top of page

Russia's E-Commerce Boom


Russia, Europe’s biggest and fastest-growing Internet market, is red hot. With a skyrocketing number of Internet and mobile users, but a still underdeveloped commercial environment, the opportunity to build phenomenally successful domestic e-commerce businesses is huge.

This article is one of 12 appearing in a DLD Informilo special edition print magazine that has been distributed at the DLD conference in Moscow May 28-29, 2012. A 2012 e-commerce report by is projecting that the Russian e-commerce market will be worth between $40 billion and $60 billion by 2020. So it is not surprising that Western venture capital is pouring into Russia. In the last nine months:

Ozon, Russia’s Amazon, raised $100 million in funding in September from a consortium that includes Index and Russian, Swiss and Japanese investors. Five months later Ozon used some of that capital to buy Sapato, the local version of Zappos, a U.S. online shoe and accessories business. received a $50 million capital injection from KupiVIP, the Russian version of and one of the country’s most successful online retailers, which itself closed a $55 million Series C round in April of last year from marquee investors that included Accel Partners, Balderton Capital and Bessemer Partners.

Online marketplace Wikimart, a competitor of Ozon and KupiVIP, raised $30 million from Tiger Global and another investor to improve order fulfillment., the local version of craigslist, secured $26 million in November and another $75 million in early May from private equity firm Baring Vostok and global venture capitalists Accel Partners, alongside existing investors Kinnevik and Northzone.

Adapting Western Models

Many of these new entrants are copying successful Internet models. Consider Oskar Hartmann, the entrepreneur behind KupiVIP. He and two other entrepreneurs have formed Fast Lane Ventures, an incubator which has churned out 20 copycat Internet start-ups in just two years and has already exited two of them. But adapting U.S. and European models to Russia is not as easy as it seems.

It is no accident that the Russian market remains largely dominated by local players. Six out of the top ten Internet sites in Russia, including the three largest, are local, with U.S. giants like Google and Facebook trailing way behind, according to a report by investment bank GP Bullhound.

Success in Russia means adapting and sometimes completely overturning business models that worked almost unchanged when imported from the United States to Western Europe and vice versa.

For starters, Russian’s Cyrillic alphabet provides a barrier to entry. So does consumers’ propensity to shun credit cards and use cash payment on delivery and their desire to see goods before they pay for them.

And, in Russia the battle for the burgeoning e-commerce market is still very much about logistics.Precision logistics helped Amazon’s sales skyrocket in the late 1990s as it became the world’s largest online retailer. Amazon has been much copied to the point that clever logistics and quick deliveries are now the norm for online retailers in the United States and Western Europe. But for Russian e-tailers it is less about the perfectly-run warehouses pioneered by Amazon that facilitated quick and cheap deliveries and more about the old-fashioned logistics of trucks, roads, delivery men and pick-up points.

KupiVIP, founded by 30-year-old Oskar Hartmann, has raised a total of $85 million in venture capital — and grabbed a chunk of Russia’s e-commerce market by copying aspects of, but also by focusing on the fundamentals of getting products to customers.

Ozon, Russia’s largest online retailer

Photo: Ozon's Tver warehouse can serve up to 3.5 million items and handle an average of 30,000 orders each day.

Heavy investments in the nuts and bolts of logistics have also been key to the success of Ozon, Russia’s largest online retailer, an achievement that earned it the oft-repeated moniker “Russia’s Amazon.” Ozon had sales of 8.87 billion rubles ($286 million) last year, an almost 80% jump from 2010. The company doesn’t release profitability figures; however, Maelle Gavet, Ozon’s CEO, told Informilo it aims to have sales of $1 billion within three years.

To get around Russians’ propensity to avoid credit cards, Ozon has 2,000 sales points where online acquisitions can be paid for and picked up and is aiming to boost that soon to 5,000 covering every city with more than 50,000 inhabitants. About 80% of Ozon’s sales are paid in cash with the rest split between credit cards and other payment methods.

“This is changing, slowly, but it’s not an issue for us; in fact it’s better for us to take cash rather than card in many cases since the cost per transaction by card is much more expensive for us,” says Gavet. “We’ve always supported cash payments, and in fact I believe this has been instrumental in establishing customer trust in us and getting us to our market-leading position.”

In its latest investment round, Ozon raised $100 million last year from Index Ventures and other investors. It used part of the money to improve the company’s logistics infrastructure and expand service, says Gavet.

“One of the key things we liked about Ozon is that the logistics present a very big barrier to entry,” said Giuseppe Zocco, a co-founder and partner at Index Ventures, which first invested in Ozon in 2007, along with Cisco Systems and German publisher Axel Springer.

While Western investors like Index, Cisco and Intel Ventures were early to the market, others are now flocking to Russia. Some call it a gold rush and question whether the current valuations are merited.

For one thing, market penetration is set to become a whole lot tougher. Until recently e-tailers strapped for resources could concentrate on covering Moscow and Saint Petersburg, which accounted for 44 % and 11% of online sales respectively in 2011, according to Data Insight. Ignoring the rest of the country is no longer a viable option as market growth is two times faster outside the two cities and in 2015 the regions are forecast to pass Moscow and Saint Petersburg in online sales. Ozon in 2011 generated for the first time more than 50% of sales outside Moscow and Saint Petersburg.

“Looking forward, the player that manages to execute well outside Moscow and Saint Petersburg will play an important role in the Russian e-commerce landscape,” says Sasha Afanasieva, an associate at GP Bullhound.

Classified ads, commerce and travel show the most promise. Ozon has its own travel site and many others are jockeying for position, including in July attracted a $13.6 million investment from Accel Partners, General Catalyst and others),,, anywayanyday,, Travelatte and Oktogo.

Russia’s rapidly growing e-commerce market has been aided by Ecwid, which sells software to merchants so that they can easily create online stores on websites and social networks. The company, which has only 6% of its 150,000 clients in Russia, received funding from Moscow-based venture firm Runa Capital and is adding 10,000 new merchants a month.

Ecwid is an option for retailers that balk at the cost and complexity of adding e-commerce to an existing site and do not want to be on a marketplace for fear of being obscured by other sellers. Merchants set up an account, then upload prices, names and pictures that Ecwid uses to generate the JavaScript that gets cut and pasted onto a website or social media page.

It is not surprising that even small e-tailers are scampering to get a piece of the action. The scale of the opportunity and the speedy digitization of the market is what makes the Russian market so attractive. Russians have low personal debt, with salaries growing rapidly. They spend more time online than most Europeans, and boast the highest number of page views per visitor, according to a September 2011 comScore Media Metrix report. Total Internet penetration was only 39% in 2011, according to ComScore, but the Russian Academy of Sciences has given a long-term forecast of 130 million Internet users by 2025, with a 85% penetration rate.

“There are massive opportunities, but Russia is a challenging place,” says Sonali De Rycker, a London-based partner at Accel Partners, an early investor in KupiVIP. “There’s a lot of friction, but the flip side is if you crack it, it is hard for others to get in."

#ozon #kupivip #ecommerce #shoptime #accelpartners #startup #entrepreneur

Recent Posts & News
bottom of page