Digital Russia

A third way for digital tech?

by Nikita VLASOV

Russia’s digital market has not yet exploded the way it has in China and other developed economies, and remains relatively small in terms of value. But Russia does have a unique digital ecosystem with strong local players, and is expected to see considerable growth in Internet services over the coming years.

Lagging in digital markets, leading in fibre

On the whole, Russia lags behind on the digital front, compared to developed countries, and even trails behind some other emerging economies like Brazil. TV/video, 4G, cellular M2M (with the exception of connected cars) and Internet services are among Russia’s weakest points today.

The country is, however, among the global leaders when it comes to deploying certain technologies like FTTH and FTTB. With 22 million subscribing households in 2019, Russia alone accounts for 29% of Europe’s FTTH/B subscribers. And 85% of the country’s households are passed for fibre.

Russia: Europe's fibre leader

Europe's top 10 FTTH/B markets by subscriber numbers

Source : IDATE DigiWorld in "FTTx markets in Europe"

OTT companies overtaking global giants

Russia’s digital markets stand out for the strong positions enjoyed by local players, and an advanced local OTT ecosystem, which is rare for a large country. And, unlike China, where access to certain markets is closed to foreign corporations, Russian law allows American, Chinese and other OTT companies to operate inside the country, provided they obey federal laws.

A good example comes from the online search sector, where top spot is held by Yandex which is considered the Russian Google. Another digital tech company, Mail.ru (owner of the Vkontakte social network), is on a similar development path: originally mimicking the Facebook model, it later adapted to the specific needs of Russian users.

Yandex outgunning Google in the Russian market

Progression of market share for Russia's top search engines

Source : Yandex.Radar

Digital Russia: between Europe and China

Russia is in an intermediate position when it comes to digital markets, somewhere between Europe’s openness to international players, and the Chinese model. The country is developing its own digital ecosystem, with the usual barriers to entry, while remaining open to foreign companies (notably American and Chinese ones) that dominate certain markets, such as e-commerce. But we are also seeing more and more protectionist measures being put into place. Russia’s recently introduced “Internet sovereignty” law is a prime example, its aim being to enable the government to have centralised and complete control over the Web, through equipment installed on the networks of the country’s four main ISPs.

Russia: forging a middle path between Europe's openness and the Chinese model

Three digital market models

schema
Source : IDATE DigiWorld

Sberbank: a digital banking pioneer

A newcomer has been emerging in Russia’s digital market ever since the country’s largest bank, Sberbank, announced the launch of a new digital services division in 2014. In late 2019, Sberbank had close to 40 non-banking projects in its ecosystem. They include e-commerce, video streaming, grocery and meal delivery, a taxi ordering platform, a service for booking doctor’s appointments…

In May 2019, the president of Sberbank, German Gref, confirmed that the bank had already invested around 1 billion USD (or 3% of the bank’s net profits) over the past three years in developing these non bank-related businesses. Most of the bank’s digital projects result in the creation of a joint venture with Russia’s leading Internet companies, such as Mail.ru (for the Citimobil online taxi platform) and Yandex (for the Beru marketplace).

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