1. E-commerce in Russia: Reality CheckArkady SandlerSunday, May 27, 12

2. MeetRussia The biggest territory in the world: 17,075,400km2 Population: 143,030,106 GDP: $2,383 trillion ( per capita$16,736) Language: 142 mln. speak Russian, 5% have some command of EnglishSunday, May 27, 12 3. MeetRussiaDistance between to 2 widest separated points is8,000 kmTransport: Railway: 40% of all freights, length - over 85,500 km Roads: 933,000 km, 755,000 paved. Lowest road density of all G8 and BRIC Waterways: 102,000 km Airports: 1,216 Demographics: Picked in 1991: 148,689,000 Since then constant decline Birth rate is higher than in Europe (12.6 /1000) Mortality rate extremely high (14,6/1000)Sunday, May 27, 12 4. MeetRussiaLargest cities:Most businesses concentrated in Moscow: 11,800,992 Moscow and St. Petersburg. Dealer St.-Petersburg: 5,100,520networks in regions. Novosibirsk: 1,397,191 Yekaterinburg: 1,332,264 Nizhny Novgorod: 1,272,527 Samara: 1,164,900 Kazan: 1,143,600 Omsk: 1,129,120 Chelyabinsk: 1,093,699 Rostov-on-Don: 1,048,991E-commerce growth in big cities: 8-9%E-Commerce growth in regions: 40%Sunday, May 27, 12 5. Internet Audience, December, 2011 Russia 50,810 Germany50,139France42,349 UK 37,197015,00030,00045,00060,000 Unique visitors, thousands*-Comscore Metrix Report, September 2011Sunday, May 27, 12 6. Internet Penetration, %December, 201190 82.782.080.079.978.269.560 43.0300 South KoreaUK Japan GermanyUSA France Russia Russia is #1 in Europe by Internet audience, but the Internet penetration is still low = great potential for further development * - www.internetworldstats.comSunday, May 27, 12 7. Ecommerce Markets,Volume, Growth, 2011 15% yearly $680.6 bln. 2.5% of total retail sales 10% yearly $197 bln. 9% of total retail sales26% yearly 16% yearly 366 bln. rub ($12.2 bln.)1.6% of total retail sales 200.5 bln. ($270.7 bln.) 8.8% of total retail sales * - Forrester Research; FOM, Data InsightSunday, May 27, 12 8. E-Commerce or....? In the US e-commerce volume reached $197 bln. or 9% of all retail Online banking, tracking compare prices, nd shipments online, renewhotel, book vacation and driver license, change air tickets, nd address, contractor, order pizza,etc... E-COMMERCE Internet is just another necessary channel for sales, promotion, andinformation. Online presence is inseparable part of every current business model.Sunday, May 27, 12 9. E-Commerce or....? Brick&Mortar Online Find location Plan layout Hire designer Warehouse= Payment system No HTML Promote knowledge Customer Serviceneeded Loyalty Ads Discounts Brand Set of tools, actions, and steps have already been developed. No special Internet knowledge is required to start an online businessSunday, May 27, 12 10. Russia:what people bought in2011 Volume/year, bln. rub.Electronics, appliances57Computers 35 Clothing, Footwear34Children Goods14Groceries 12 Mobile phones 12Automotive parts 12 Furniture 11 Sporting goods8 Office supplies 7 Group discounts 7Books 50 15304560 * - InSales, Data Insight, 2011Sunday, May 27, 12 11. Russia:what people bought in2011 Volume/year, bln. rub.Electronics, appliances57Computers 35 Clothing, Footwear34Children Goods14Groceries 12 Mobile phones 12 In big cities, the proportions are almost equalAutomotive parts 12 Furniture 11 Sporting goods8 Office supplies 7 Group discounts 7Books 50 15304560 * - InSales, Data Insight, 2011Sunday, May 27, 12 12. Russia:what people bought in2011 Volume/year, bln. rub.Electronics, appliances57Computers 35 Clothing, Footwear34Children Goods14Groceries 12 Mobile phones 12 In big cities, the proportions are almost equalAutomotive parts 12 Furniture 11 Sporting goods8 Office supplies 7 In regions, leading categories are Group discounts 7clothes, shoes, beauty productsBooks 50 15304560 * - InSales, Data Insight, 2011Sunday, May 27, 12 13. Russian onlineshopper No trustPaymentsTypical Russian internet user: DeliveryMale, under 34, with high educationAverage monthly spending:in cities over 1m: $170 First time online shoppers preferin other areas: $70 communication in person before theypurchase.Active online purchasers:15% of Russian internet users (7 mln) Large: Call centreSmall-to-Medium: Representative in the 