A 2012 Update on Internet in Russia the RUSSIAN WEB UNTANGLED
Total Page:16
File Type:pdf, Size:1020Kb
]A INDEPENDENT TECHNOLOGY RESEARCH SECTOR UPDATE JUNE 2012 DIGITAL MEDIA 2012 Update on Internet in Russia THE RUSSIAN WEB UNTANGLED Relentless Audience Growth Russia’s Internet audience is now the largest in Europe at 51m monthly users, ahead of Germany which it passed in Q4 2011. Yet with online penetration below 60% outside Moscow and St. Petersburg, we forecast continued strong growth in Internet audience in the rest of the country (the “regions”). Online Monetisation Powering Ahead Now that Russia has achieved European leadership in online audience, e- commerce and digital advertising are in its sight. While local issues remain, the Russian Internet ecosystem continues to develop, and audience monetisation is ramping up. Distinctive Development Path The vibrant local Internet community, largely centred in Moscow and St. Petersburg, continues to invent Russian-specific ways to define the web, with social and logistics as key areas of home-grown innovation. Local champions continue to dominate the Internet in key categories, and have actually improved their leadership in the past year compared to their international peers. Investment Activity Mirroring Market Development Foreign investments in the Russian Internet space have increased markedly in the past year, as funds and strategics alike are increasingly keen to position themselves in such a fast-growing opportunity. Conversely, the local investors’ ecosystem has continued to develop, and several sophisticated specialist funds have emerged that are now also looking to invest abroad. Conclusions GUILLAUME BONNETON [email protected] We foresee continued double-digit growth in key metrics for the remainder of London: +44 207 101 7578 this decade. Strong progress has been made in certain sectors such as e- SASHA AFANASIEVA commerce, by companies who have addressed key local problems. Watch out [email protected] London: +44 207 101 7569 for this trend in other sectors in the next 18 months – our picks include online travel, display advertising and digital content. Important disclosures appear at the back of this report. GP Bullhound LLP is authorised and regulated by the Financial Services Authority GP BULLHOUND RUSSIAN INTERNET – THE RUSSIAN WEB UNTANGLED INTRODUCTION Now: Largest European Online Audience The Russian Internet audience grew around 14% in 2011 1 to become the largest in Europe, overtaking Germany. Broadband access is still skewed to larger cities – penetration is 37% in Russia while in Moscow and St. Petersburg it is at 91% and 76% respectively. The regions’ broadband penetration is around five years behind and forecast to reach 59% by 2015. Small towns and rural areas benefit from mobile Internet expansion – currently at 22% of the population2. E XHIBIT 1 – E UROPEAN O NLINE A UDIENCE AND G ROWTH 53m 51m 14% 43m 38m 24m 23m 22m 6% 18m 12m 4% 4% 2% 2% 2% 6m 0% 1% Online audience (Dec 2011) Growth (Sepy-o-y 2010-11) Source: ComScore Media Metrix, 2012; GP Bullhound Continued Double-Digit Growth Last year, 93% of new Internet users were not from Moscow and St. Petersburg, but from the regions – this trend is likely to continue as the gap in Internet penetration is still at around 15%3. More established local players are leveraging this trend and are investing to expand their regional operations rapidly: for instance Avito raised $75m in May 2012 to drive audience acquisition4, mostly in the regions; Ozon raised $100m in September 2011 to strengthen its logistics and distribution network across the country. Russia’s Internet users are forecast to reach 67.9 million at end 2012, comprising nearly 50% of the country’s population 5. E XHIBIT 2 – A NNUAL G ROWTH IN A UDIENCE P ENETRATION BY R EGIONS IN R USSIA 72% 75% +4.0% 59% 61% +4.0% 55% 51% +6.0% +8.0% +5.0% +6.0% 40% 68% 71% +8.0% 53% 50% 53% 45% 32% Moscow St. Towns with Towns with Towns with Towns with Villages Petersburg 1m+ 500k-1m 100k-500k <100k population population population population Source: FOM, 2012; GP Bullhound 1 Source: ComScore Media Metrix, September 2010-11 2 Source: VTB Capital, March 2012 3 Public Opinion Foundation, spring 2012 4 GP Bullhound was engaged as an advisor to the company 5 Source: eMarketer, 2012 2 GP Bullhound LLP GP BULLHOUND RUSSIAN INTERNET – THE RUSSIAN WEB UNTANGLED Russian Websites Reaching Mass Scale Russian websites are steadily reaching the top audience spots in Europe. As of March 2012, out of the top five European web properties by monthly audience, three were Russian: Mail.ru (first place), Yandex (third place) and Vkontakte (fourth place). E XHIBIT 3 – T OP E UROPEAN W EB P ROPERTIES BY U NIQUE M ONTHLY V ISITORS (MARCH 2012) 79.5m 73.8m 71.0m 67.0m 46.7m 43.5m 42.8m 