eCommerce in Russia

1. eCommerce in Russia Dr. Carl F. Fey Associate Dean of Research Stockholm School of Economics in Saint Petersburg and IIB, Stockholm School of Economics

2. Research Purpose: • To investigate the current state of eCommerce in Russia and its prospects for future growth • To understand which eCommerce business models are most successful in Russia • To determine the extent that eCommerce can help Russia increase its international competitiveness • Research Sample: Based on interviews with managers from 20 firms (dot.coms and brick and mortar firms) using eCommerce in Russia

3. Internet Use is Growing Fast in Russia • About 4 Million people have access to internet (some sources suggest up to 9 million people). • 1.35 Million PCs were sold in 2000 is growing at 20%/year. • In some Russian regions (e.g.,St. Petersburg) the PC penetration is 33%. • 42% of Russians access the internet from work. The number of Internet users in Russia, millions: (Source: Exportrådet, 2001, US Commercial Service 2000)

4. eCommerce has Arrived in Russia • 500 on line shops are registered in Russia, about 50% of these are active and generate about .7 million USD/month in revenue. • About 30,000 retail transactions are carried out per month by approximately 20,000 physical persons = 5-10% of internet users. • Boradband will become more available in Russia soon (e.g. webplus and Peterstar in St. Petersburg) The number of e-shops in Russia: (Source: Exportrodet, 2001)

5. Challenges to eCommerce Development in Russia • Few people have credit cards in Russia (about 4% of population and 18% of internet users) • Poor infrastructure (telecommunications, transportation, etc.) • Need to keep high stock levels • The Russian postal service is not very reliable • Lack of a clear law dealing with electronic signatures • Internet security • Lack of trust • Development of a functional judicial system

6. eCommerce has Good Potential in Russia • High transaction costs of conducting traditional business, thus potential to increase effectiveness and efficiency of commerce • Large market size • Large number of ISPs emerging • The need for remote ordering/delivery due to weather, geography, and security issues • Russia has many good programmers • The Russian population is technically-interested and thus interested in computers and eCommerce

7. Choose a Target Segment • Degree of fit with existing channels • Segments can be: • Demographic segments (e.g., 50+) • Benefit segments (fresh vegetables and convenience) • Combination

8. Focus on Key Customer Benefits • Best service • Widest assortment • Lowest prices • Best experience • Most personalized Be sure focal customer benefits are clearly communicated to potential customers

9. Consumers Care About More than Low Prices On-line PERCENTAGE OF CUSTOMERS WHO CARE ABOUT ATTRIBUTE ATTRIBUTE Source: JP Morgan Report: etailing and the five Cs

10. Models to Deliver Customer Benefits

11. Revenue Models • Advertizing • Sales of good or service • Transaction • Subscription

12. Financial Resources Computers and Internet Support Institutions Product/Service Availability Ease of Use Ease of Search Information Security Legal and Regulation Lock-in Value Comple-mentarity Trust Customs and Delivery Efficiency Uniqueness Computer Progamming Telecommunications Payment Systems

13. Formoza (www.formoza.ru) • Russia’s largest producer of computers • Based in Moscow • Sells to the region via a network of stores in the regions. • Computers with web access to Formoza in each store to provide information on full product range, delivery times, prices, and facilitate orders. Store-specific modification. • “We decreased expensies using eBuisness without increasing the costs too much….The result is that we can enlarge the network of partners we work with to smaller stores”—Serge Polansky, Manager of Commercial Department

14. Books.Ru Organized on August 30, 1996 - spun-off of a publishing co. Focuses on books about computers, the economy, and finance, but also has a general collection Has 28, 636 books in stock and 3985 CDs Targets individuals (programmers) and retailers Has 2 different sites for each client group: Books.ru and Opt.books.ru Has systems for payments and distribution Includes delivery charges into purchase price Has a next day delivery service Sells to Russians at home and abroad - 25% of all orders come from abroad I am absolutely sure we are the only online profitable book shop. Alexander Galunov, Books.Ru -

15. Payment Systems • Only 4% of Russians have credit cards and thus there is a high need for other payment solutions. • Most goods ordered through the internet are now paid for in cash - more than 80% • There are about 15 different Internet based payment systems offering financial services in Russia: • Digital money • Smart cards • Scratch cards • eBanking

16. Key Findings and Conclusions eCommerce offers Russians a possibility to increase efficiency and effectiveness. Russia’s vast size and lack of products in the regions offers good possibilities for eCommerce Reach is limited by the low technological sophistication of partners, an absence of laws and trust, and the high costs of Internet security. Demand is limited by limited access, low incomes, and distrust Government involvement should be limited to the following activities: Improving infrastructure (e.g., telecoms, roads) Implementation of laws on electronic money and signatures Education Promotion of Russia as an attractive place for eBusiness