Russia's Promising Tech Sector

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••• Expanding to Russia with love

••• faberNovel 2012 Follow us on twitter @fabernovel ••• Visit our website and discover what we do: fabernovel.com

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


•••
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 Follow us on twitter @fabernovel ••• Visit our website and discover what we do: fabernovel.com 3

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So, what does the new Russian
technology sector look like ?
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Table of contents
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1.  The Russian Innovation Model

2.  A promising economy

3.  Developing tomorrow’s potential

4.  The Russian Tech Recipes

5.  Summary


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Table of contents
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5.  Summary


••• High Voltage Research Installation, Moscow

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•••

The Russian innovation model


•••
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.


•••
…in which social networks have and still play a major
role
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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
modern-oriented Russians, the main
free source of information.

Sources: ComScore, American Journal of Political Science


•••

Russian constraints drive usages and innovation
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1 2
80
million Russian-
Worldwide rank in
time spent on social
networks Worldwide rank in size

10
speaking internet of illegal media
users sharing ($300 million
(Russia + Russian diaspora) in music piracy)
Average number of
hours spent monthly
on internet social
networks; world
Physical
isolation average is 5
Rough climate

Poor urban Mistrust in State-
planning controlled media
Sources: EWDN, ComScore

•••
This innovation model gave birth to Yandex, a true
success story
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Founded by two Russian mathematicians.

Ilya Segalovich
They wrote a search algorithm for Arkady Volozh
Russian-written files in the early 90s.

That’s 6 years before Google’s Page
and Brin started their research at
Stanford University.

With that in mind, you might call Google the US Yandex, rather than the other
way around.
Sources: EWDN.com, Yandex Corporate Website


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Google’s twin brother…
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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)



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… that even goes beyond the Google model.
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•  Real-time traffic 4 years before
Google

#1 Photos Web Portal
#1 Traffic previsions
#1 Weather
…
•  New products: TV Schedule, E-cards, …

•  But most of all, a higher precision algorithm than Google’s
due to the specificities of the inflective Russian language.



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•••

So, what about the much-criticized
Russian « copy-paste innovation »
model?
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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.


•••
We can find many examples of copy-paste innovation in
Russia…
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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


•••

… 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.


•••
Beyond a simple copycat, Vkontakte beats Facebook
because of many key features
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•  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

Sources:Les Echos, ComScore, Vkontakte.ru


•••
Vkontakte created a very efficient network, far from its
model
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•  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.

•  The website also plays its part throughout
Russian protests through events like
“Revolution Square Saturday” that took
place after the December elections

Sources:Les Echos, Social Times, BBC


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Table of contents
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5.  Summary


••• International Business Center, Moscow

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A promising economy

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Europe’s largest internet market by number of users...
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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)


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… and the market has yet to expand!
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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


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•••

Some Russian companies have already
seized this appealing opportunity…
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From a mail-service website to one of Europe’s largest
Internet groups
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Mixed growth model: from innovation, one
fusion and acquisitions.

Multiple sources of investment, both local and
foreign.

Official objectives:

COMMUNITAINMENT INNOVATIVE SERVICES
Communications Improve the
+ Internet market
Entertainment

Sources: Mail.ru Group Corporate Website


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Mail.ru Group: the colossus of the Russian Internet
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Email, IM, social Games Navigational Media projects E-commerce
networks Services

Mail 40 MMO Search News Travel
Agent (IM) 47 games for social Answers Weather Goods
MyWorld (MIR) platforms Maps Entertainment Property
OK Mobile Hi-Tech, Auto, Lady, Money
ICQ Rating (Analytics) Kids, Health Work
Blogs Cards Headhunter
Dating Mailing Free-lance
Futubra

$325 million revenue in 2010 from
diverse sources:
Market leader in display
11% advertising, internet
Advertising
39%
Games
communications, and in
20%
Paid services
social.
30% Other

Sources: EWDN.com, Mail.ru Group Corporate Website, Mail.ru Annual Report 2010


•••
Mail.ru has given birth to a top international investment
fund: DST
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DST then split into a venture arm, DST Global, and a leading Russian internet
group, Mail.ru Group.

•  DST Global 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…

Sources: TechCrunch’s 2010 Yuri Milner interview


•••

DST’s Investments (undisclosed shares)
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An impressive portfolio including many of the hottest tech firms of the
moment…

… probably starting the first bridges between Russian and Western companies.

