Coming Soon to the Russian Internet: A Fight for Ad Volume and Budgets

Due to Slow Consumer Uptake, Commercialization Has Lagged -- but Not for Long

By Published on .

Givi Topchishvili
Givi Topchishvili
If Pepsi had waited for the Russian Federation to provide a favorable market environment, it's hard to say where globalization would -- or wouldn't -- be today. Perhaps Russians would still be getting their carbonated soda from a street-corner, pay-by-the-squirt tap, with two flavor choices and one brand. Perhaps Stoli vodka would never have become the best-selling Russian vodka in the world, today the second-largest vodka importer to the U.S., Pepsi's prize for bringing canned soda to the then U.S.S.R.

These kinds of game-changing opportunities still remain today in the as of now largely untapped Russian internet (RuNet) online banking and shopping markets. Major European players have already recognized that a dialogue with the Russian consumer is vital to the growth of global e-commerce.

The opening up of the Russian internet remains one of the largest opportunities for online marketers and their clients to break new ground. But as the chips begin to fall and show signs of an inevitable and imminent explosion, it's important to understand and account for several factors in the development of Russian online markets -- what obstacles remain to be overcome and what forces it will take to do so.

First, one must understand the distinctive nature of the typical Russian internet user. At first glance, there are several discouraging statistics.

Only 5% of web users in Russia and the Ukraine currently shop or bank online, while Estonia and Poland boast 10 times that percentage. Polls indicate online shopping is being conducted by only 8% of respondents once a month. In Poland and Austria, monthly online shoppers clock in at nearly 30%. Meanwhile, after several years, (Russia's eBay) has still not become a significant RuNet player.

Other things to consider
But there are other important signs to be considered. Despite slow online-commerce development, 55% of Russian web users take advantage of e-mail services. Monitoring news online is popular among 48.6% of RuNet users, while 21.5% download music, videos and photos on a daily basis. Thirteen percent of users exchange files over the internet, while 12% play online games. And while the penetration of credit cards into the Russian consumer market has been limited, stunting online payment capabilities, SMS purchasing remains popular, with many Russian consumers making low-price purchases via mobile phone.

There are challenges. A lack of security and infrastructure for credit-card purchasing hinders the market's ability to integrate with European and American trends. For eBay and its imitators, development is further limited by the overall immaturity of the secondary market for goods, customs regulations and corruption. But incredible opportunities await beyond these obstacles, and there are signs that such barriers will soon crumble.

The first place to look for any movement is among the Russian financial elite, who have long held a monopoly and influence on the distribution of advertising flow. Until recently, RuNet was barely on their radar, let alone a platform for fierce competition. Lagging development and the absence of strong players left the Russian internet commercially nearly irrelevant to their interests.

This is changing, however, with the growing adoption of the worldwide web by the influential few. Digital Sky Technologies, for example, has become one of the most successful players, controlling much of RuNet's traffic flow, from and (the Russian versions of Facebook and MySpace) to Forticom to and LiveJournal. It has further become a recent pioneer in the integration of RuNet into the global community through several bold moves, such as acquiring a 2% stake in Facebook. This is, of course, the tip of the iceberg. The real fight for budgets and ad volumes has yet to start, and we will soon witness some very interesting competition between the Russian spheres of influence.

Until now, RuNet has lagged in development because of low-level integration into the global internet community, particularly into the Western E-commerce processes. Without the capabilities to act as a trading platform, RuNet has been isolated from the Russian consumer. But all this simply means that the first company to succeed in truly introducing the Russian consumer to e-commerce will no doubt be a game-changer. Examples of those willing to take responsibility for forming niche footholds are not difficult to come by.

In traditional sectors, McDonald's, Pepsi and Ikea have certainly been the pioneers of the past. And their bushwhacking will only inspire pioneering in their competitors, which in turn sparks an interest in local players as well, driving markets exponentially higher. As the elite simultaneously move to monopolize ad flow on the web, RuNet's development is only a question of time. For investors and marketers, the time is now.

Givi Topchishvili, a native of the former Soviet state of Georgia, is president CEO of Global Advertising Strategies.
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