Ecommerce and Russia - an emerging online economy

Russia seems to be well on track of truly shaking the effects of decades of communist rule followed by the chaos caused when it ended. It's been a long time coming, but Russia is now really starting to come of age in the online world.

When the Berlin Wall was being torn down and the USSR was crumbling, I remember commenting to my father what a wonderful thing it was. His side of the family were from countries behind the Iron Curtain and I expected him to be equally as excited, but he was quite sober about it. He feared what would happen in those countries when suddenly found "freedom" was gained. 

The "shock therapy" approach to liberalizing Russia placed a heavy burden on its people - it must have been so difficult after the incredible initial optimism. At one point, inflation was at double-digit levels per month. In the ensuing chaos, much suffered, including Russian telecommunications infrastructure - so they were well behind the 8 ball for many years when the Internet started to boom.

I've been working closely with some Russians for around 5 years now - in the early days it was incredibly frustrating. They'd drop offline without warning due to telecommunications failures and it could sometimes be days before they could get back online. In some instances, bribes would need to be offered to get lines working again. It was a shocking state of affairs for all parties. Their Internet connection costs also bit heavily into their income, connection speeds were terrible and allowances stingy. 

Over the last couple of years, much has changed - it's rare I get a "line down, don't know how long for" type messages from the guys I work with; prices have dropped for their access and speeds/allowances have increased.

Russian online population statistics

Emarketer is predicting that by the end of 2008, Russia will be the second largest Internet market in Europe (Germany is no.1), with more than 40 million Internet users. Russia is predicted to have nearly 43% of its population using the Web by 2012, up 72% from the 2007 level.

In 2003, only 3% of the Russian population was accessing the web daily - now it's at the 10% mark. 

The majority of Internet users live in Moscow and St. Petersburg - these two cities are where the most affluent Russians live and where 90% of government spending is plowed. 

From comrade to customer

With continuing telecommunications infrastructure improvements over the next few years, it's highly likely that we'll all have more Russian clients, particularly given the fact that our lifestyle is what many Russians aspire to (not that I'm saying that's A Good Thing).

Another interesting side-note relating to Russia - a few years ago there was a heck of a lot of fraud coming from the country; which posed an additional challenge to them being "accepted" in the online world. While the spam gangs and such still do exist as they do everywhere, I see very little actual credit card fraud in the industries I work in coming from the country now in comparison to Nigeria and Vietnam. 

Russia is still no.3 on SpamHaus's "The 10 Worst Spam Origin Countries", but well behind China and the USA. Also, a great deal of the spam originating from Russia is down to just a handful of individuals who feature heavily on SpamHaus's "10 Worst ROKSO Spammers" list. The Russian government is cracking down on online fraud and those caught face penalties that make the ones we dish out here look like a slap on the wrist.

Politics, media and free speech

The Russian government has shut down all independent TV channels, newspapers and radios (except one) - so there's still a great deal of control of information - except for one important medium, the Internet. 

Russian president Vladimir Putin is known to be a very tough, controlling man and intolerant of opponents, but he refuses to impose China-style control of the Internet. The Russian parliament was going to pass several laws to control access and usage of the Internet, but he prevented those laws from pass. This makes the Internet even more attractive to Russian citizens - a way to get news, connect with others and express.

Russian ecommerce - the challenges

A big step forward for the Russian online community (and western merchants) in terms of ecommerce was the ability for them to send money via PayPal. Given PayPal's excellent security, this makes transactions from Russia paid via the service not so risky. 

There's still a few hurdles Russia has to clear to become a really viable online economy. The first relates to delivery - freight services can be very unreliable. The Russian banking system is not as good as the West's yet and Internet users with credit cards aren't at the levels of the USA; but that is rapidly changing too.

What are Russians buying online?

If you're considering selling software or downloadable goods to Russians - at this point in time, it mightn't be worth the effort unless your product is truly unique. Piracy is still rampant in Russia, so whether it's software, tunes or tones - they get those via illegitimate means. It's just the way things are still done over there and most folks probably don't even give much thought to the legitimacy of their activities in that respect.

Books and gadgets are popular items for purchase, but the important thing to bear in mind about the Russian population is the gulf between rich and poor is huge. There is a middle class, but nowhere near as prevalent as in our own countries; it's still becoming established. While Internet access is dropping in price, inflation is still high on many other items. 

Given this inequity of wealth distribution, from what I've researched, where there is huge market however is in luxury items. There are many rich entrepreneurs and families in Moscow and St. Petersburg who are happy to splash cash around, particularly if it enables them to emulate the people in the West - it's a status thing. When thinking about luxury items, these aren't necessarily what we would consider luxury. For example, a few years back, Western brand names in jeans were the gotta-have. A standard pair of Levi's had the same status as some of our more expensive designer labels here.

Dealing with and marketing to Russians 

A *lot* of Russians have been helping to power the web for several years now; but most folks don't know it. There would be tens of thousands of Russians now operating sites or working behind the scenes as programmers and the English language is increasingly common among the population. However, if you are going to target the Russian market, translating your site or even a few critical pages into the Russian language would be most beneficial. If this is something you're interested in doing, let me know - I can put you into contact with a Russian English teacher whom I've worked with for years who freelances in this sort of work.

Aside from that, marketing to Russians is pretty much the same as marketing to folks in the West, as it's the Western lifestyle they aspire to. Again, I'm not saying our lifestyle is necessarily A Good Thing :).

As with many Eastern European countries, Russians can come across as being arrogant and abrupt when communicating in English. They aren't necessarily being that way, it's just a cultural/translation thing.  They are an incredibly industrious people and their struggles since the fall of the USSR is starting to bear fruit; which translates into cash to spend on your goods. So, be patient with our Russian comrades .. umm, I mean friends :). 

By the way, if you're thinking of outsourcing programming, design or development work overseas - be it to Russia or any other country where there are marked differences in culture, check out my outsourcing guide first for some handy tips. 

Michael Bloch
Taming the Beast
http://www.tamingthebeast.net 
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