Russian electric business giant Ozon CEO: Russian electricity market will usher in tipping point

Russian E-commerce giant Ozon chief executive Maelli Gavite (Maelle Gavet) recently published an article said that the Russian e-commerce market is about to usher in "tipping point." Russia's growing Internet population and continued improvement in infrastructure have provided a prerequisite for the development of E-commerce. Although there are still some challenges, such as a wide range of logistics networks, and the popularity of online payments, Gavite firmly believe that the "sleeping giants" will be able to solve these problems.

The following is the full text of Maelli Gavite's article:

It's been a long time. So far, Russia in E-commerce, as well as the entire Internet economy, is still just a "Cinderella"-like market, far behind the United States, tightly chasing Europe. But there is plenty of evidence that this will change and will change quickly.

The Morgan Stanley study found that in 2012 the Russian E-commerce market was about $12 billion trillion, accounting for only 1.9% of total retail sales, compared with a global average of about 6.5%. But the size of the Russian E-commerce market is expected to grow by 35% in 2015, accounting for 4.5% of total retail sales in Russia, which is expected to grow further to 7% per cent by 2020. This means that the size of the Russian E-commerce market will reach $72 billion trillion. Obviously, the tipping point is fast approaching.

As the CEO of Ozon, the leader of the Russian E-commerce market, I witnessed the slow changes in the country's retail industry. It's not easy. In the past, a large number of "legacy" problems have restricted the development of this field, the most important of which is internet penetration. Now the Internet population has reached a critical majority, enough to support a real and effective e-commerce market.

The growing Internet population

Less than 10% of Russians were able to surf the internet in 2003, a figure that has grown to nearly 50% today, about 68 million people. Last year, Russia overtook Germany, France and the UK as Europe's leading internet market (in terms of number of users). This importance must not be overlooked, it is a tool to change the game.

The second problem is the lack of competition in this area. Until now, we have seen the real players in this market, I mean those companies that have enough investment to build an experienced team that will form a sustainable and evolving business. In terms of investment, until recently the Russian E-commerce market began to attract a large number of roubles.

The early opening of the market to international investors was followed by the IPO of the Moscow Search service company Yandex and the free e-mail service Mail.ru, which greatly increased the visibility of the Russian internet market. I think Ozon is very fortunate to be able to attract the attention of international investors before that, and we are definitely an exception. But after these companies went public, some Russian e-commerce companies attracted western VCs and private equity funds.

Improved infrastructure

Another problem in the past is the infamous Russian corporate structure. But the infrastructure is improving, from banks to logistics. The fact that nearly 50% of the population of Russia has access to the Internet is well worth celebrating, but the quality of Russian broadband in the past has been low enough to support development in this area. Only recently did it begin to improve. Other factors are reshaping Russia's e-commerce business, and Russia's burgeoning middle class is one of them. Now, we see the first batch of urban young people (the average age of 44 years), they are very tense, so the disposable income for online browsing and shopping. Talent is another factor. E-commerce has gradually become a respected profession in Russia and has begun to attract high quality graduates.

The country has a wealth of smart, well-educated it talent that helps Russia build a talented programmer, user experience, and web designer workforce in the size and speed that many Europeans envy. Many internet companies in major Russian cities are booming, creating more jobs and a virtuous circle in which young software programmers can opt to stay at home rather than travel to the United States or Europe. Indeed, now that we are at this stage, young Russian computer engineers may refuse an invitation from the San Francisco ebay Company to choose to work for Yandex in Moscow.

However, despite a number of gratifying phenomena, the road ahead is still full of frustrations, especially in delivery. Ozon has been called "the Amazon of Russia", which means our delivery network covers a vast country across nine time zones. Although the population of western Russia is relatively dense, the farther away from Moscow, the smaller the population density means that we have to deliver to the sparsely populated remote cities. From a business point of view, there is no point in doing so: if you buy a commodity worth 50 dollars to 100 dollars, delivery will cost US $30 to 50 dollars.

Of course, Russia has a nationwide postal service, which has done a convincing job, based on the breadth of its services and the complexity of its infrastructure. However, it has not yet adapted to the ever-increasing demand for e-commerce. Although we have some important partners (they have accepted our order delivery task of about 10%), we cannot rely entirely on them as our business expands. This is why we choose to develop and run our own delivery network, we also provide delivery services for third parties. But as people's interest in E-commerce becomes more and more strong, we need other delivery providers to enter the market and form competition. I believe that this will happen, just need time.

The challenge of cash economy

Another important hurdle is paying. Russians still have widespread distrust of online payments, although there are forecasts that credit card use will increase rapidly, but credit card penetration is now relatively low. In addition, many Russians use credit cards that cannot be paid online. Even those who are willing to open online payments will have to go through the security process of the bank's complex troubles.

Indeed, Russia remains a cash-led economy, a freak of the internet age, and why Ozon up to 80% of deals. Overcoming this kind of cash thinking and developing the online payment ecological chain has posed a serious challenge to the E-commerce companies. We must find the right way to encourage or attract users to replace cash with credit cards (or online payments), such as providing enough discounts.

Despite these long-term, but ultimately resolved, problems, the detonation of Russian electronic commerce will have a seismic effect on European and American E-commerce companies. With the rise of such a great power, its markets have never been more open to global competition. Although 2013 is only a few weeks away, we have seen Asos, the UK online fashion retailer, launching a local operation here. It's probably just a runner. Russia's internet economy is already famous.

The sleeping giant is finally waking up.