Expanding to Russia with love

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Expanding to Russia with love
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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
.

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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
.

3
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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Table of contents
5
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
6
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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The Russian innovation model
•
•
•
High Voltage Research Installation, Moscow

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Russia has a strong technological and engineering
culture…
8
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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…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.

9
The
internet
has
become
, for all
modern-
oriented

Russians
,
the main
free source of information
.
Sources:
ComScore
, American Journal of
Political
Science


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Russian

constraints
drive usages and innovation
10
10
Average number of
hours spent

monthly
on internet
social

networks
; world
average is 5
1
Worldwide

rank in
time spent
on
social
networks
80
million Russian-
speaking
internet
users
Sources: EWDN,
ComScore

2
Worldwide

rank in size
of
illegal media
sharing
($300 million
in music piracy)

Physical
isolation
Rough
climate

Mistrust in State-
controlled media
Poor urban
planning

(
Russia
+
Russian
diaspora)
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This innovation model gave
birth
to
Yandex
, a
true

success
story
Founded
by
two

Russian

mathematicians
.

11
Arkady

Volozh

Ilya
Segalovich

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
.
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
…
622
million
dollars revenues in 2011
12
80
web
products

in total (
mostly
the
same

offer
as
Google’s
)
60%
share

of
search-engine

traffic
in
Russia
(Google 2nd
with
25%)
60%
share

of
Russia’s
online
advertising
revenues
60%
growth

(FY 2010 to 2011)
Sources:
EWDN.com
,
Yandex

Corporate

Website


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…
that

even

goes

beyond
the Google model.
•
 
Real-time
traffic

4
years

before

Google
13
•
 
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.
#1
Photos Web Portal
#1
Traffic

previsions

#1

Weather

…

Sources:
EWDN.com
,
Yandex

Corporate

Website


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
15
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
…
16
“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.
17
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 Russi an 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
18
Sources:Les
Echos,
ComScore
,
Vkontakte.ru


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Vkontakte

created
a
very
efficient network, far
from

its

model
•
 
It
is
the
mos t

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
.

19
•
 
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
20
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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A promising economy
•
•
•
International Business Center, Moscow

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Europe’s

largest
internet
market
by
number
of
users
...
22
e-commerce
size:
$10
billion
Online
advertising
:
$1,5
billion


e-commerce
size:
$45
billion
Online
advertising
:
$3
billion




Sources: EWDN .
com
(2011)
57
Million
Russian

internet
users
42
Million
French

internet
users
Strong growth potential.
(
Spring
2012)
(
Fall
2011)
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… and the
market
has
yet
to
expand
!
23
39
%
Total 2011
internet penetration
Sources:
ComScore
,
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)

Evolution of the Internet
penetration in Russia
(Russian Academy of Sciences)

64
%
58
%
Russia
France
Europe
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
Mixed
growth
model:
from
innovation, one
fusion and acquisitions.
Multiple sources of
investment
,
both
local and
foreign
.

25
Official objectives:
COMMUNITAINMENT
INNOVATIVE SERVICES
Communications
+
Entertainment
Improve the
Internet market
Sources:
Mail.ru
Group
Corporate

Website


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Mail.ru
Group: the
colossus
of the
Russian
Internet
26
Email, IM, social
networks
Games
Navigational
Services
Media projects
E-commerce
Mail
Agent (IM)
MyWorld
(MIR)
OK
ICQ
Blogs
Dating
Futubra

40 MMO
47 games for social
platforms
Search
Answers
Maps
Mobile
Rating (Analytics)



News
Weather
Entertainment
Hi-Tech, Auto, Lady,
Kids, Health
Cards
Mailing

Travel
Goods
Property
Money
Work
Headhunter
Free-lance
Market leader in display
advertising, internet
communications, and in
social.
$325
million revenue in 2010 from
diverse sources:
39%
30%
20%
11%
Advertising
Games
Paid services
Other
Sources:
EWDN.com
,
Mail.ru
Group
Corporate

Website
,
Mail.ru

Annual
Report 2010

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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 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…
27
Sources:
TechCrunch’s
2010 Yuri Milner interview

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DST’s Investments (undisclosed shares)
28
Sources:
TechCrunch
, WSJ, EWDN.com

An impressive portfolio including many of
the hottest tech firms of the
moment
…
… probably starting the first bridges between Russian and Western companies.
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

But
why
do
firms

internationalize
?
30
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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VimpelCom
a Russian mobile operator that has grown
into a global
telco

