Ru-Net: Russia’s Real Revolution

The Internet get started in Russia long ago, well before the Web.  When I first landed in Russia back in April of 1989, there was barely a functioning long-distance telephone system.  If you wanted to reach someone remote, you had to go through an operator, who would call you back once she found a line.

While I was there, I met with the team running Relcom, a UUCP-based (Unix-to-Unix Copy) store-and-forward network that connected to the outside world through an the institute Institute of atomic Atomic energy Energy in Vienna.  Relcom (short for Reliable Communications) was a co-op, a new and unorthodox form of entity that wasn't a state organization but wasn't quite a company either. Most of its founders had normal state jobs as well.  As  you can imagine, traffic was slow but restricted.  The Internet folks back then had a sense of humor — their server was called KremVAX, and was strictly unofficial.  Whereas in the US the Internet was a government creation, in Russia it belonged to science community renegades.

When I returned to the US, I realized that the telephone was useless for staying in touch, and so I added all my Russian friends to my MCIMail address book.  At the time I had few American friends using mail, so for practical purposes I considered it mostly a tool for reaching Russians. 

But things were changing fast.  By the end of 1989 Julf Helsingius, the Finnish webmaster of anon.penet.fi (the WikiLeaks of its day) had worked with Leo Tomberg, a scientist in Estonia (then still part of the Soviet Union), to establish a real-time, TCP/IP link to Relcom and the floodgates opened. 

The government paid little attention, but by the early '90s the financial and  tech communities were using e-mail as the most reliable form of communication.  At that time most of the community were people from state science institutes.  Boris Nuraliev, who founded 1C, a maker of accounting software which continues to be used by most of Russia's small businesses, worked days at the state statistics institute, where for which he was also running the primary reseller of the Lotus 1-2-3 spreadsheet.  Arkady Volozh and Ilya Segalovich, two kids who had come to Moscow from Kazakhstan to attend university, were starting a computer-trading business called Comptek. They would later launch Yandex, the Russian search giant, which went public on Nasdaq earlier this year.

In those early days, there were basically three kinds of private enterprises:  the giant semi-privatized state enterprises, controlled by people with connections of one kind or another; services companies run by born entrepreneurs which mostly began as black-market outfits gone legit (well, some of them!); and computer-oriented companies, which were either traders of hardware or programmers of software or both, and were run mostly by scientists and engineers who learned their business skills mostly by reading Western business publications.

The big investors in Russia's computer industry were not VCs or private equity; they were companies such as Oracle, Hewlett-Packard, SAP, Sun Microsystems and Microsoft.  Motivated not by altruismbut by profit, they trained hundreds of Russians not only in their technology, but in sales and management skills.

Those early founders and their teams were home-grown miracles. With no particular business training, experience or mentors, they managed to build real companies. Few of them, however, were investment material. The founders generally had no experience with outside investors or with Western bookkeeping. The most outward-looking companies were outsourcers, such as EPAM and IBS/Luxoft, which served foreign clients.


Now. 20 years later, the Internet has become the Web, and Russians are some of the heaviest users of social networking. The big names are no longer B-to-B but rather consumer giants: the market leaders are Mail.ru and V Kontakte (both partly owned by Digital Sky Technologies) on the one hand and Yandex on the other (I am on its board). These companies were sui generis: true start-ups in the current sense of the word.

To me, Yandex and DST exemplify the impact of the internet on Russia. It is not simply an engine of efficiency or a source of amusement.  It's a vehicle for transparency.  You can bribe a procurement officer to buy your product or service, but you cannot bribe a consumer to visit your website.  It's not cost-effective. 

All of which reminds me of my favorite ad, from Yandex.  First some context: every Every Muscovite is familiar with the message that appears throughout the Moscow metro: "The escalator supervisor does not entertain inquiries."  You can also find variations on it at guard posts, coat-checks and other places where public servants don't want to be bothered by the public.

So, a few years ago, Yandex borrowed this language to develop an ad which it posted in many metro cars: "The train conductor does not entertain inquiries. Please address all your questions to Yandex!"

Esther Dyson, a well-known "Internet guru,", is an angel investor in a variety of online start-ups in the U.S. and Europe.  She has been advising and investing in Russian tech companies for more than 20 years. Her Russian investments include IBS Group (which owns Luxoft and some of NewspaperDirect),TerraLink, Yandex, EPAM,Ostrovok.ru, EPAM, Ostrovok.ru, AlterGeo and Zingaya. She also has a seat on the SUP/LiveJournal advisory board and is an investor in Evernote and is on its board.

 

 

 

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