The birth of the .ru extension in April, 1994 has come to symbolize the beginning of Russia’s domestic internet history. Now, twenty years later, East-West Digital News co-founder Andrew Zotov, a pioneer of the industry, recalls these earlier times.
The early days
The Internet appeared in Russia well before 1994, with the first local service providers emerging as early as 1990. That same year two information search systems were introduced, the so-called “International Classifier of Inventions” and the “Goods and Services Classifier.” Developed in DOS by Arcadia, a company founded by Arkady Volozh and Arkady Borkovsky, these systems provided the foundation for what would later become Yandex.
In one sense, Russia was perhaps even the first country to imagine something similar to the Internet, when Vladimir Odoyevskiy published his fantastic novel “The Year 4338” in 1837: “Magnetic telegraphs will link acquainted people, allowing them to talk to each other in a remote way,” while “home-made newspapers will circulate, in particular, between households who are closer to each other.” Odoyevskiy predicted these newspapers would “replace usual correspondence” and contain “common news about the health or the diseases of their owners, and other news from the home, as well as a variety of other thoughts and remarks, small inventions, and invitations to lunch with le menu.”
In the mid-1990s – just a few years after the fall of a regime that had isolated our country and slowed down its modernization – envisioning the future of the Internet in Russia still required some imagination.
When the group of enthusiasts that I led started the Russian Internet Forum (RIF) in 1996, some of my friends said I was crazy. They thought I was building a conference around a fleeting idea that would never amount to much.
Still, we felt that sooner or later virtually every business, and most of the population, would be connected to the Internet. We believed that one day this network would contain the better part of humanity’s knowledge. Some of us even envisioned a future where the State would interact with citizens online, while others foresaw the death of traditional television.
Around 1996 a new phenomenon emerged: Russian entrepreneurs launched a series of internet startups in the newly created Runet (RUssian interNET). Some of these early ventures are still around, but most either disappeared or were acquired by larger corporations.
As for the RIF, it quickly became Russia’s largest industry forum, a title it retains today with over 5,000 attendees each year.
On September 23, 1997, the first official presentation of the Yandex.ru search engine went largely unnoticed, except by a handful of industry insiders attending a software exhibition. The new engine offered such advanced features as the ability to make requests in plain text, and it automatically evaluated the relevance of search results. However, in the late 1990s Yandex’s traffic was miniscule compared to Altavista or Rambler (the local leader at that time).
The Yandex home page in 1997
In 1998 we saw the launch of Ozon.ru. The future e-commerce leader started with books before diversifying – following the Amazon model – to a wide variety of offers. This comparison has its limits however, since the Russian e-merchant, for all its importance, has not become a behemoth in the country’s online economy and its turnover – around $750 million in 2013 – accounts for at most 2 percent of that of the US giant.
The tipping point
In the new millennium Russia has become Runet-dependent and Runet-centered. While some say that the turning point occurred when internet penetration reached 25% of population in 2008, most mass-media experts believe that the new era started in 2011, as online advertising revenues exceeded print revenues for the first time.
Business-wise, I prefer to think that 2004 marked the start of the modern Internet era in Russia, as this was the year that Yandex (by this time the largest search engine in the country) first generated an operational profit.
Among these key years, one should mention 2006, which saw the launch of the first Russian social networks. Vkontakte (similar to Facebook, but with several significant differences) and the Classmate-like Odnoklassniki both became huge successes, attracting tens of millions of users.
The country’s record in the field of instant messaging and microblogging is less brilliant, with the rare attempts by domestic players remaining unsuccessful so far.
Meanwhile, only 10% of the Russian adult population was “wired” in 2003, increasing to just 20% by 2007. In terms of penetration, Russia still lags behind most European countries, with just over 60% of the adult population using the Runet on a monthly basis.
However, in terms of the absolute number of users, Russia surpassed Germany, France and the UK in September 2011 to become Europe’s largest Internet market. That lead will only increase over time as Russia, with more than 144 million people, still has a way to go to match the >80% plus penetration rate of many European countries.
Internet penetration in Russia (2003 – 2013)
Source: FOM
Russia is bound to reach or exceed this threshold with its high broadband supply offer, as rates continue to drop every year. Unlimited broadband access is now the default for households, corporations and SME businesses.
Broadband penetration in Russia (2011 – 2015)
Source: Json & Partners
What’s more, broadband penetration rates are almost equal between rural and metropolitan citizens of Russia, proportionally reflecting their social and domestic status. Thus, Russia is not experiencing the “digital divide” evident in South-East Asia, and such socially and educationally segregated countries as the US.
Distribution of Internet users by municipal types (spring 2013)
Source: FOM
One explanation for this is that Russia enjoys Europe’s highest percentage of university educated citizens, and higher learning spurs higher internet consumption! The “mobile first” nature of these young educated users also makes Russia the best location for mobile web usage, as the majority of people in this demographic own advanced smartphones or similar devices. Currently, 3G coverage in cities and towns is nearly nation-wide, with LTE set to become the standard in every large city.
Mobile Internet penetration in Russia (2011-2015)
Monthly audience in millions of users. Source: Json & Partners
Looking to the horizon
The future is bright for Internet businesses in Russia – be they domestic or foreign players. Russia is one of the few countries where local players – from search engine Yandex, to the social networks and e-commerce sites – have maintained leading positions in their respective fields, despite attempts by global giants to conquer the market. And this – unlike China – is done without any regulatory limitations! The future will likely see even more examples of this, judging by the new generation of entrepreneurs and venture investors that has emerged over the past five years.
On the other hand, the game is still open to foreign players. Several international companies have found their place on the local market. LinkedIn and Twitter have become leaders in their respective fields, while eBay, AliExpress and the Otto Group generate nearly $1 billion per year from Russian consumers (see EWDN’s research studies on e-commerce).
International players have also benefited from the success of Russia’s domestic champions. Yandex’s IPO in 2011 earned a few Western funds billions of dollars, and many more are expecting similarly strong exits from such projects as Ozon, Lamoda or Travel.ru.
Let us hope that the growing political pressure and international tensions will not prevent the next two decades of the Russian Internet from being as successful as the last twenty years.
- To commemorate this anniversary, Russia Beyond The Headlines, an international source of political, business and cultural news and analysis, has published a story about Anatole A. Klyosov, the first Soviet Internet user. This well-known Soviet-American scientist speaks about the Internet in the USSR, espionage and the surreal logic of history.
