Jul 3

E-Services Ecosystem Race Remains Hotly Contested

Editorial Staff
Dec 22, 2020

Tech financial results this year have put one trend in bold print: the online ecosystem is the holy grail for development.

The contactless e-services sector is a lucrative battleground that covers everything from retail, banking, payment systems, transportation, retail, delivery, etc. This ambition has been the primary focus of some of the world’s biggest companies, with Amazon recording record profits throughout the pandemic, while Aliexpress and Wechat have established themselves as Chinese superpowers.

As the public were forcibly confined to their homes due to the pandemic, and consumers were required to move away from traditional in-person streams, the service sector changed forever.

Now, the ecosystem race has heated up in Russia. Competition here is fierce. The private sector has many innovative firms vying for pole position. Ozon, who recently launched a widely successful Nasdaq IPO, is widely touted as the future face of Russian retail. A so-called Russian Amazon is looking to broaden the list of services it offers. On top of its usual business it also operates a travel search engine Ozon.Travel, a crowdfunding platform Ozon.Invest and offers a number of other projects.

Yandex, on the other hand, is a multifaceted beast. What started as a small search engine has mutated into a vast network of online services. Now, it processes over 50% of total search traffic in the Russian Federation and provides other services such as online streaming, food delivery and GPS maps. In recent years, it has developed further, eschewing retail in favour of an Uber style transportation service. The company’s merger with Uber’s Russian subsidiary is a testament to its success in this market. The company has also made use of AI, creating Russia’s first smart home system.

Tinkoff, a branchless online bank, is also expanding its fintech ecosystem to include more online shopping, entertainment and lifestyle services. This is all incorporated into Russia’s first ‘superapp’, guaranteeing users simplicity of access. Tinkoff’s success highlights the growing competition between the different industry players, with Yandex attempting to buy Tinkoff out in a $5.4billion mega deal. This fell apart as Tinkoff insisted on a merger, while Yandex favoured a simple acquisition. The collapse of this deal is a clear indication of the confidence both sides have in their systems and illustrates the current competitive multipolarity of the sector.

Russia’s massive state-led player, Sberbank, has also mobilised its considerable war chest to join the battle. Sber, is buying its way into the game in places where Sberbank’s vast deposit base hasn’t already positioned it.

Sber’s $170 million investment into Mail.RU snagged it voting rights and put 3 of Russia’s most popular social networking sites – VKontakte, Odnoklassniki аnd Moi Mir – under the government-led company’s control. In 2019 Sber acquired a 46.5% stake in Rambler, an online media group, and in 2020 a 75.6% stake in Samokat and an 84.7% stake in Local Kitchen, both food delivery services (acquired via Joint Ventures with Mail.RU).

Sber has also attempted to make waves in the E-commerce market, approaching Ozon with an intention to acquire a stake. Despite negotiations, this deal collapsed as Ozon decided to go for a Nasdaq IPO instead.

In a larger sense, there is concern over how the state will handle competition, when it is also an interested party via its control of Sberbank. This represents a critical juncture for gauging investment into the Russian service sector.

Plenty of nations see a strong role for government in business. And the notion that state intervention in the market will kill development is not necessarily true.

Sber’s resources can be of great benefit to the industry. By acting as a de-facto state development bank, it can plough vast resources into the sector. This is only beneficial. It can reap dividends for the sector and Sber itself.

Russia, however, also has a penchant for state monopolies – in the bulk of natural gas exports, or oil pipeline transit, for example. This may make sense in natural resources exports where the goal is singular – a good commodity price.  But in tech ecosystems the aims are the opposite.

Providers of these ecosystem services look to come to the consumer with many options, rather than fewer, as seen in cartel models for commodities, and at various price points. And the sector needs flexibility to identify and capture consumer demands and gain loyalty, trust.

The pandemic may have changed some of the context, pushing everyone into being a bit more bold about contactless payments and e-services. But consumer habits will change again. And tech and services providers will continue to need to be adapt and evolve with new trends.

There is no categorical reason why state-run banks cannot develop an effective e-services ecosystem, especially one with the vast resources of Sber. However, considering the dynamism needed to succeed in this sector, investors see concern that state intervention, either by purchasing a dominant, monopolistic position or via limiting legislation could put a drag on overall development.

After a fair fight, the victors must be allowed to prosper, whether private or state backed. Challenges to their ascendency should only come from fair improvements, wooing consumers over from the other side.

This website uses cookies to improve and customize the user experience. To learn more, please see our cookie policy.
Cookie Policy
WP Twitter Auto Publish Powered By :