Microsoft Server Farm in Siberia

I saw this today and thought that if Microsoft goes ahead with the data centre in Irkutsk, then other businesses should take it as a sign that long term investments in Russia are feasible. By hosting its online business out of Siberia Microsoft is making a leap of faith and hope that the Russian government will not seize the assets of the giant for the weak environmental policies or worse – for tax code violations. Below is the article from El Reg.

Microsoft wraps up MOU for Siberian data centre

Ice station server

By Kelly Fiveash, 27th November 2007

Microsoft said yesterday that it has signed a memorandum of understanding with the Siberian government which could see the software giant park its latest data centre on a remote, sub-arctic part of Russia.

The city of Irkutsk has been pinpointed as a possible location for Microsoft’s latest data-pumping farm.

Over the past few months it has announced plans to build new data centres in Chicago and Dublin, at $500m a pop. The firm already has a number of US sites that power servers for the likes of Windows Live, Exchange and SharePoint.

The potential Siberian build could prove a significant investment for Redmond as it continues to push its growing online business. Aside from the planned Dublin site, Microsoft has – up to now – only had a data centre presence in the US.

Perhaps the firm has been eyeing up the Siberian city as a possible location from which it can spit out web-based apps to the masses because of its favourable weather conditions, which could provide natural cooling to the data centre.

In a recent interview with CNET, Microsoft’s senior director of data centres Mike Manos said that the software giant had 35 different criteria when selecting a site that included access to water and power, low energy costs and decent telecoms links.

But the jury is still out in chilly Siberia. The firm said in a statement:

“Microsoft is in the midst of an ongoing initiative to expand its global data centre presence… While we are very excited about the potential in Russia, no formal decision or commitment has been made to a data centre build in Russia at this time.”

Little Choice for Patriotic Russians

In conversations with my university friends from Siberia, I have posed a question: what is happening with Russia? Surprised, I received a reaction of pride and benevolence to the country’s leadership. ‘Russia, they said, is a strong country thanks to Putin. He finally made us feel proud of Russia. He doesn’t think twice about telling Americans off for setting up a radar base in Czech Republic, or supporting Iran on the nuclear programme if he feels it’s right’.

This is why perhaps many close their eyes on the increasing dominance of pro-government party United Russia. The nationalistic pride and stability have come to matter more than the freedom of choice. Below is the article from the Independent about the upcoming parliamentary elections. The spirit of this article can be found in many Russian blogs.

An article from The Independent, UK Daily from 22 November 2007.  

One-party poll’ fuels voter apathy in Russia

Sitting in a swanky cafe in downtown Vladivostok, Katya stirs her cappuccino thoughtfully. “Well, in the presidential elections I’d vote for Putin, or whoever he suggests to replace him,” she says. “But I’m not going to vote in the parliamentary elections. What’s the point?”

Katya is 25 and has a relatively good job, working in an investment bank in the Pacific port city. She speaks fluent English and has her own car and apartment. And like many thousands of young Russians who have done well financially in the past few years, she doesn’t have any time for politics, save for a vague support for President Vladimir Putin.

“I don’t talk about politics with my friends or colleagues,” she says with a laugh, as if the mere idea is ridiculous. “Maybe if it affects business, but just to be having lunch and start talking about politics – no.”

Less than two weeks before the elections on 2 December, the Kremlin has a problem, partially of its own making: nobody really cares about the outcome. Interest in party politics is at an all-time low, say analysts, partly due to a concerted set of moves on the part of the Kremlin to stifle real political debate and partly due to the belief that voting will change nothing.

In Vladivostok, like in Moscow, seven time zones to the west, and in every city in between, the streets are decked with posters for the pro-Putin United Russia party, which is expected to win about 60 per cent of the vote. The party has little real ideology except for a steadfast support for Mr Putin and has a near monopoly on television coverage. Its campaign posters are simple: a Russian flag and the slogan, “Putin’s plan is Russia’s victory”.

Last month, Mr Putin agreed to head the party’s list at the elections, and it is only by linking themselves to the President – the only politician with true mass appeal in Russia – that they are able to inspire support. Mr Putin himself made a carefully coordinated attack on the party last week, saying it was full of “all kinds of crooks” but was the best option available.

Fair Russia, a party created last year with Kremlin backing and meant to act as a controllable opposition to United Russia, has been doing dismally at the polls and may not make it into the Duma, the Russian parliament.

Widespread indifference to the parties can be partly explained by the cynical nature of Russian politics. “Nobody standing for the Duma elections is actually doing so based on real ideas, except the Communists,” said a Vladivostok-based analyst, who asked not to be named. “Everyone else uses a party platform to advance their own personal or business interests. And of course the trouble with the Communists is that their ideas aren’t very attractive any more.”

