Ben Aris in Moscow -
"Voodoo People" reads the signed taped on the door on a long corridor in the business centre near Paveltskkaya in Moscow. The building is so new that workmen are still putting windows in on the ground floor and bits of the elevator are lying about in their plastic wrapping.
"That's the room for the guys responsible for the content," says Djasur Djumaev, a young Uzbek who is one of the cofounders of Kupikupon.ru, Russia's answer to the discount retail site Groupon. Inside, a few guys are working behind the super large Mac screens putting the company's latest deals on the website. Today it is an 85% discount offer for a "non-invasive liposuction in the hips or abdomen" treatment in a Moscow clinic for RUB3,600 (€90), instead of the usual RUB24,000.
The bare room is more than half empty. "Most of them don't turn up until near the end of the day. They like to work late. The office usually fills up at about 6pm and then someone is here until 2 or 3 in the morning," says Djumaev.
A bit further on, another door has "Miami Police" (legal department), "We make money" (deal team 1), "We make the big money" (deal team 2). And then the playroom: a kitchen-cum-gym with Sony Playstations and table football. At least that's what will be in these two rooms when everything is delivered. Kupikupon only moved into these offices a few weeks ago, as it needed more space. The company's headcount has grown to over 200 in a little over a year as it mans up to fight its competitors.
A war has broken out in Russia's e-commerce space. Kupikupon was founded in May 2010 and saw revenues grow from nothing to $400,000 in its first seven months of operation. This year, the company expects to turn over $30m, rising to $110m by the end of 2012. But the upstart only has a 20% market share and is doing battle with the incumbent, US giant Groupon, which entered the market after Russian businessman Yury Milner, who owns Mail.ru, bought a 5.13% stake in the American company for a reported $75m in the spring of the same year.
Mail.ru is a giant, servicing about eight out of every 10 emails sent in Russia, and the exclusive in-body email advertising that Groupon gets as part of this partnership has allowed the US company to streak ahead. However, this exclusive deal is due to expire this September, according to market rumours, which will throw the field wide open.
Russia's e-commerce territory is currently a land grab. Like Russia's supermarket chains, the bulk of the market is virgin territory and retailers are opening hundreds of stores a year to capture as much territory as they can before the competition arrives - except things are moving a lot faster with online retail, which doesn't have to build physical shops. "We don't need new money to get growth, but simply to keep ahead of the competition," says Djumaev. "Currently, the three main players are all growing very fast, but we are eating into an untapped market. There is a ceiling on this non-competitive growth and there are about two years left until it is all gone. Then the only way to grow will be to eat into each other's market share and it will become really competitive."
Kupikupon has already raised $6m and is negotiating to raise another $10m, which it expects to receive by September, mainly from investors in the former Soviet Union. Then the company plans to go overseas to raise a further $50m at the start of next year to pay for expansion to fill out the corners of the market.
All this business has been made possible by the explosion of broadband over the last two years. The number of Russians online is doubling every 18 months or so to well over 50m people - over a third Russian population are online – and the total penetration should reach 69% by 2015, according to Uralsib.
The regions and beyond
Ruzaev and his partners have set up an impressive business. I met the young Uzbeks, who are all in their twenties, at the start of last year when they had flown to Moscow to raise money for an online investment and brokerage service based in the Uzbek capital of Tashkent that caters to international investors interested in Central Asia. But while in Moscow they heard about Groupon's model and the same day I met them they raised their first $3m for Kupikupon. A month later they were back in Moscow and founded the company. It was an instant hit.
"At first we set up a simple website where customers could buy a simple coupon. The first merchants were things like beauty salons were you could get a facial or haircut at discount. We had a deal every three-four days, then everyday and now dozens a day," says Djumaev, who has struck deals with a choice selection of about 20 of Russia's leading retail chains.
From the very beginning the company began hiring staff in the regions and took aim at the wider market, not just the 15m-strong Muscovites, before quickly moving into other countries. The company launched in Estonia in April and was the second largest company in the market with $400,000 a month turnover by July. Russia represents a 100m strong market and if you include the wider Russian speaking former republics, this goes up to 200m. The company is now in 52 Russian cities as well as in Kazakhstan, Belarus, Ukraine and the Baltics. More recently, they launched in Finland and plan to build up their business in Scandinavia over the rest of this year.
Getting new customers is cheap and thanks to the underdeveloped retail business in Russia, fairly easy to sell to. The hard part is finding them. In the West, online companies buy contacts from cost-per-action (CPA) networks, which are intermediates that buy lists of names from websites with well-defined users and so can give a potential advertiser a targeted list of emails. CPA networks are only just starting to appear in Russia and they are still very cheap to use. "We buy leads like confirmed emails for half the price we would buy them from social media sites," says Djumaev. "In the US, it costs about $7 per subscriber to your website and $15 per customer [who actually buy something], but in Russia the cost of a subscriber is about $2 and customers cost half what they do in America."
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