Europe

43% Internet penetration

Russian becomes the fifth largest Internet language in the world

46% Internet penetration

Russian GDP per capita, current USD

5%

70% 90%

2000 2006 2008

Broadband Internet penetration in Moscow, % of Internet households

3

30

2000 2008

Russian Internet population, mln. people

???

Russian “Google” Russian “Yahoo” Russian “eBay”

Valuation ~$2-5bn Valuation ~$1-2bn Valuation ???

The real answer: nobody has really tried

Argument 1: Building a marketplace requires a long-term commitment

and a lot of capital. There have been very few well-funded and long-term

oriented startups in Russia so far.

Argument 2: Building an online marketplace is hard. With that much

capital and commitment Russia provides plenty of less demanding

lucrative opportunities – oil, gas, metals, financial services, etc…

Argument 3: Online marketplace is more about business processes

and relentless marketing efforts than it is about technology. The example

of Molotok.ru illustrates this very well. You can’t just plug it in and expect

that it will work…

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The last opportunity to build a large-scale proven business model in Russia…

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