Image source @ Visual China
Text | Market capitalization list, author | Shen Yuqian, editor | Jiaxin
Since the outbreak of the Russo-Ukrainian War, the sanctions imposed on Russia by Western countries have been continuously increased.
The freezing of various Russian assets and the subsequent removal of some Russian banks from swift, the international money settlement system, meant that Russia was excluded from the mainstream international trading system.
It's not just the government that's joining the sanctions army, but a large number of businesses.
At present, Apple, Microsoft, Intel, etc. have announced that they will stop selling products and services in Russia, and Google, Twitter and other companies are blocking or restricting the content published by Russian media on their own platforms.
In some areas, Russia has imposed tough counter-sanctions, such as the RD-180, which will stop delivering rocket engines to the United States. The engine has been called a "technological miracle" by the Americans, and even in 10 years it will not be able to produce a replacement.
But in the field of the Internet, Russia cannot come up with any substantive counter-sanctions measures, and it seems powerless.
We know that Russia does not lack technology, they can build spaceships and aircraft carriers, but also can build intercontinental missiles and nuclear submarines, why can't there be an Internet company that can compete with the West?
01 Got up early in the morning
In 1995, known as the first year of the Chinese Internet, China Telecom opened two Internet nodes in Beijing and Shanghai, providing a path for the public to connect to the Internet.
This year, Ma Yun came into contact with the Internet in the United States, he resigned from Hangzhou Normal School and started his first business; Ding Lei resigned from the Ningbo Telecommunications Bureau to start a business in Guangzhou; at the end of the year, Zhang Chaoyang gave up his studies in the United States and returned to China to start a business.
The curtain has opened on China's Internet entrepreneurship.
Around the same time, the Russian Internet was also rapidly completing the process from zero to one. In 1994, Arkadi Voloz and his old classmate Ija Segalovich developed a search engine: Yandex.
Although the search engine didn't officially go live until September 1997, it was at the forefront of many search giants: Yahoo was founded in 1994, Google was founded in 1998, and Baidu wouldn't go live until 2000.
In 2011, Yandex went public in the United States and raised $1.3 billion, setting a record for Internet financing since Google went public in 2004.
Yandex has also become one of the most influential Internet companies in Russia, and a 2014 prism showed that in the Russian search engine market at that time, Yandex had a market share of 54%, and Google ranked second with 34.9%.
Another company that grew up in the early days of the Internet is Mail.Ru, founded in 1998 and initially named after its email service, which is now the largest Internet company in Russia.
The company underwent a major change in 2001, when investor Yuri Milner took over in 2001, Mail.Ru massive restructuring and nearly 70 percent of its workforce, and by the end of 2010 it was listed on the London Stock Exchange with a market capitalization of $7 billion.
Today, Yandex and Mail.Ru are the two major Internet companies in Russia, their business territory is getting bigger and bigger, there is a visual expression that Mail.Ru Group is equivalent to Russia's Tencent + Taobao, Yandex is equivalent to Baidu + Alipay + Didi.
But in the capital markets, none of them have a market capitalization of $10 billion.
Compared with Yandex and Mail.Ru became the representative companies of the early Russian Internet, there is a Russian investor and investment institution that is more famous and influential in the global Internet field: Yuri Milner and DST.
Milner graduated from Moscow State University in theoretical physics and then went on to pursue a Ph.D. at the Lebedev Institute of Physics at the Russian Academy of Sciences, but gave up his studies to study at the Wharton School of the University of Pennsylvania, becoming the first Soviet to go to the Wharton School.
After graduating from Wharton, Milner briefly worked in banking and finance, but in 1999, Morgan Stanley star analyst Mary Meeker released a report on the rise of the Internet in Europe, which gave him an opportunity, and he has since devoted himself to the Internet business.
Today, from JD.com to Alibaba, from Meituan to Kuaishou, from Didi to ByteDance, almost all of China's Internet giants, Milner, have participated in the investment. In the United States, Milner's most famous investment case is Facebook.
From a global perspective, in the early stage of the development of the Internet, the Russian Internet came out of a similar story with China and the United States, there are star enterprises, star entrepreneurs and investors, and the first companies to enter the market have also enjoyed the first wave of Internet dividends, but unfortunately, this advantage has not continued.
02 The Lost Decade
Since the development of the global Internet, the mainstream business model of the consumer Internet is nothing more than the following: search, social, e-commerce, and games.
