Shop till you drop.
As the Internet becomes accessible to more Russians (see recent blog post), barriers for e-commerce —from convincing potential customers of the validity of online purchases to ensuring their delivery of these purchases—are diminishing.
Russian netizens already spend more time on social media than their global counterparts, and Russia represents a large market for online advertising and consumer information gathering. According to the U.S. Commercial Service, the Internet advertising market in Russia has reached over $400 million, with Yandex Direct, Google Adwords and Rambler’s Begun among the key players.
Equally important, a future consumer base is already in place. As Russian Internet users in Russia tend to be young, demand for online spending will see a significant jump in the next several years as this group of early adapters ages into a working population with money to spare. Internet penetration in Russia is increasing most quickly in the regions, providing access to goods and services more widely available in larger cities.
This is not to say barriers to e-commerce are nonexistent. According to Time, due to either a lack of trust in the postal service or in poor delivery services (in areas outside of Moscow and St. Petersburg) 80% of Russians who make purchases on Ozon.ru, Russia’s analogue of Amazon, physically pick up and pay for their purchases at the post office after having ordered them online. Ozon has effectively used these difficulties as an opportunity to innovate, setting up its own private courier service, O-courier, in larger cities that delivers goods at a lower cost than other courier services. This year the company is expanding to cities such as Tver and Vladivostok, as well as Astana and Almaty in Kazakhstan. Slow delivery times on rail-based infrastructure has been the primary hindrance to expanding e-commerce in the regions.
A similar barrier exists in the lack of online payment options. While SMS, credit card, web-money, and cash payment systems are gaining traction, many Internet businesses do not accept online payments. Reports still indicate the lack of retail bank branches and bank cards in regions. While recent reforms have attempted to make credit card use safer, only 11 million of Russia’s 140 million citizens actively use credit cards.
For those with credit or debit card access, online shopping is becoming much easier. Citibank for anticipates a 17% increase in online spending and a 50% decrease in cash withdrawals for December 2011. As Internet penetration expands to Russia’s regions, the desire to make online purchases most likely will follow, and thus the number of people actively using banks accounts for online transactions will increase as well.
With the lower costs of operating on the Internet as opposed to through a storefront, many businesses moved their operations online during the economic crisis. Several large e-commerce startups have appeared in the past two years, including Darberry (Russia’s answer to Groupon that was quickly purchased by the U.S. company), online shoe store Sapato and daily discount service KupiBonus. In 2010 eBay also opened a Russian interface with PayPal services to compete with Russia’s own online auction site Molotok.ru.
While Russia’s official “E-Russia” plan has made little significant progress in stimulating e-commerce since 2001, there are 60 million internet users and Internet penetration stands at 42%. In response, businesses are already moving online and entrepreneurs are seeing opportunities for innovative startups. As Russia moves online, we should not be surprised to see its e-commerce market open up quickly and expansively as well, it would be a wise for veteran Internet retailers to be prepared to meet it.
Possibly related posts:
- Gender and Debt
- Keeping Pace with RuNET
- Yandex Gears Up for IPO, Outlines Risks
- Busy Week for DST
- Census: The Numbers Are In
e-commerce · internet · Russia · technology