Sources: TechCrunch, WSJ, EWDN.com


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•••

These connections with the Western
World raise the question of the
Russian firms internationalization.
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With rare exceptions, Russian companies don’t
internationalize
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But why do firms internationalize?

Growth & Performance Ideas & Innovation
New clients Exclusive information
Tax Benefit Cultural mix
Economies of scale 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…


•••
VimpelCom a Russian mobile operator that has grown
into a global telco
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A strong international presence, on
several continents

Europe
•  1 8 1 m i l l i o n m o b i l e Russia, Ukraine, Armenia, Georgia, Italy
subscribers around the
world Asia
Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan, Vietnam,
•  $10.512billion dollars Cambodia, Laos, Bangladesh, Pakistan
revenue in 2010
Africa
Algeria, Burundi, Zimbabwe, Namibia, Central African
•  Based in Amsterdam Republic

•  10 Brands North America
Canada
Beeline, Kyivstar, djuice, Wind,
Infostrada, Mobilink, Leo,
Banglalink, Telecel, Djezzy VimpelCom is showing that there’s
no such thing as a Russian tech
failure to cross Russia’s borders…
Sources: VimpelCom’s 2010 Annual Report, Datamonitor


•••

Kaspersky, a long-date international player
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•  One of the world’s leading antivirus research
and software companies

•  Founded in 1997 in Moscow

•  Fast expansion to : India, Germany, France, the
Netherlands, the UK, Poland, Romania, Sweden,
Japan, China, South Korea, and the USA.

They recently enrolled Jackie Chan
as their product spokesman in a
move to conquer China.

Sources: Wikipedia, Official Website


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Which countries are mostly targeted by Russian firms?
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4 types of links to Russian companies:

Historical Technological Strong potential Proximity

•  Both cultural and •  Example for innovation •  Market in development •  Land connection
geographical proximity management •  Geographical proximity •  Within quick flight reach
•  No language barrier •  Experimentation •  Existing networks from
•  Existing networks •  Innovation harnessing other industries

Ex-soviet countries USA South East Asia Europe
Examples:


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•••

Alongside internationalization,
investment power is developing fast
in Russia.
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•••

DST is developing, extending its network to Asia
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DST Global II

Raised in May 2011

A capital of about $1billion to invest

Expected to be invested in Asia,
following the path of previous
investments (Alibaba, 360buy)

Russian tech investments are not only focusing on high profile Western
companies, they are also getting key shares in soon-to-be Eastern giants.

Sources: EWDN.com


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Mass-scale public investment in innovation in Russia
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•  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


•••

Top VC firms invest in Russia
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Western VC firms’ investment is clearly expanding to Russia…

Top 15 VC firms from Forbes 2011 Midas List

But also…
Accel Partners Kleiner Perkins Caufield & Byers Mangrove Capital Partners
Andreessen Horowitz New Enterprise Associates Ventech
Benchmark Capital Redpoint Ventures eVenture Capital Partners
Bessemer Venture Partners Sequoia Capital
General Catalyst Partners
First Round Capital SV Angel
Tiger Global Management
FLOODGATE Union Square Ventures
and more…
Founders Fund Venrock
Greylock Partners Already publicly investing
in Russian startups

… a move that we can expect even more thanks to the growing
relations with DST.

Sources: EWDN.com, Corporate websites


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Table of contents
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5.  Summary


••• Skolkovo Innovation Center mockup, Moscow

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•••

Developing tomorrow’s potential


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1.  An overview of the Russian innovative markets

2.  A strong network of incubators supporting new initiatives

3.  The Russian boiling innovative ecosystem: Startups

4.  Some barriers to keep in mind


•••
Up-to-date Russia: mobile phones are extremely
popular…
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A strong mobile phone penetration

186 million
Total mobile
phones
140 million

Total
population

There are 1.5 SIM cards per Russian inhabitant
Sources: newmediatrendwatch, emarketer, AC&M


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…and are spreading internet technologies!
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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

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

Sources: informa telecoms&media, newmediatrendwatch


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Mobile phones are creating an opportunity: younger
users are driving mobile internet growth…
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Users by age (Aug 2011)

100%

90%

80% internet users
mobile internet users
70%

60%

50%

40%

30%

20%

10%

0%
age 12-17 age 18-24 age 25-34 age 35-44 age 45-54 age 55+

Sources:informa telecoms&media, newmediatrendwatch August 2011


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… creating a fast-expanding market for mobile content
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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: EWDN.com, informa telecoms & media, newmediatrendwatch


•••
Even with homemade solutions, the social network
market is catching up fast
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LiveJournal.com Vkontakte Odnoklassniki.ru
Blogging, social media Russia’s 1st social network Russia’s 2nd social network
Intellectuals express Similarities: facebook Face detection, dating
themselves freely 116 million accounts Similarities: Classmates
30 million monthly in Russia 45 million

Moi Krug – ‘My Circle’ MoiMir – ‘My World’
Job seeking, pro networking Blogging
Similarities: LinkedIn Similarities: Myspace
1 million users (vs 0.5 on Russian 20 million visits per month
LinkedIn).