After the arrival of the mobile Internet, mobile phones and related industries have also become a hot outlet, giving birth to the giant Apple.
Russia's Internet industry, except for the early Yandex and Mail.Ru can still support the façade on a global scale, and in other areas it is almost silent.
Let's start with the e-commerce industry.
A data released by the Russian E-commerce Enterprise Association shows that in 2020, the total amount of the Russian e-commerce market is 2 trillion rubles, which is converted into RMB is about 100 billion yuan, as a comparison, the corresponding data of China in this year is 11.7 trillion yuan.
Another set of data also shows the slow development of e-commerce in Russia, with online shopping retail sales accounting for only about 10% of Russia's total social retail sales in 2020, compared with 16% in the United States and 37% in China in 2019.
This shows two points: one is that there are no representative enterprises in Russia's e-commerce; the other is that the Russian e-commerce market is still in its infancy.
The earliest e-commerce company in Russia is Ozon, founded in 1998, at the same time as Amazon, a year earlier than the establishment of Alibaba, on June 18, Liu Qiangdong just began to start a business in Zhongguancun.
But after that, Ozon did not grow into a global giant like these companies that were born at the same time as it did, and it did not even become the largest e-commerce company in Russia.
At present, the largest e-commerce platform in Russia is Wildberries, founded in 2004 by a rare female entrepreneur in Russia.
Despite this, Wildberries also does not have a high market share in Russia. According to Data Insight, Wildberries, AliExpress Russia, Ozon, and Yandex currently occupy the top five, but their market share is only about 30% combined.
Looking at games again, Russia may be the first country in the world to create a game with global impact: Tetris.
However, from the Internet to the mobile Internet, Russia has not been able to seize this first-mover advantage.
According to data, in the global video game market in 2021, Russia's game revenue is 2.7 billion US dollars, accounting for 1.7% of the global market, which is less than Japan, South Korea, and India.
In the field of mobile phones, Russian companies have almost completely lost their voices.
According to MTS statistics, in 2020, the Russian smartphone market sales are 31 million units, and no Russian local brand has squeezed into the top five of the market. The top five mobile phone brands in terms of annual sales are Samsung, Honor, Xiaomi, Apple, and Huawei, with market shares of 28%, 21%, 19%, 11%, and 6.4% in terms of sales volume, respectively, and these alone occupy more than 80% of the market share.
03 First-class talents have gone to engage in military industry
Russia did not give birth to internet giants, there are objective factors limits.
For example, due to historical reasons, Europe is a continent composed of dozens of small countries, but the cultural market is too divided, each country retains its own language and culture, and the Internet highly emphasizes speed and operation, and the multi-language obstacles in Europe also make the cost of developing the Internet very high.
For example, after the collapse of the Soviet Union, the aging rate of the Russian population accelerated significantly. In 2020, the proportion of the population over the age of 65 in Russia reached 15.5%.
However, the above is not the biggest reason why the Russian Internet has not given birth to a global giant.
Russia's long-term difficulty in the emergence of giants, the biggest obstacle may come from the overall entrepreneurial environment, which is closely related to its long-term macro policies.
In the 1990s, the United States was the vanguard of the Internet, the door of the Chinese market economy has been opened, reform and opening up are in full swing, in these two lands, entrepreneurs have passion, policy support, the market is almost blank, so the Internet has developed rapidly.
Russia does not have such a comfortable environment for the development of the Internet.
The Russian scholar Shei Graziev has made it clear in his book that the revolutionary changes that took place in Russia during this period from the collapse of the Soviet Union in 1991 to the financial collapse of Russia on August 17, 1998, were a disaster, and the financial collapse of August 17, 1998 marked the bankruptcy of this radical reform. ”
Let's take a look at a few sets of data:
The average real monetary income of Russian residents in 1999 was only 27 per cent in 1992;
Russia's share of global GDP fell from 5.5% in 1990 to 2.5% in 1999;
In 1998, the scale of Fixed Asset Investment in Russia was only 21% of that of 1990, and the productivity of Russian labor was only 60% of that of 1990.
In short, in the early days of the birth of the Internet, Russia was in a stage of total economic recession, although after Putin came to power in 2000, he began to dominate Russia's transition from a planned economy to a market economy, but the Russian Internet in the context of economic transformation did not wait for a better market environment.
Zhao Chuanjun of the Northeast Asia Economic Research Center of Heilongjiang University pointed out in a paper that Putin economics advocates taking the lifeblood of the national economy and strategic industries into the hands of the state and national enterprises, and at the same time actively promoting reform, opening up, and market liberalization.