Since the previous elections, a whole range of regulations have prevented smaller parties from getting in. It has become tougher to register political parties, the threshold for Duma entry has been raised from 5 to 7 per cent of the vote, and the “against all” option has been removed, meaning that the only way to register a protest vote is to spoil the ballot or stay away. The 7 per cent barrier is likely to shut out the Russian liberal parties.

In Vladivostok, one man who has been part of the past two Duma sittings is Viktor Cherepkov, a former mayor who claims to have links with cosmic forces. “He’s completely insane,” says Alexander Helbach, a retired local journalist. “But people remember that when he was mayor in the 1990s, he got things done. And unlike everyone else here, he’s not corrupt.”

But whereas before, a certain number of seats were allocated through direct single-constituency voting, this duma will be entirely elected from party lists. This will mean no space for people such as Mr Cherepkov or the Kremlin critic Vladimir Ryzhkov.

According to internet sources and blogs, workers in state institutions such as schools and hospitals are being pressured to vote for United Russia, and in some cases are even being told they must photograph their ballot papers to prove it.

“Apathy can work both ways,” says Boris Dubin, an analyst with the Levada Centre polling agency in Moscow, explaining why a turnout of 60 per cent is still expected. “People are worried what might happen if they don’t vote. So, given that they don’t care much anyway, they think it’s better to go and vote for United Russia and avoid any potential problems.”

Amid the apathy, a few have taken the path of protest. The most radical of these have joined the Other Russia coalition, led by the former chess champion Garry Kasparov and the controversial writer Eduard Limonov, which has no media coverage, little support and is banned from taking part in the vote.

Campaigning for a big election turnout in Moscow yesterday, Mr Putin denounced Other Russia, without naming their leaders, as foreign-fed ” jackals”. Referring to opposition marches planned for the weekend, he said: “Now, they’re going to take to the streets. They have learned from Western experts and have received some training in neighbouring [ex-Soviet] republics. And now they are going to stage provocations here.”

In Vladivostok, Other Russia has just 70 members. Its regional co-ordinator, Tatyana Korchevnaya, claims the population is not apathetic, but believes any resistance to United Russia is futile.

The election in numbers

41.5%

Percentage of prime-time TV news coverage devoted to Mr Putin in October

16.5%

Percentage of prime-time news coverage devoted to United Russia in October

1.2%

Percentage of prime-time news coverage devoted to other parties in October

29%

Latest approval rating for work of Duma

83%

Latest approval rating for President Putin

Visiting Kyiv: Outsourcing Industry Buzz

I am in Kyiv right now. The city has an eclectic feel of any post-socialist state in the phase of economic growth. Shabby apartment blocks neighbour historical buildings and newly built monstrosities. Streets are congested. The taxi driver complains about the real estate prices ($80 000 for 30 sq.m. flat on the outskirts of the capital) and sets high expectation for a new coalition of Timoshenko and Yuschshenko. A pompous restaurant offers borsch, sushi and risotto on a single menu.

 

In a smoky lobby bar of a Lybid hotel I am meeting Alex Riabtsev, the CEO of the Developers.org.ua. This is a programmer community which allows its participants share their opinions about their employers, learn about other outsourcing companies, apply for a job or to benchmark their salaries against the industry average. The latter is gathered from 2000 entries of the community members. Average prices range from $1200 in Kyiv to $550 in Winnitsa but the software development companies themselves say that the prices are much higher.

 

Despite often unflattering remarks about some outsourcing providers on the website, the companies themselves are keen to participate. They see the value in the dialogue and reputation building to attract best people in the ever tightening labour market.

 

On the way to another meeting I am talking to the 40-year old taxi driver Sergei about Ukrainian nationalism. Ukrainian is the only national language in the country but socially Sergei speaks Russian, rather than Ukrainian, as his family and friends come from Kyiv. People that speak Ukrainian are the older generation which came from provinces. These days younger generation also starts speaking it, primarily due to nationalistic feelings but old habits are hard to break.

 

Two days of traffic jams later I am well healed in the current events of software development industry and its consolidation trends not to mention the personal lives of the taxi drivers. Interesting take-aways include continuous move of the outsourcing companies to the provinces, industry consolidation trend and opportunities for growth in BPO space and local IT market.

 

A tip for those who are planning their visit to Kiev: leave plenty of time between the meetings, and try their Japanese restaurants: Ukrainian sushi are fantastic. But if you miss european ambiance, try Belle Vue, a tiny Belgian oasis of Trappist beer.