•••

The e-commerce market is developing
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The Russian e-commerce market is still emerging but
is expected to grow fast in volume and result.
$40
bn
$23 to
bn $60
To bn
$8 bn $10 $30
bn nb
2010 2011 2015 2020

Forecast
Sources: 2012 e-commerce report by EWDN.COM


•••
What will be driving Russian e-commerce in the next five
years?
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•  The potential market growth in Moscow and St. Petersburg in terms of new users
is reaching its natural limit.
•  Most new shoppers will come from other Russian regions, typically recent
Internet users from larger cities making initial online purchases.

2010 2015
Moscow+ Started using internet before 5.6 5.1
2011
St.
Petersburg Started in 2011 or after 2.5
78
Total 5.6 7.5

Regions Started using internet before 8.4 7.6 million
2011
Started in 2011 or after 13.2
Total 8.4 20.8 Internet users
TOTAL RUSSIA 13.9 28.3 in 2015

Sources: 2012 e-commerce report by EWDN.COM


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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.

…

•••

HSE Incubator
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MOSCOW

•  Founded in 2006 by students and professors of HSE.

•  A pool of 6 startups

•  Startups get an equipped office space as well as administrative and
consulting support.

•  HSE(10K) similar to MIT(100K) startup competition

•  Former incubated startups: SmartKniga, Skillopedia.ru, Native Speakers
Club, Roomix, PensiaMarket, TimePad. (19 startups so far)

Sources: Official website


•••

Academy of National Economy Incubator
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MOSCOW

•  Founded in 2010 by the Academy

•  Classic incubator : office, advisors, classes, events.

•  Provides an “Accelerator” program with early stage funding

•  Lot of partners ranging from Microsoft BizSpark to Yandex, includes investment
partners and a huge number of information partners



•••
Moscow State University
Student Business Incubator
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MOSCOW

•  Founded in 2010 with a startup competition aiming at recruiting the first batch of
teams (Webils, Maxigen, Introvision, Idata, Web-constructor)

•  More than traditional support to its startups, MSU SIB provides exchange
programs with US Ivy League’s universities such as MIT and Harvard.

•  Partners have invested more than 50 million rubles in the startups

•  The advisory board includes representatives from top-level companies and
funds : Microsoft, Alliance Rosno, Rusnano, Russian Venture Company,…

Sources: Official website, Direct contact


•••

Fast Lane Ventures
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

MOSCOW
•  Leading developer of internet companies, Fast Lane Ventures was founded in 2010.
They target B2C markets.

•  Has launched 15 internet start-ups,

•  Fast execution: Fast Lane claims it is able to launch a new internet business within 50
days.

•  Has attracted $50M from
different investors

•  The team brings together
700 internet developers,
and holds classes and
training sessions along
with help in finding funds.



•••

Farminers Startup Academy
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

MOSCOW

• Founded by former Vice President of Mail.ru, Igor Matzanyuk, in August 2011. The Fund
invests in Russian projects.

• Selected projects receive up to $150,000 USD to prepare a project prototype, an office
space, and computers.

• After three months, the prototype will help the Farm find investors for the project.

• Farminers will generate funds for a period of three to six months in exchange for a 40
percent stake in the project.

• Targets online projects, compatible with mobile devices, and mass-market.

Sources: Official website, lenta.ru


•••

Ingria Technopark Business Incubator
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

ST PETERSBURG

Ingria future technopark
•  Founded in 2008 by the Inngria Technopark.

•  Among Top 5 most efficient business incubators
in Russia (Forbes)

•  Two programs:
•  Pre-incubation, 6 months (cost 500 RUR/month)
•  Incubation, 11-33 months (cost 1500 RUR/month)

•  Network of partners

•  70 residents: IT, Ecology, Biotech, Medicine,
Energy, Material Science.



