By Ben Aris of bne
When Maelle Gavet (pictured) first arrived in Russia as a student in the days following the fall of the Soviet Union, the shops were empty and the phones didn?t work properly. Two decades on, she heads Russia?s leading e-commerce site Ozon.ru ? Russia?s answer to Amazon.com ? that is well on its way to turnover of $1bn a year.
Ozon was well ahead of its time, launching only two years after Amazon at a time when even bricks and mortar retail in Russia was in its infancy.
?Ozon was very early into the game, launching even before there was really a functioning internet in Russia,? says Gavet. ?We are lucky, we have shareholders with a very long-term horizon.?
It is still very early days for Russia?s e-commerce sector but its development is following the same path as traditional retail: a few market leaders have emerged and are rapidly grabbing market share as the rising tide of higher incomes lifts everyone.
Ozon started life as an online bookstore and has grown into by far the largest e-commerce business in Russia. ?Ozon.ru is made up of four businesses,? said Gavet, sitting in the company?s relatively modest offices in the leafy Sokol district of northern Moscow. ?Ozon.ru is an online retailer, O-courier focuses on shipping, Ozon.Travel, and our most recent acquisition Sapato is the leading online shoe and accessory retailer.?
Revenues from Russia?s internet are growing at 30 per cent a year. A survey by market researcher VTsIOM in September suggests that 60 per cent of the population uses the internet compared with just 24 per cent in 2006. The volume of online business is growing even faster: last year, Russians spent an estimated Rbs554bn ($17.8bn) on goods bought from online shops, consumers sent Rbs167bn through the internet using online payments systems, and advertisers spent Rbs24bn on contextual ads and another Rbs16bn on media advertising such as banner ads, according to a survey by the Russian Association of Electronic Communications and the Higher School of Economics.
As the market leader, Ozon?s sales are outpacing the rest of the sector and have grown from $19m in 2005 to top $300m in 2011 and were up 80 per cent that year alone. Gavel says the goal is to become a billion-dollar-a-year company and it is ?not going to take another 10 years to get to that point?. The value of the online retail sector is likely to hit $100bn by 2020, up from its current $6bn, according to some estimates.
?About half the population is already online and of that some 20 per cent have bought something using the internet,? says Gavet. ?In 2011, there were about 10m to 15m buyers online, but this is still growing very fast and we expect this to rise to 20m this year. Ecommerce companies are all looking for that famous scale effect and this is still not happening.?
With its basic building blocks in place the company has already moved to the second phase of broadening its offering and building a business platform other companies can use, in addition to its own core retail business lines.
In 2011, Gavet managed to bring in $100m of fresh investment and her life was made easier by first the Mail.ru IPO in London and then the Yandex IPO, which had the effect of focusing international investors on the potential of the Russian internet.
Ozon was raising money with no particular purpose in mind but immediately spent a chunk of it buying the shoe retailer Sapato.ru, itself a local start up by Fast Lane Ventures, a Russian incubator that focus on online retail and the company?s first major exit. (Financial details of the deal have not been made public.)
?Ozon is on its way to becoming the biggest online platform in Russia. We have all the key logistics and marketing in place, but there is still a lot of work to do,? says Gavet. ?The plan is to build up direct sales, where we will buy goods from suppliers and sell them on to customers. This is already happening on Ozon.ru.?
Sapato is a straight forward bolt on retail addition to the goods and services Ozon already offers. But in October the company decided it wanted to experiment with the daily coupon business. Rather than go head to head with the well-established players on the market, Ozon held a tender to find a partner, won by Kupikupon, one of Russia?s three big coupon discounters to develop and run the white label Ozon Bonus.
?The site is already running and in just a few weeks we have seen the number of users up several hundred per cent. It is early days now, but for us it is very interesting, as this is just another channel for us to sell our services and tap into a much wider audience offered by Ozon,? says Iskander Khanbaev, head of marketing and development at Kupikupon.
With Russia?s e-commerce growth easily outpacing that of traditional retail, it is only a matter of time before Ozon becomes Russia?s third big internet IPO.
?We have no calendar for an IPO as we are still very early in our development. We want to reach a billion dollars of turnover first. There is still a lot of work to do,? says Gavet.
Related reading:
Russian internet front, FT
Zuckerberg scouts for Russian talent as Facebook trails VKontakte, beyondbrics
Guest post: Kremlin?s planned internet ownership limits raise state control fears, beyondbrics
Source: http://blogs.ft.com/beyond-brics/2012/10/25/1004381/
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