Web 2.0 Expo Berlin 2007: The Rise of Irrelevance

In early November I have been exposed to the optimism of Tim O’Reiley as he and his team were cheering up the keynote attendants. The Web2.0 Conference which recently took place in California has now come to Berlin.  Visitors were encouraged to twitter, blog and broadcast in real time. Wifi was on, and MAC-equipped audience obliged. All the buzz was about socialising, communicating and new ways of sharing information.  

Having analysed Web2.0 space in Russia I was quite excited to hear new ideas and debates about the future of this new phenomenon. Here is what I have learned. During his keynote Mr. O’Reiley was talking about a meaning of Web2.0. According to him, ‘The key to competitive advantage in internet applications is the extent to which users add their own value to that which you provide’. And the opportunity is in ‘finding new meaning in user-generated data, and turning this meaning into real-time user facing services’.  

In essence, the speech was an accolade to Google, Wiki and Web2.0 capabilities which can be found on sites such as LinkedIn. The concept is not new: Amazon has been recommending books based on your purchases for a while now. LinkedIn uses Outlook contacts to grow one’s network since its early days. Ebay takes a chunk of each user-generated transaction. Most of the lucrative niches appeared to have been filled, and entrepreneurs must find new areas where the user generated content can be captured and capitalised on. What I am sure about though, is that these successful businesses did not stem from an idea of “let’s make money on user generated content”. Instead a real need was identified (a need for a more precise search results, less invasive advertisement, up-to-date contacts, need to learn about interesting books), which happened to be satisfied with what now called Web2.0 concept. 

Then there were some interesting ideas about integrating various sensors to create new real time user services. During the break I bumped into a schoolmate of mine from Novosibirsk  times (now living in a nearby Dusseldorf) who was bubbling with excitement about O’Reiley’s idea that real friends can be located in a mobile phone.  

What followed after Tim O’Reiley’s keynote produced a numbing sense of irrelevance. But more irrelevant than some speakers were the exhibitors. I have come across Nokia mobile phones, Wifi equipment manufacturers, network hardware companies, and many other firms whose representatives were shrugging their shoulders and saying something about a gamble. VoIP phone companies, hosting service providers and even my favourite bookshop Amazon, which was promoting its Web services business were also there. But there was no MySpace, Facebook or YouTube present in the exhibition hall or amongst speakers at the conference. 

Throughout this enthusiasm-filled environment I kept wondering about rationality of the prediction that Web2.0 will be huge. Of course, Web2.0 offers new ways of collaborating, socialising and information sharing. Usage of tags, blogs and shared workspace are interesting and quite useful, yet it requires a significant culture change amongst its community. Somehow I felt that we already have discussion forums, Sharepoint and too much time pressure in our lives to have time available for Twitter not to mention the praised “Unboxing.com”, the website which shows nothing more but the pictures of people “unboxing” their presents.  

Do you actually want another way to organise meetings (ikordo), which requires you to get all your friends registered at one website, and then revert to email forwarding for updates? Would you rather stick to the good old email?  Then there are privacy issues. Someone has done their analysis of a social network site, and managed to identify a person, his wife and his best friend without any additional input from the person in question. 

 Now onto the useful Web2.0 concepts. I was delighted to learn that Web2.0 functionality allows companies solve specific problems. For example, my chat with Benjamin Lorenz from Kapow Technologies revealed a specific customer need of integration of information obtained from various websites into a single enterprise system. Jive Software talked about companies who used their product to collaborate online. Istockphoto allows people to sell their images for miniscule amount, thereby creating a massive marketplace for amateur photographers and low-budget marketers.  Perhaps my scepticism about an abstract need for social networking is due to my living in Germany for the past year. Here I am becoming an even more rational person (sadly) than when I worked in finance. Here we do not sit around twiddling our thumbs. We’ve got to solve actual problems. So I want more examples of this proactive usage of the Web2.0 functionality. Please do get in touch if you read this and I would be happy to publish it.

Ukrainians and Luxury Boats: As Seen at Hamburg HanseBoot Expo

Every city in Germany has a massive exhibition hall in the city centre: Frankfurter Messe, Hannover Messe, Munich Messe, Last month I happened to stroll the halls of Hamburg Messe to see the boat exhibition there.  

Recreationally Michael and I sail Tornado catamaran, and I can hardly imagine that one can have so much fun with a motor boat or fully computerised sail boat, where technology overpowers forces of nature. So I wondered aimlessly around the white monsters until we stumbled across a Dragon boat, completely made out of wood.