37.3m 37.0m 35.2m MIH BBC Sites Sites Sites Daily- Axel Group Mail.ru motion Orange Sites Springer Telekom Deutsche Schibsted vKontakte Yandex Sites Other European Russian sites sites Source: ComScore, 2012; GP Bullhound In specific categories, Russian properties have growing presence. For instance in just a year the Russian sites within the top 50 largest European classifieds properties have increased their share from 9% to 14% of total European visits in the category, while in apparel retail, the share of top Russian online properties has grown from 3% to 8% (Exhibit 4). E XHIBIT 4 – S HARE OF V ISITS AND N UMBER OF R USSIAN S ITES IN THE E UROPE’ S T OP 50 FOR S ELECTED C ATEGORIES Number of % of visits to Russian sites in Russian sites in category top 50 category top 50 News 2% 3% 3 5 Entertainment 4% 6% 5 8 Classifieds 9% 14% 5 6 Travel 2% 3% 2 3 Online services 4% 7% 3 4 Consumer 7% electronics retail 9% 7 6 Books retail 8% 11% 3 4 Apparel retail 3% 8% 2 7 Mar-11 Mar-12 Mar-11 Mar-12 Source: ComScore, 2012; GP Bullhound 3 GP Bullhound LLP GP BULLHOUND RUSSIAN INTERNET – THE RUSSIAN WEB UNTANGLED Audience Reaching Critical Mass Powering Monetisation At nearly 50% monthly reach of the entire Russian population, the Internet is now: 1) A viable marketing channel for national brands, whether global or local; 2) Large enough to justify initial outlay costs for logistics and payments systems. As a result, all forms of monetisation now strongly outperform audience growth (Exhibit 5). E XHIBIT 5 – A NNUAL G ROWTH C OMPARISON OF C ORE O NLINE I NDICATORS IN R USSIA (2010-11) 56% 25% 20% 14% Online E-commerce Digital content Audience advertising revenue Source: AKOR, 2012; J’son & Partners Consulting, 2011; Data Insight, 2012; ComScore, 2012; GP Bullhound Accelerated Online Advertising In 2011, Russia’s online advertising market grew at 56%. For the first time, it overtook printed press, which, interestingly, occurred in the UK in 2010 and in the US is only forecast to take place this year. Television advertising retains a majority share in Russia with its unique ability to reach the mass audience of this vast country, but the situation in more developed Internet markets indicates that this may well change. For instance, Ford’s UK digital advertising spend overtook television for the first time in 2011, with newspaper advertising in third place, but receiving only half of the online budget. “Five years ago”, says Anthony Ireson (marketing director, Ford Britain), “digital would have been a distant fifth in the marketing pantheon6.” In addition, as the Internet audience continues to grow, the shift in advertising budgets towards the online channels will gain further momentum. Already in April 2012, Yandex’s daily audience surpassed that of one of Russia’s largest free-to-air TV channels, First Channel (“Perviy Canal”), among inhabitants of large cities7. This will accelerate as TV’s global reach weakens. Indeed overall weekly population reach of TV in ten key countries including Russia decreased from 71% in 2009 to 48% in Autumn of 2011, as users prefer the more personalised and flexible channels such as online through PC and mobile devices8. 6 Source: The Sunday Times, 20 May 2012 7 Source: East-West Digital News, 29 May 2012; for audience between 12 and 54 years of age 8 Source: Accenture survey covering Brazil, China, France, Germany, India, Japan, Russia, South Africa, Sweden and USA, September 2011 4 GP Bullhound LLP GP BULLHOUND RUSSIAN INTERNET – THE RUSSIAN WEB UNTANGLED E XHIBIT 6 – R USSIA, O NLINE A DVERTISING S HARE OF T OTAL A DVERTISING $17.9bn $15.7bn Other $13.7bn Outdoor $11.8bn Printed $8.7bn press $7.2bn $8.9bn Radio $7.9bn $6.9bn Television $5.9bn $4.3bn $3.6bn Online $3.6bn $2.3bn $2.9bn advertising $0.9bn $1.4bn $1.9bn FY2010A FY2011A FY2012F FY2013F FY2014F FY2015F Source: AKOR, 2012; Zenith Optimedia, 2011; GP Bullhound With online at around 17% of total advertising spend in 2012, Russia is approximately four years behind France and Germany (Exhibit 7). We see a number of factors contributing to the increase of this share to c.20% by 2015 – similar to that of France today: . Internet businesses, such as online retail, continue to attract users through online advertising, powered by the growing investment in the sector; . Traditional brands switch to digital advertising to reach out to a rapidly growing audience across the whole of the country; . Foreign businesses continue to enter the Russian market – Digital River’s survey reports that Russia came out on top of the list of countries where the companies questioned are seeking to expand internationally in the next two years. It was named by 31% of respondents, ahead of Brazil (24%), China (23%), India (22%), Japan (22%), Germany (21%) and the United Kingdom (16%)9; .