Russia’s Makes Deal to Expand

Russia’s biggest e-tailer, Ozon, has raised $100 million to expand is frequently called the of Russia. But the differences between the Moscow-based upstart and the U.S. e-commerce giant are more revealing than the similarities. There’s no equivalent of FedEx or United Parcel Service that covers all of Russia, so Ozon must run its own fleet of hundreds of delivery trucks, which have to get as far as Khabarovsk, nearly 4,000 miles away on the Chinese border. Most Russians eschew credit cards, so customers typically pay delivery staff in cash. Many of Ozon’s customers are also wary of placing orders online, so more than 10 percent of its transactions occur over the phone. “We do look at Amazon, but we always try to adapt what they are doing to the Russian market,” says Maelle Gavet, Ozon’s chief executive officer. “Copy and paste never works here.”

On Sept. 8, the company announced it was raising $100 million from a consortium of investors including the Baring Vostok Private Equity Fund and Rakuten, the largest e-commerce company in Japan. Ozon, which has more than 1,100 employees based mostly in Moscow and at an 8,000-square-foot shipping center in Tver, located centrally between Moscow and St. Petersburg, plans to use the money to improve its website and build data centers to compensate for the country’s sluggish network infrastructure. “They have already delivered millions of packages over the last few years,” says Giuseppe Zocco, a partner at venture capital firm Index Ventures, which has backed Ozon since 2007 and invested in the latest round. “It’s a well-oiled machine and poised to keep growing.”

The Ozon funding caps an eventful year for the Russian Internet. Last November,, the operator of various Russian social-networking sites and an investor in Facebook, raised $912 million on the London Stock Exchange. Yandex, a Russian search engine, followed in May with an initial public offering on Nasdaq that raised $1.3 billion. As in China, investors are attracted primarily by the sheer size of the opportunity. There are 67 million Internet users in Russia, out of a population of 147 million, and the country’s Internet audience is among the fastest-growing in Europe.

Ozon was born nearly 14 years ago, when a St. Petersburg software company called Reksoft saw an Amazon press release and decided to import the business model to Russia. The fledgling effort caught the attention of Baring Vostok, which moved the company to Moscow and eventually tapped Swiss-born Bernard Lukey, a former marketing executive at Yandex, to run it. Lukey raised capital, expanded the company’s revenues fivefold, built a state-of-the-art distribution center, and added a profitable online travel arm. Two years ago he started preparations to step aside to return to his native country (he is still Ozon’s president).

That cleared the way for the 33-year-old French-born Gavet. She speaks French, Russian, and English, and is a six-year veteran of the consumer retail practice for Boston Consulting Group. She began taking over Lukey’s responsibilities earlier this year and has quickly made several changes. Ozon had experimented with selling a Kindle-like e-reader called the Ozon Galaxy, but Gavet suspended that effort and is now focused on selling e-books, video games, and other digital content for smartphones and mobile devices. She is also trying to expand Ozon’s live, 24/7 customer support operation, because Russians often demand to speak to people over the phone. One of her goals: getting the Ozon customer support staff to be polite. “Russians are not a very friendly people,” Gavet says. “It’s hard to get them to speak nicely to the customers. It’s just not in their culture.”

Another challenge for Ozon is finding qualified staff. Good engineers in Russia are scarce and expensive; a Web programmer in Moscow demands a higher salary than in San Francisco, Gavet says, which has her joking that perhaps the company should consider outsourcing to the U.S. If she can solve that problem and get Russians to keep buying online, she may just catch the eye of the man who inspired Ozon, Jeffrey P. Bezos. In 2004, Amazon acquired a startup called Joyo in China—another country with byzantine customs, massive terrain, and a poor shipping infrastructure.


    The bottom line: Ozon’s new funds will go to improving its website, building data centers, and capitalizing on the fast growth of the Russian Web.

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