Lagoon Dragon Boat 

‘A disposable boat’, I thought, imagining the damaging effect of sea water on the impeccable polish and joined others to listen to the salesperson, who spoke English with an Eastern European accent. Having asked an inevitable question about the representative’s accent I have learned that he is Estonian who lives in Ukraine and works with Lagoon Boats and other clients. I have also learned that the wood is treated and the boat will retain its conditions for many years.

Apparently Ukraine has very talented shipbuilders, so the German owner of the company has leveraged their skills in moving the whole production process there.  This is just another example of Ukraine rocking in the outsourcing world; so I am just about to board a flight to Kiev.

Germans in Romania and at Systems 2007

Last week I attended Systems 2007, one of the major IT exhibitions in Germany located at the massive Munich Messe. The two observations surprised me: a staggering number of ERP implementation companies in Germany and a stunning fluency of Romanian companies in speaking German. But forget about ERP.

Apparently, there are as many as 45 000 German speakers in Romania. According to Wiki, there are many different groups of Germans, the largest of whom have historically been known as the Transylvania Saxons. Germans once constituted a much larger portion of the Romanian population than they do today, though they are still the fourth largest ethno-linguistic group. In 1938 there were 700,000, and in 1992 there were 111,301 but the numbers are steadily on decline. Since 1989 Germans in Romania were represented by the Democratic Forum of Germans which functions in the German language.

On a separate subject. Whilst at the exhibition, I have conducted a short market study. Having spoken to over 20 representatives of German IT Mittelstand (many of them Geschäftsführers – Managing Directors) I learned that many are concerned about the quality of the code developed by an outsourcing provider, and prefer to keep the development in house. They believe that they retain a unique competitive advantage by doing so, as no one can do it better, or they rely on too specific a skill set to outsource.

Having lived in Germany now for over a year, I can see how much value Germans put on quality. It is almost impossible to convince a diligent German who takes pride in his or her work, that someone else can do the work just as good. A leading drills and saws manufacturer allegedly refused to outsource altogether for the same reason: “If we have managed to remain a leader in this field for so long, we must be doing something right”.

German market certainly represents an opportunity for the outsourcing companies. However it is a significant challenge for those suppliers that will have to break the wall of scepticism in what outsiders can achieve, fuelled by some negative experiences. But let’s start by speaking decent German first, shall we? Needless to say that we are now discussing collaboration with a number of Romanian companies who are already good at it.

Ukraine is free (according to Freedom House anyway)

So, the wait is over and the new Ukrainian government is established. The pro-Russian prime mininster Victor Yanukovich is out, and Yulia Tymoshenko is in. Now Tymoshenko must keep the promise to conduct a criminal investigation into the gas deal Ukraine has signed with Russia, and introduce tougher anti-corruption measures. Should she be succesful, Ukraine will come out as a winner.

According to Freedom House Rating of Independent Countries Ukraine is at par with India as free countries where democracy rules. Granted, Romania and Bulgaria are more democratic, according to the rating, but it is encouraging to see free Ukraine as much as it pains to see authoritarian rule of Putin in Russia.

Indeed, Russia shares its rating with Pakistan on the other end of the spectrum. Let me quote recent article which appeared in The Economist:

The re-election of General Pervez Musharraf as Pakistan’s president on October 6th was “fair and transparent”. THat was the considered judgement of his chief sidekick, the prime minister. “Unrepresentative, rigged and at gunpoint” would have been nearer the mark.

In Russia it is no longer a question whether the election will be democratic. NY Times published an article in which it describes how the Russian government violates the law and prohibits opposition parties from participation. Inofficial sources, such as blogs, provide countless examples of such violations.

Yet, despite the negative press that both Putin and Musharraf received in the past few days, the situation in Russia and Pakistan are not much different than equally ranked Thailand, which despite its lack of democratic freedoms, enjoys a steady stream of tourists.

China and Belarus shared an even worse position in the rating, matching Zimbabwe. Demonstrations in Belarus last year aired by international TV networks further supported the notion of Belarusian to be an oppressive regime. Yet we see the continuous growth of foreign direct investment into China, the country where, as it is widely known, elections do not take place, and the leader of the Communist Party is expected to name its heir. Yet, acccording to United Nations, China was the world’s fourth-largest recipient of foreign direct investment in 2006 after the U.S., U.K. and France.

Why then Ukrainian FDI are not as impressive? IN 2005, the year after the Orange Revolution, the FDI in Ukraine were $4.1 Billion. Perhaps, investors value predictability of the authoritarian regime in China over the Ukrainian instability of democracy? The challenge for Ukraine is to stick to its pro-Western path, form a working government and continuing its reforms.

