Microsoft Isn’t Feeling Any Russian Thaw

Putin’s drive to cut reliance on foreign technology is threatening the Russia sales of U.S. tech giants.
Photographer: Sergei Konkov/Tass via Getty Images

In a Nov. 14 phone call with President-elect Donald Trump, Russian President Vladimir Putin held out the prospect of better relations between their two countries. But U.S. tech companies shouldn’t expect warmer ties to ease a Kremlin effort to freeze out their products.

Seeking to cut dependence on companies such as Google, Microsoft, and LinkedIn, Putin in recent years has urged the creation of domestic versions of everything from operating systems and e-mail to microchips and payment processing. Putin’s government says Russia needs protection from U.S. sanctions, bugs, and any backdoors built into hardware or software. “It’s a matter of national security,” says Andrey Chernogorov, executive secretary of the State Duma’s commission on strategic information systems. “Not replacing foreign IT would be equivalent to dismissing the army.”

Since last year, Russia has required foreign internet companies to store Russian clients’ data on servers in the country. In January the Kremlin ordered government agencies to use programs for office applications, database management, and cloud storage from an approved list of Russian suppliers or explain why they can’t—a blow to Microsoft, IBM, and Oracle. Google last year was ordered to allow Android phone makers to offer a Russian search engine. All four U.S. companies declined to comment.

And a state-backed group called the Institute of Internet Development is holding a public contest for a messenger service to compete with text and voice apps like WhatsApp and Viber. Russia’s Security Council has criticized the use of those services by state employees over concerns that U.S. spies could monitor the encrypted communications while Russian agencies can’t.

Trump’s election hasn’t changed those policies, according to Putin spokesman Dmitry Peskov. “This doesn’t depend on external factors,” he says. “It’s a consistent strategy.” On Nov. 10, Russia’s communications watchdog said LinkedIn would be blocked for not following the data-storage rules. The company says it’s seeking a clarification of the matter. That same day, the Communications Ministry published draft legislation that would create a state-controlled body to monitor .ru domains and associated IP addresses. The proposal would also mandate that Russian internet infrastructure be owned by local companies and that cross-border communication lines be operated only by carriers subject to Russian regulation.

In October, U.S. intelligence agencies blamed Russia for hacking U.S. political groups and leaking e-mails stolen from organizations such as the Democratic National Committee. In a statement, the Office of the Director of National Intelligence and the Department of Homeland Security said the thefts and disclosures were “intended to interfere with the U.S. election process.” While U.S. intelligence officials say spying to better understand another country’s plans or motivations is expected and generally acceptable, Russia crossed the line when it leaked stolen material to influence the election. The Obama administration says it will take some punitive action but won’t necessarily publicize what it does.

The biggest effect of the Kremlin’s internet campaign can be seen in the Moscow city administration, which is testing Russian-made e-mail and calendar software MyOffice Mail on 6,000 machines at City Hall. The city aims to replace Microsoft Outlook with the homegrown alternative, from Moscow-based New Cloud Technologies, on as many as 600,000 computers in schools, hospitals, and local agencies. Now the city says it may also substitute local software for other Microsoft programs such as Word, Excel, and even the Windows operating system. And in March, Putin proposed an extension of the domestic-software requirement to state-owned companies and promised to personally monitor progress, a powerful incentive in Russia. That could dramatically increase the potential number of users in a country where the state and state-owned companies account for 70 percent of the economy. “Money from Russian taxpayers and state-controlled companies should be spent primarily on domestic software,” Communications Minister Nikolay Nikiforov told reporters in September. “It’s a matter of jobs, of information security, and of our strategic leadership in IT.”

With Stepan Kravchenko and Nafeesa Syeed

The bottom line: A push by Putin to cut reliance on foreign technology threatens the Russian sales of U.S. tech giants.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE