According to the latest Comscore report, 50.8 million Russians have access to the internet through either a home or work connection. This means that, for the first time, Russia has more internet users than Germany, which falls back to second place with 50.1 million users. It also pulls further ahead of France and Britain (42.3 million and 37.2 million users respectively).

Experts are bullish for the prospects of further growth in the Russian internet industry, noting that a great deal of work is underway to extend the country’s broadband networks. And, when you consider that Russia’s population is almost twice that of the next largest European country, the prospects for growth seem impressive. From reports, though, it appears that the Russian internet model will be based largely on mobile internet access – of the 91 million Russian internet users that GP Bullhound predict for 2013, 71 million are likely to have 3G access.

Some analysts have noted concerns that, although Russia has a large number of internet users, they do not use the internet as much or as regularly as users elsewhere in Europe, a problem which may present difficulties for Russian companies seeking to turn a profit from Russian internet users.

The Comcast data presents a mixed picture here. Russian internet users are typically online for an average of 22.4 hours per month, which is well behind some countries with advanced online economies (for example, the internet addicts of the UK, who spend more than 35 hours a month online), but is only just behind the European average of 26.4 hours per month. In fact, Russian usage is higher than some countries that you would expect to spend a lot of time – Denmark, for example, where the average user spends just 22.2 hours a month online.

According to Alexa, when not searching the web using yandex.ru, google.ru or google.com, Russians spend most of their time on social networking sites, just like everyone else in Europe. The main difference, though, being that in Russia facebook.com is only the third most popular network, behind both vkontakte.ru and odnoklassniki.ru.

But it seems that, although starting from a low base because of the weaker Russian economy, the Russian online economy is following similar patterns to those in the rest of Europe and the United States. Earlier this month it was reported that Russian online advertising has grown by more than 50% and that, as a result, the industry is now larger than the Russian print advertising industry. In the third quarter of 2011, sales of online advertising in Russia were worth over $300 million – a figure which, if followed through over a twelve month period, would make it a billion dollar industry.

Further recommended reading – the Financial Times blog reports on the prospects for Russia’s biggest internet companies to grow their incomes, and Forbes reports on a press conference held by Wikipedia founder Jimmy Wales in which he noted that outgoing Russian President Dmitry Medvedev was the only world leader who truly understands the internet. Wales told reporters that:

“Unfortunately, Sarkozy’s view on the internet is that it must be controlled and regulated. And at the G8 meeting, President Medvedev was the only leader to say something sensible whatsoever. So I think the headline of the story should be that Jimmy Wales says that President Medvedev is the only world leader who actually understands the internet.”

It’s a view that might surprise some in the Russian political sphere, given the occasional high profile arrest of a Russian blogger. However, it’s worth noting that the most dynamic political sphere in Russia today seems to be online, so perhaps Jimmy Wales has the right idea…

Russia is Europe’s largest internet market is a post from: Siberian Light

The news comes almost immediately after a customs and trade monitoring agreement between Russia and Georgia which had been holding up Russian accession for years.

Only two hurdles now remain between Russia and full WTO membership – the Ministerial Conference, attended by representatives of each member state, must approve Russian accession at its meeting of 15-17 December, and then Russia itself must ratify the decision by 15 June 2012.

Under the terms of the deal Russia will have to make a number of changes. Most notably, it will have to cut import tariffs on a wide range of goods – its 2011 average import tariff ceiling of 10% will be cut by more than a fifth, to a maximum of 7.8% – and eliminate a number of state subsidies. The full terms of the deal can be found in the announcement on the WTO website.

As you would expect, the analysts are all over this news. And, as you’d expect, reaction is mixed. For example, the Wall Street Journal thinks that it will benefit Russia’s economy and – more importantly – increase the rule of law in Russia. Bloomburg, on the other hand, chooses to focus on the negative, noting that although Russian industry will get a boost from WTO membership, it will also annoy everyone else by not playing by the rules.

Global reaction has been pretty positive, though, on the whole. US President Barack Obama told reporters that “Russia’s WTO accession would be yet another important step forward in our reset of relations with Russia, which has been based upon the belief that the United States and Russia share many common interests, even as we disagree on some issues.” His next step will be to recommend that the US Congress repeals the Jackson-Vanik amendment, a Cold War hangover that prevents the US from granting favoured trading nation status to countries that restrict human rights. Whether Congress will do what he asks is another question…

Smaller countries, such as Finland, which is Russia’s third largest export market, have also welcomed the deal.

On a slightly lighter note, the deal will, at a stroke, almost halve the landmass of countries no longer in the WTO – the only holdouts now being countries marked in grey on this map – notably all the Central Asia countries, a few African and Middle Eastern countries and some of the poorer and more troubled parts of Eastern Europe. Oh, and North Korea. Now that’s a club that I’m sure Russia will be happy to be leaving behind.

Russia WTO entry – all but guaranteed is a post from: Siberian Light

They’ve been criticised in the press by some for making an over-generous valuation based on some loose assumptions, and that may well be true. But it shouldn’t overshadow what is a fascinating overview of the Russian internet market and the value of mail.ru, the true focus of Otkritie’s report.