75% prefer cash-on-deliveryoffice 12% are unhappy about delivery 28% choose offline, buy online Online chats Online voice calls Click-to-Call from Internet to phone lineSunday, May 27, 12 14. Russian online shopper No trustPaymentsTypical Russian internet user: DeliveryMale, under 34, with high educationAverage monthly spending: 80% online purchases paid for by cash - no trust in banksin cities over 1m: $170 - bank cards: still low penetrationin other areas: $70- debit cards, pre-authorization requiredActive online purchasers:15% of Russian internet users (7 mln) 75% prefer cash-on-delivery Cash-on-delivery Electronic money 12% are unhappy about delivery Qiwi terminals 28% choose offline, buy online Cash-by-transfer (Sberbank, Russian Post)Sunday, May 27, 12 15. Russian online shopperNo trust PaymentsTypical Russian internet user:DeliveryMale, under 34, with high educationAverage monthly spending: Huge distances - limited infrastructure - Expensive deliveryin cities over 1m: $170 - Coverage is not completein other areas: $70- Many courier services, but trust is an issueActive online purchasers:15% of Russian internet users (7 mln) 75% prefer cash-on-delivery Big players - their own delivery Russian Post becomes an active player 12% are unhappy about delivery (own API) 28% choose offline, buy online Purchases abroad under 1,000 EURO Drop-off shipments to terminalsSunday, May 27, 12 16. Russian mentality:Different HRMore and more companies Startups with limited funding:online: close to zero loyalty lack of skilled professionals demand for higher salaries growing faster than prots no educational institutions ination and productivity Internet is not considered a complicated tax systemserious eld tax burden is carried by employer more than byemployeeTo survive: higher prices, less choiceResult: less competitive marketGrowth in cross-border shopping:Solutions already exist:Cheaper LanguageBetter choice CurrencyTrendierDeliveryProduct promotionLocal understandingSunday, May 27, 12 17. Global ecommerce:2012 expectationsAlready an important part of marketing strategies. Social shopping is Social Networksstill in early stages. Retail based social networks from smallerbusinesses to collect followers. Daily deals, PrivateExtremely fast growth. Although, the space is crowded, customers sales, Local still appreciate the offers and looking for new models. ecommercePush-shopping - a new concept in retail is showing signs of Push-shopping andpopularity. Instead of overwhelming Amazon catalogues, these sites penny auctions ask customers for their preferences, and based on that prole,return with suggestions to purchase.The expectations are that mobile ecommerce numbers will soon Mobile shoppingcatch up to those of traditional ecommerce. International andBig retailers already offer at least shipping to different countries.Amazon, Ebay and other large players are opening local sites. cross-border Smaller players already account for 10-20% of their sales being shopping international.Order online, pick up at the store. Another model: choose online, In-store pickupbuy at the store.Sunday, May 27, 12 18. GlobalizationMore brands will sell direct in international markets few companies have truly global online presence companies that ship internationally will start localizing their sites to avoidlanguage barriers 2/3 of online consumers in France and Germany shop only in their nativelanguagesInternational shippers will invest more in promotions in specicmarkets direct targeting in local market localized landing pages improve local customer experience local fulllment options in the most lucrative marketsTier 1 retailers and brands will invest in their online presence luxury brands recognized growth opportunities in BRIC countries long time ago offline presence has been successful will try to increase and promote their online presence in local marketsGrowth of international ecommerce supporting solutions payment systems, warehousing, translation services cross-market advertising opportunities few companies offer localization of product offering targeted to local customersSunday, May 27, 12 19. Thank you! Arkady Sandler arkady@sandler.vc @arkadysandlerSunday, May 27, 12