Today forums and other social media were buzzing with the news concerning Russian domains .RU and .РФ (TLD that stands for Russian Federation in Cyrillic letters; later .RF). Apparently, the rule introduced in spring 2010, requiring that every domain registrar / owner must submit a copy of a valid passport to identify himself/ herself.

The introduction of this rule provoked a lot of angry conversations in SEO forums, and made life difficult for the non-Russian-speaking individuals owning or intending to purchase a .RU or .RF domains.

Interestingly, .RF domains, while being a hot topic of discussion for several months, never gained popularity in Russia. The press reported that in June 2011 there were around 850 000 registered .РФ domains and 3,3 million .RU domains, however one hardly ever sees any websites in .Rf (apart from http://президент.рф/ meaning president.ru)

Popular explanations of this fact, among the others, are:

a) Having .RF domain is not great for the companies planning or considering expanding the business to countries outside former USSR, where no one can read Cyrillic and no one has Cyrillic keyboard, which will make it impossible to type in the domain or conduct email correspondence.

b) Some people reported problems with indexing of .RF domains by various search engines, such as Mail.ru and Yahoo.

c) Not all CMS support Cyrillic domains correctly.

Although for a Russian-speaking user .RF domain (or any Cyrillic domain really) is more memorable, technically it is more difficult to maintain it. The common practice among the Russian businesses is to SEO .RU domains and make sites .RF mirrors of .RU sites. Then .RF domains are used for marketing and branding, while .RU domains stay preferable for search engines.

I find the development of the Internet in Russia very interesting to monitor. The market is huge and continues to grow, however the numbers of Internet users do not grow in the same pace as e-commerce. People surf, people are mobile, but do people buy online?

Recently I heard and read a lot of stats about Russian Internet audience. The most general numbers you can find in this presentation, given by Preston Carey of Yandex at SMX Advanced London, which I attended last week. You can see than Internet penetration in Russia is still only 43%. Hard to imagine, right? But don’t get discouraged yet. 43% of the population is approx. 46 million people, which is double the population of Scandinavia, for example.

Another research, presented by Yandex, says that Russian Internet audience grew by 18% in 2010. Most of the growth (5.8 million users) came from the “regions”, which is the Russian definition of everything outside Moscow and St. Petersburg. This can be probably explained by the fact that the prices on fast Internet connection in the “regions” dropped by 30-60%.

About e-commerce

E-commerce is growing as well, however, in my opinion, not as fast. You can see the trend: more and more Russian Internet giants are creating their own ad serving platforms. In addition to good old Yandex.Direct, Google Adwords and Begun, Russian internet audience is going to be exposed to targeted ads in all major social networks: vKontakte, Odnoklassniki.ru and MoiMir. The simplest economic principle: if there is demand, the supply will eventually match it.

What I find interesting is the industry data. According to another Russian research agency, the most successful verticals in Russian e-commerce, based on traffic and conversion, are mobile phones, computers & spare parts, and home & kitchen appliances.

The leaders in conversion were Fifty.ru (2,95%), Techhome.ru (2,85%) and Toool.ru (2,53%). I think it is worth looking into the best practices, because, from what I’ve seen, Western best practices do not always work for the Russian Internet audience.

The largest online store in Russia Ozon.ru (sort of Amazon of the Russian Internet) in their presentation at SPBRIF (Internet conference in St. Petersburg) reported the following numbers: 1 000 000 products, 1 000 employees, and 4 billion Russian Rubles (approx. $143 000 000) in sales per year.

Ozon.ru claims to have 14 652 000 visitors per month. Surprisingly, the giant of Russian e-commerce has only 0.93% conversion. Another curious fact is something Geno Prussakov, the guru of affiliate industry, twitted from SPBRIF. Apparently 80% of Ozon’s orders are paid for by cash on delivery.

The bottom line of this: preparing to open up an online business in Russia, do not base calculations on volumes. The volumes are there, but buyers might not be just yet. Investigate local payment options, analyze the strongest players in the vertical, and conduct a thorough market research before investing, as Russia is a big, but a very difficult market.

Entering a new market, especially an immature one, companies have to think about lots of things. For many corporations markets like Russia or China are difficult to crack. If you ask me why, I say, because they are not localized enough. Why Google failed in Russia? Why eBay failed in Japan? All for the same reason: clueless about markets and their business culture.

Opening an online business in Russia, one has to consider the differences in design and usability, SEO and PPC techniques, linguistics, but even doing all of the above right, the business can fail, because people are simply not able to pay for products and services.

Many payment methods such as PayPal do not even operate in Russia. Moneybookers is available, but not very common.

According to a report, recently published by RuMetrica (in Russian), only 40% of Russian people own a credit card. Out of those 40% only 29% of those use credit cards on a daily basis (this makes it 12% of the total population). The majority of credit card owners in Russia use them for receiving salaries, then going to the ATMs. Only 5% of credit card owners confirm that they at least once used their cards to purchase products or services online.

Seems difficult, right? Not living in Russia for many years myself, I am having a hard time to explain why credit cards are not used more. Could be because the banks are still very bureaucratic and do not provide enough transparency. Could be due to a lot of fraud in this area.

Working for several years with the Russian market, I learned that without WebMoney an online business in bound to fail.

WebMoney is a PayPal clone, a payment system targeted primarily at the Russian market. From what I heard, setting up a business account can be a hassle, but without WebMoney there will be no business.

Yandex provides an alternative payment method called Yandex.Dengi. I’ve never used it myself, to be honest, but it seems to be relative big and have partnerships with the major mobile operators, online retailers and airlines.

Taking it even further, one can consider getting into offline terminals for online payments. Yes, right, offline. Looking something like this, these terminals are all over the place. They take cash, a small commission, and for that provide a possibility to make payments for various services, including ISP fees, mobile phone bills, money transfers and even some online gambling sites

The bottom line: make sure to include the payment methods for your online business in Russia into your business plan, and on an early stage.

I saw this in a number of Russian newspapers during February and found it rather interesting. Based in Russia visual search engine Quintura is going to sue Google over technology used behind Google’s Wonder Wheel. Wonder Wheel is a service that helps to visualize semantic relations between keywords. Russian Quintura launched a similar service back in 2006, and received the last of its 8 patents for this technology in 2009.

Quintura's semantic search cloud

The results are not exactly the same:

Google's Wonder Wheel semantic cloud

Yakov Sadchikov, the CEO of Quintura, mentioned in his interview to Infox (In Russian) that there are several companies who violated the patents and that Quinura will demand that all of them pay for using the technology.