Web2.0 in Russia: Country’s Response to Censorship

Trying to make sense of Russian user-generated content sites, I came to realise that the only way to learn about the real state of affairs was by browsing blog sites.

Livejournal.ru, the most successful Blogging service so far in Russia is providing a broadcasting platform for disgruntled journalists, oligarchs in excile, aspiring politicians and artists. Russia is the second largest geography for Livejournal audience after the US.

I discovered a blog of Viktor Shenderovich, the creater of “Kukli” – a satirical programme where politicians were represented by the puppet dolls, closed shortly after Vladimir Putin came to power. 

I also found postings by Leonid Nevzlin, a co-founder of Yukos now living in Israel, who talked about Russian affairs and authors of a book about Putin, which was confiscated by FSB. My attention was further captured by a story by Maria Arbatova, a writer and talkshow presenter about her experience in politics. I was bored by pointless ramblings of a journalist Sergey Dorenko (a blog to clean up his act or pretend it never happened?). In the 1990s he sold his soul to Berezovsky, according to the late Paul Khlebnikov’s book “Boris Berezovsky: the Godfather of the Kremlin”.

But the word of praise goes not only to the american company, who skillfully engaged celebrities in raising popularity of its services in Russia. There are at least 70 social networking websites offering blogging facilities to their users. Internet TV service is truly the only way to broadcast uncensored programmes in Russia. Too bad that there are only 28 million Internet users in Russia, or only 20% of the population.

I will write more about Russian Web2.0 community in the next few days. My list reached 120 websites and continues to grow.

natasha.starkell(at)goaleurope.com

Oligarchic fights

A hilarious article appeared in Sunday Times yesterday. It goes like this:

Oligarchs battle on Sloane Street

by Kevin Dowling

It was handbags at noon when two of Russia’s richest oligarchs clashed at a London fashion boutique yesterday.

Boris Berezovsky, an archenemy of Russia’s president, Vladimir Putin, was shopping in Dolce & Gabbana on Sloane Street when his bodyguards spotted Chelsea football club’s owner, Roman Abramovich, shopping two doors down…

Read the full article here.

The immature legal system is one of the main concerns of the Western companies looking to do business in Russia and Eastern Europe. But what is the difference between Russia and England, where even a tycoon struggles to serve a writ to take his opponent to court?

Russian and Ukrainian IT Services

A couple of months ago we at Goaleurope have been scanning the market for a mid-size IT services company in Russia. So here is a summary of our findings, and a few facts about the industry.

We have identified over 150 companies of various sizes, vertical mix, product and services mix. One certain observation that came out of our research is that the industry is highly fragmented. These companies together employed over 50 000 people and generated $12.5B in revenue.

Our research identified the following issues of the IT industry:
- lack of resources as the number of graduates entering the market could not satisfy 20% rate of annual market growth (in services sector);
- a need to refocus the business from low margin hardware sales to a more profitable service segment;
- corruption and bureaucracy.

We have also seen the first signs of consolidation:

The company Verysell (10th on our list with $470M turnover and 500 employees in 2006) has raised $50M in 2007 from Renaissance pre-IPO fund, Mint Capital, RP Explorer Fund, and Steep Rock to acquire IT services companies in preparation for an IPO.

IBS Group ($760M turnover in 2006) has announced its interest to go public in 2008. In 2007 it has also announced an acquisition of Borlas, a consultancy and an IT services company.

In 2007 Systematica has announced an acquisition of the system integrator TopS BI, which in 2006 employed 475 people and generated revenue of $96M.

in 2006 Epam Systems (US-based company with origins and development centers in Belarus) acquired Vested Development Inc. (Moscow, Russia, 400 employees) to create the largest software development company in Eastern Europe.

The official figures paint IT market in bright colours: the IT services market has grown by 23% to $3B, representing 20% of the total IT market. The largest service segment was consulting and software development, which accounted for over 30% of the total market. The top vertical markets included financial services (21%), telecommunications (15%) and manufacturing (11%).

Compared to Russia, with population of 143 million, Ukraine (population of 47 million) has seen a considerably smaller IT services market. According to IDC in 2006 IT services market was estimated at $192M, which is over 20% more than in the previous year. Installation and maintenance of equipment and software products constituted 51%, system integration – 25% and software development – 10% of the total market.

Ukrainian economy did not enjoy a similar economic revival as Russia due to its relatively poor energy resources and dependence on Russia for gas. However the economic potential of Ukraine is significant, which will boost the IT market in a mid-term.