31
•
 
1 81 mi l l i on
mo bi l e
subscribers around the
world
•
 
$10.512billion
dollars
revenue in 2010
•
 
Based
in Amsterdam

•
 
10 Brands
Beeline,
Kyivstar
,
djuice
, Wind,
I nf os t r ada
,
Mobi l i nk
, Le o,
Banglalink
,
Telecel
,
Djezzy


A strong international presence, on
several continents

Europe
Russia, Ukraine, Armenia, Georgia, Italy
Asia
Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan, Vietnam,
Cambodia, Laos, Bangladesh, Pakistan
Africa

Algeria, Burundi, Zimbabwe, Namibia, Central African
Republi
c
North America
Canada
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


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Kaspersky, a long-date international
player

•
 
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.
32
Sources:
Wikipedia
, Official
Website

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Which countries are mostly targeted by Russian firms?
•
 
Both cultural and
geographical proximity
•
 
No language barrier
•
 
Existing networks
33
Historical
Technological
Strong potential
Proximity
4 types of links to Russian companies:
•
 
Example for innovation
management
•
 
Experimentation
•
 
Innovation harnessing
•
 
Market in development
•
 
Geographical proximity
•
 
Land connection
•
 
Within quick flight reach
•
 
Existing networks from
other industries
Ex-soviet countries
USA
South East Asia
Europe
Examples:
Alongside internationalization,
investment power is developing fast
in Russia.
•
•
•
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DST
is

developing
,
extending

its
network to
Asia

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)


35
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

•
 
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
36
•
 
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
.
Sources:
Rusnano’s
2010
Annual
Report, CNET News
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Top VC
firms

invest
in
Russia


But
also
…
Mangrove Capital
Partners

Ventech

eVenture
Capital
Partners

General
Catalyst

Partners

Tiger
Global Management
and more…
37
Accel

Partners

Andreessen
Horowitz

Benchmark Capital

Bessemer Venture
Partners

First Round Capital

FLOODGATE

Founders

Fund

Greylock

Partners

Top 15 VC
firms

from
Forbes 2011 Midas List

Already publicly investing
in Russian startups
Kleiner

Perkins

Caufield
&
Byers

New Enterprise Associates

Redpoint
Ventures

Sequoia Capital

SV Angel

Union Square Ventures

Venrock

… a move that we can expect even more thanks to the growing
relations with DST.
Sources: EWDN.com,
Corporate

websites

Western VC firms’ investment is clearly expanding to Russia…
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Table of contents
38
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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Developing tomorrow’s potential
•
•
•
Skolkovo
Innovation Center mockup, Moscow

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

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Developing

tomorrow’s

potential

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
40
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Up-to-date Russia: mobile phones are extremely
popular…
There are
1.5 SIM
cards
per
Russian

inhabitant

Total
population
Total mobile
phones
186
million
140
million
Sources:
newmediatrendwatch
,
emarketer
, AC&M
A
strong
mobile phone
penetration

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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
42
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
…
43
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
age 12-17
age 18-24
age 25-34
age 35-44
age 45-54
age 55+
internet users
mobile internet users
Users by
age
(
Aug
2011)
Sources:informa

telecoms&media
,
newmediatrendwatch
August 2011
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…
creating
a
fast-expanding

market
for mobile content

At the end of 2010,
touch screen phones
accounted for
about
30% of all phones
sold

in Russia
44
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


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Even

with

homemade
solutions, the social network
market

is

catching
up
fast

45
Odnoklassniki.ru

Russia’s
2
nd

social network
Face
detection
,
dating

Similarities
:
Classmates

45 million


LiveJournal.com

Blogging,
social media
Intellectuals express
themselves freely
30 million
monthly
in
Russia

Vkontakte

Russia’s 1
st

social network
Similarities:
facebook

116 million
accounts

MoiMir

– ‘My World’
Blogging
Similarities:
Myspace

20 million
visits per month
Moi
Krug

– ‘
My

Circle
’
Job
seeking
,
pro networking
Similarities:

LinkedIn

1 million
users
(vs 0.5 on
Russian

LinkedIn
).


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The e-commerce
market

is

developing

46
The
Russian
e-commerce
market

is

still

emerging
but
is

expected
to
grow

fast
in volume and
result
.

2010
2011
2015
2020
$8
bn

$10
bn

$40
bn

to
$60
bn

$23
bn

To
$30
nb
Forecast

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

will

be

driving

Russian
e-commerce in the
next
five
years
?
47
•
 
The
potential

mar
ke
t

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

r
ecent

Internet user
s

from

larger

cities

making

initial

online

purchas
es
.