•••

Tex Drive
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

MOSCOW

•  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

Sources: Official website, Marchmont Capital, EWDN.com


•••

Skolkovo: Russia’s answer to Silicon Valley
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

•  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
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

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.


•••

Yota
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•  Yota (4G internet) is the first Russian high-speed wireless network based on Mobile WiMAX.

•  Those actors have entered the telecom market by providing access only, differentiating with disruptive
distribution models.

•  Yota operates in Russia, Belarus and Nicaragua.

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.


•••

Displair
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

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.

•  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 According to Mashable, DisplAir’s 'air screen'
Russia, Displair won numerous technology has made the screenless interactive
innovation contests. It has become user interface magic seen with Tom Cruise in
a resident of both Skolkovo and Minority Report a working reality.
Kazan’s IT Park


•••

ResumUP
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

•  ResumUP is a service for personal data visualization aimed to set a new standard in
career management, online and social recruiting.

•  Basically, it gathers your data from multiple sources (LinkedIn and Facebook Connect so
far) and transform it into a clear visualization.

•  Then with a special algorithm, it can rank your profile and match it to job offers.

•  ResumUP is expected to launch as a recruiting service but could expand its services as a
plugin to other websites.


•••

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.

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.


•••

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........






•••
The Russian Business “Folklore” : myth or reality ?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

Elvira Nabiullina, Russia's minister of economic development, left, and Pascal Lamy of the
W.T.O at a ceremony in Geneva, on December 6th 2011.

WTO membership is expected to shine light on the regulations
and corruption that dog the Russian economy.


•••
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.


•••

Legal Framework
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

The Russian legal framework is
undergoing severe and major
improvements.

But Russia also exhibits a significant
implementation gap, meaning that many
laws on the books are poorly enforced.

Sources: The Global Integrity Report 2010


•••

Intellectual property
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

•  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.

•••

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.

Informal
•  Vkontakte groups enable illegal Commercial Vkontakte groups
trades and e-commerce. 150 informal
groups have more than 100,000 Dec 2010 Nov 2011
members on the website.
Mobile devices 170000 256000
•  Oborot.ru, Russia’s leading online
resource and event organizer for e- Fashion 105000 170000
commerce, announced in October 2011 Watches 102000 150000
the creation of the Electronic
Commerce Association, which aims
“to facilitate the development of online Children's goods 80000 16000
retail businesses and define the Cosmetics 70000 105000
principles of civilized business.”
Services 55000 83000
Jewelry 35000 74000
Sources:Les echos, 2012 e-commerce report by EWDN.COM, thecmuwebsite


•••

Payments are still an issue
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

•  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.
Sources: EWDN.com


•••

Corruption still dogs the Russian economy
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

147th
25th
24th
75th

73rd


•••

Table of contents
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........





5.  Summary


••• Caviar, the luxurious Russian Specialty

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

•••

The Russian Tech Recipes


•••

What is specific about Russia?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

Russia has a strong scientific culture.

Russia is the largest country in the world: with very diverse density
of population… and has still to complete the equipment of its low density
areas.

Russia is facing a social and technology gap inherited from more
than half a century of communism.

Russia is well-known for its extremely
tough weather.


•••

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.

New ways to reach
Intense indoor usages Health issues underdeveloped areas

Russians digging a passage to their Alcoholism is still a major issue in A railroad near Baikal Lake.
home after a snow storm. Russia, reducing male life expectancy.


•••

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.


•••
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


•••
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,…).

Sources: corporate website


•••

A company specialized in hackproofing: StopTheHacker
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

•  StopTheHacker’s proprietary technology helps solve web-scale security
problems involving malware on websites, hacker attacks and other types of
online abuse.

•  It uses machine learning (ML) and artificial intelligence (AI) techniques, which
are monetized on a SaaS model.

•  StopTheHacker has just received a $1.1 million initial funding from a group of
Russian investors but also Brian NeSmith (CEO of Blue Coat Systems).

Sources: EWDN.com


•••
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.

Examples:


•••

Inango devised a new way to cut implementation costs
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

•  Inango offers complete solutions for service providers
looking to connect entire communities to the Internet.

•  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.


•••
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.

Russia Vietnam, Cambodia,
Ukraine, Kazakhstan, Laos, Algeria,
Uzbekistan, Tajikistan, Bangladesh, Pakistan,
Armenia, Georgia, Burundi, Zimbabwe,
Kyrgyzstan 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

•••

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


•••

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 well many
competitions, including a second position in
Intel’s Global Challenge.


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