Putin has also proposed that Russia should shift from a resource-dependent economy to an innovative economy, but unfortunately the effect is not significant.
This kind of difficult problem in the economic transformation of a country is pressed on every enterprise, which is a mountain.
When analyzing this problem, Zhao Chuanjun put forward several points that can be used to explain the reasons why it is difficult for Russia to emerge a global Internet giant:
First, Russia has not solved the problem of military conversion very well.
There is a saying in Russia: first-class talents engage in military industry, second-rate talents engage in oil, and third-rate talents engage in automobiles.
Russia does not lack high-end technology or even top technology, but these technologies are mainly used in the military industry. Russia can build spaceships, aircraft carriers, intercontinental missiles, nuclear submarines, etc., but it cannot build decent mobile phones, cars and household appliances, mainly because it has not transformed high-end military technology into modern industrial technology.
Second, Russia has not solved the problem of combining industry, education and research very well.
In order to develop the innovation economy, the Putin government allocated huge sums of money to the Russian Academy of Sciences and university research institutions for basic research, and how basic research is used for industrial technology development, applied to the production and operation of enterprises, need to achieve two transformations: scientific research results into industrial technology, industrial technology into enterprise products, in Russia, these two transformation links are disconnected.
Third, Russia lacks the necessary environment and mechanisms to retain talent.
The theme of innovation is enterprises, and the key to enterprise innovation is talent, and Russia has not done a good job in this regard.
In 2007, Durov founded VK, which became Russia's most popular social networking site a year later, valued at more than $3 billion, but an accident in 2011 forced Durov to sell all his shares to Mail.ru and left in 2014.
Durov eventually chose to leave Russia, leaving a message before leaving: The country is incompatible with Internet business at the moment.
04 Conclusion
Russia is the ninth most populous country in the world, with a population of more than 100 million, and there is room to grow into giants. Taking 10,000 steps back, even without a demographic dividend, a local company can achieve scale effects through overseas expansion, such as South Korea's Samsung.
Russia is also the world's largest country in terms of land area, which means that it is not difficult at the level of e-commerce infrastructure, but this does not seem to affect its production of giants in many other fields, a very simple logic is, if the mobile phones of other countries can sell in the Russian market, then why can't Russia's local companies?
There's a line in Sherlock that after all the impossible is removed, no matter how unbelievable the rest, that's the truth.
When we look back at the history of the development of the Internet in Russia, it is not difficult to find that there is no Internet giant in Russia, not that local companies do not want to, because they are facing a complex, uncertain market with multiple factors from policy and history.
No one is wrong, they just happen to encounter the big era of Russia's turn, when the fate of the country and the fate of the individual are intertwined, and everything they experience is fate.
Resources:
[1] Putin Economics: Presidential Economics of Transition Countries, Center for Northeast Asian Economic Research, Heilongjiang University, Zhao Chuanjun;
[2] "Lessons from Russia's Economic Transformation and Growth: A Critique of Political Economy", Xu Poling, Research Institute of the Institute of Russian, Eastern European and Central Asian Studies, Chinese Academy of Social Sciences;
[3] "Russian Digital Economy Development and Digital Transformation", Gao Jixiang, Institute of Russian, Eastern European and Central Asian Studies, Chinese Academy of Social Sciences;
[4] Russian Social Media Research: Development and Management, Dang Shengcui, Associate Professor, China Academy of Social Management, Beijing Normal University;
[5] "China-Russia Cross-border E-commerce: Status Quo, Risks and Institutional Arrangements", Associate Researcher, Academy of International Trade and Economic Cooperation, Ministry of Commerce, Gong Yanhua;
[6] "Innovative Russia 2020, Translation Practice Report", Harbin Normal University Translation Master Thesis, Xing Ou;
[7] "Asian Countries Account for 40% of the World's Top 10 Video Game Markets", Katharina Buchholz;
[8] "She" Wins Amazon, Focus Horizons;
[9] Who is Yuri Milner?, Global Entrepreneur;
[10] Overview of Media Communication in Russia, PR Newswire;
[11] An IT Giant You May Not Have Heard Of, BBC;
[12] Glory and Loss, The Russian Internet Puzzle, South Seven Paths;
[13] "Chasing Deer in the Snowy Plains: Who Will Be Russia's E-Commerce Tsar", 36Kr out to sea