Internet
users

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

5.6

7.5

Regions
Started using internet before
2011
8.4
7.6
Started in 2011 or after
13.2
Total
8.4

20.8

TOTAL RUSSIA
13.9

28.3

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

tomorrow’s

potential

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
48
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

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A network of
incubators

demonstrating
the
recent

dynamism
of the startup
ecosystem

49
…
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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HSE Incubator
•
 
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
)
50
MOSCOW
Sources: Official
website

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Academy of National Economy Incubator
•
 
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
51
MOSCOW
Sources: Official
website

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Moscow State University
Student Business Incubator
•
 
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,…
52
MOSCOW
Sources: Official
website
, Direct contact
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Fast Lane Ventures
•
 
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.
53
MOSCOW
Sources: Official
website

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Farminers
Startup Academy
•
 
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.
54
MOSCOW
Sources: Official
website
,
lenta.ru

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Ingria

Technopark
Business
Incubator

•
 
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.
55
ST PETERSBURG
Sources: Official
website


Ingria
future
technopark


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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
56
MOSCOW
Sources: Official
website
,
Marchmont
Capital,
EWDN.com

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Skolkovo
: Russia’s answer to Silicon Valley
57
•
 
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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Developing

tomorrow’s

potential

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
58
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Already

some

extremely

innovative

companies
are
coming
out of
this

ecosystem

59
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
.
60
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.
•
 
Yota
operates in Russia, Belarus and Nicaragua.
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Displair
61
•
 
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 an
d
3D image display with far
reaching implications in currently available image and
screen technologies.

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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
.
62
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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
al gori thm

that

evaluates
road conditions.
63
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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Developing

tomorrow’s

potential

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
64
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...........

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The Russian Business “Folklore” : myth or reality ?
65
WTO
membership

is

expected
to
shine
light on the
regulations

and corruption
that
dog the
Russian

economy
.


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.

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Business in Russia still faces many challenges
66
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”;
•
 
Bureaucracie
s 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 initiative
s
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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Legal
Framework
67
Sources: The Global Integrity Report 2010
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
.


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Intellectual property
68
•
 
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
Russi a
f or t he
year
— down 2%
f r om
2009 but
never t hel ess

r epr esent i ng
a
commer ci al val ue of
appr oxi mat el y
$3 billion.
A
survey

conducted
by BSA as part of
its

study
of
piracy

levels
in
Russia

indicates

that

the
majority
of
Ru s s i a n

r e s p o n d e n t s

u n d e r s t a n d
the
benefits
of
l i c e n s e d
s o f t wa r e,
i n c l u d i n g
the
f a c t o r s
of
r e l i a b i l i t y
( 8 6 p e r c e n t ) a n d
a c c e s s
to
t e c h n i c a l
s u p p o r t ( 6 9
p e r c e n t ).
Ho we v e r
, mo r e
than

half
of
R u s s i a n

r e s p o n d e n t s
d o n o t h a v e a
c l e a r

u n d e r s t a n d i n g
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.
69
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
70
Sources:
EWDN.com

•
 
While
t
he 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
consi der abl e

exent
over t he l ast
few
years
,
with
commission
fees

now

suitable
for all types of
goods
and
s e r v i c e s.
•
 
No
universal

recurring

payment

solution has been
available

so
far,
ma k i n g

i mp o s s i b l e t h e
l o c a l i z a t i o n
of
some
business
models
in Russia.

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Corruption
still

dogs
the
Russian

economy

71
147
th
25
th
73
rd
24
th
75
th
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Table of contents
72
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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The Russian Tech Recipes
•
•
•
Caviar, the luxurious Russian Specialty

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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
.
74
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Lots of constraints means a lot of creativity
75
Grigori
Perelman, the mathematician
who solved the
Poincaré
Conjecture.
Russians digging a passage to their
home after a snow storm.
A railroad near Baikal Lake.
Constraints and speed lead to technological
breakthroughs such as
Displair
.
Brilliant mathematicians
New ways to reach
underdeveloped areas
A sense of emergency in
bridging the technology gap
Intense indoor usages
Alcoholism is still a major issue in
Russia, reducing male life expectancy.
Health issues
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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.

76
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:
77
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,…).
78
Sources:
corporate

website

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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).
79
Sources: EWDN.com
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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
.

Examples
:
80
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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.
81
•
 
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.
82
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:


L a u n c h o f c o m m e r c i a l o p e r a t i o n s ( 9
th
entrant)
December 2010:

80% of total population covered

6 5 0 k m o b i l e s u b s c r i b e r s ( 3
r d
l a r g e s t o p e r a t o r )


S o u r c e s: 2 0 1 0
Annual
Report
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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:
83
InErPharm

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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
st art up
h a s r a n k e d v e r y we l l ma n y
competitions, including a
second position in
Intel’s Global Challenge
.

84
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InErPharm
reduces the toxic effect of cancer treatment
•
 
InErPharm
is a Russian
startup
from MSU SIB, that will commercialize
a treatment
reducing the toxic effect of chemotherapeutic drugs.
•
 
Basically, the treatment consists in loading drugs into the red cells of the patient.
•
 
The solution not only soften the side effects of cancer treatment, but it contributes to a
longer life expectancy for cancer patients.

85
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One of the
fastest
countries in
technology
adoption
Russians have a
very
intense use of Internet
,
explained mainly by their
lack of trust in regular
information channels.
86
Sources: Internet World
Stats
, TNS , PC.org, EWDN.com
This fast technology adoption is driven by two main factors:
Russian top managers
believe in
developing
technologies
that do not
strictly follow their
company official
guidelines.
At
home
At

work

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Social media
is
the
spearhead
of
technology
adoption
87
Sources: Internet World
Stats
, TNS , PC.org, EWDN.com
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

VS.
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

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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
88
Sources: Internet World
Stats
, TNS , PC.org, EWDN.com
advertising
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Technology
gap forces
Russia
to explore alternative and
innovative
solutions
89
Sources:
Finextra
, Moscow Times
•
 
While
Western Europe
was

catching
up on the on
c r edi t

c ar ds

penet r at i on
in the
late
80s,
credit

cards

remained

unknown
in USSR
until
the
mid
90s
.
•
 
The
aversion for non-
physical
money
i n h e r i t e d

f r o m

d e c a d e s
of
c o m u n i s m

didn’t
help the
p e n e t r a t i o n
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

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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
.
90
•
 
This process explains a lot why
the Russian e-commerce
market is still
positionned
so
far
behind the Western
one.
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Mobile payments are pushed by the industry leaders as a
way to catch up on electronic payments
91


•
 
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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Table of contents
92
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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fabernovel.com

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Summary
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faberNovel 2012

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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).
94
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faberNovel 2012

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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

95
Russia as a
Pool of Experts
Russia as a
Test Laboratory
Russia as an
Observatory
Whether you are an industry leader or a startup, here are 3 ways you can
benefit from Russia:
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faberNovel 2012

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fabernovel

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•
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Russia is a
Pool of Experts
Russia is a
Pool of Experts
96
Hire Russian specialists and develop partnerships with experts in order to:
•
 
Specialize in
algorithmic
•
 
Tackle
Big Data issues
•
 
Use new solutions from Russian
Health and e-Health
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faberNovel 2012

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fabernovel

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Russia is a
Test Laboratory
Russia is a
Test Laboratory
97
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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faberNovel 2012

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Visit our website and discover what we do:
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Russia is an
Observatory
Russia as an
Observatory
98
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
.

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David
Waroquier
, Mangrove Capital Partners interviewed by EWDN.COM
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faberNovel 2012

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100
Moscow
meet_moscow@fabernovel.com

Our Moscow office
helps you evaluate your
potential in Russia.
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faberNovel 2012

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fabernovel

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101
Paris
17 rue du
Faubourg
du Temple
75010 Paris
+33 1 42 72 20 04
meet_paris@fabernovel.com


……….………………………………………………………………………………………………  
San Francisco
169 11
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street,
San Francisco CA 91 103, USA
+1415 626 6406
meet_sf@fabernovel.com

……….………………………………………………………………………………………………  
……….………………………………………………………………………………………………  
New York
412 Broadway, Floor 2,

Ny
NY 10013
+1415 298 0209
meet_nyc@fabernovel.com

Moscou

3-iy
Monetchikovskiy

Peureulok

17,
Stroenie
2 Moscow 11054
+7 (903) 009 02 75
meet_moscow@fabernovel.com

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faberNovel 2012

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fabernovel

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This
research

was

completed

with
the support of:

Orange, East-West Digital News, Moscow State
University

Student
Business
Incubator

Acknowledgements
…………………………………………………………….…………………………………………………
…………………………………………………………….…………………………………………………
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

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faberNovel 2012

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fabernovel

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April 2012 • Expanding to Russia with love •
Caroline
Pandraud

Project Analyst
caroline.pandraud@fabernovel.com


Tom
Boeken

Junior Project Manager
tom.boeken@fabernovel.com

Kevin Smouts
Junior Project Analyst
kevin.smouts@fabernovel.com

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Contact
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17 rue du
Faubourg
du Temple
75010 Paris
+33 1 42 72 20 04
www.fabernovel.com

Cyril
Vart

VP Strategy & Development
cyril.vart@fabernovel.com