Mail.ru made a successful public placement in November 2010, with shares gaining 36% since that time. The revaluation of its stake in Facebook (31% of Mail.ru’s value) was the main reason for the stock’s strength in our view. As we do not expect further capital to be raised by Facebook in 2011, attention will turn to Mail.ru’s Russian business, which trades at a 50% premium to peers. We see revenue expectations too high as advertising budgets will shift to the internet much slower than the usage growth might suggest. The valuation looks reasonable only on 2013-14 multiples, thus we initiate with a SELL rating and a target price of $31.5/share.

[...] Adjusted for minority stakes, Mail.ru trades on a 2011 adj. P/E of 35x, or 50% above its peers. Our SOTP target price of $31.5/share implies a 17% downside, and we have a SELL rating for the stock.

Read the full report and they explain exactly why they think Mail.ru is over-valued – basically it’s because their core business is in trouble. Although Russia’ s internet market is growing, it is reaching saturation point. Mail.ru also doesn’t seem to be a particularly dynamic company – it’s seen as overly reliant on online games for its revenue, and isn’t performing as well as it could be in the online advertising market. In a sense, Mail.ru’s investments in Facebook and other external companies are what are propping up Mail.ru’s valuation.

Read the full report here.

Otkritie – Mail.ru overvalued is a post from: Siberian Light

The Vostok 3KA-2 capsule, the test spacecraft launched into space just three weeks before Yuri Gagarin’s historic first space flight will go on sale at Sotheby’s in New York next month.

“Not only are there no other examples outside of Russia of the world’s first spacecraft, this capsule was pivotal in space history as providing the green light for Gagarin’s spectacular achievement” (David Redden, Southeby’s Vice Chairman)

The Vostok 3KA capsule has a fascinating history. 3KA-2 was the second of eight capsules launched into space. As a test run for 3KA-3, Gagarin’s capsule, it contained a life sized human model (named Ivan Ivanovich) and a live dog, named Zvezdochka (Wikipedia says this means Little Star, but I think I prefer Star Daughter – my Russian translation’s not so hot, though, so…). Happily the capsule returned to earth in one piece and, although poor old Ivan was ejected from the capsule, Zvezdochka stayed inside the capsule until landing and was recovered safely.

Sotehby’s estimate that the sale will fetch its private owner between $2 and $10 million, which for some might be a steal. I wonder if a Russian oligarch will step in and return the capsule to Russia?

The auction will take place on 12th April 2011, timed to coincide with the 50th anniversary of Gagarin’s first spaceflight. You can find out more about Gagarin’s flight at the YuriGagarin50.org website, or check out the Yuri Gagarin anniversary twitter feed.

Yuri Gagarin’s test capsule Vostok 3KA-2 for sale is a post from: Siberian Light

Thousands of Aeroflot customers, angry at being forced to wait at Moscow’s Sheremetyevo airport when it virtually shut down in the middle of an ice storm last December, have been sending in compensation claims – according to the Moscow News, the claims are for an average of 100,000 rubles, or $3,420 each.

“They aim to get 4000 roubles for each hour they had to stay at the airport, and want to be reimbursed for all expenses they met during the period in question, as well as a delay penalty of three per cent of flight costs, excluding taxes and additional fees.”

4,000 roubles per hour is just under $137 dollars per hour, which is a massive amount for a delay – far more, even, than the generous rates available to fliers in Europe. And it’s waaaaay off Aeroflot’s initial offer of a measly 25 roubles per hour of delay.

But, all the same, I wonder if this concerted campaign will force the Russian airline to think again and offer a more reasonable level of compensation. There’s absolutely zero chance that campaigners are going to get 4,000 roubles per hour, but any kind of victory for the campaigners (read: climbdown by Aeroflot) could be a significant boost for Russian consumer rights.

Aeroflot customers flex their muscles is a post from: Siberian Light

By the end of 2010, there were 60 million internet users in Russia, compared with 65 million in Germany and 51 million in the UK. What makes this exciting is that 60 million is a far smaller percentage of Russia’s population than 65 million is as a percentage of Germany’s population. Take a look at this slide, and you’ll get a great idea of how potential there is for growth in Russia’s internet user base – something that’s bound to interest investors.

I was also impressed to see how well Yandex has managed to resist Google’s attempts to enter the Russian search engine market. Google looked like it was really on the rise between 2005 and 2008, and both Yandex and Rambler.ru looked to be rapidly losing market share. But while Rambler’s slide into obscurity continued (they’ve got a pitiful 2% share of the market today), Yandex managed to innovate and not only regain their market share, but prevent Google from increasing theirs.

If you’re at all interested in Russia’s internet market, I’d recommend checking out the full set of slides, which I’ve embedded below. Lots of useful information there about the Russian pay per click (PPC) advertising market as well, where Yandex also seems to have a strong lead over Google.

Hat Tip to Nick Wilsdon of Russian Marketer, who posted a link to the slides on his twitter account earlier this morning.

Russian internet market is the second largest in Europe, and growing is a post from: Siberian Light

Why I am writing about the i newspaper launch on a blog about Russia, you ask? Because it’s the new initiative of Alexander Lebedev, a former KGB spy turned businessman, who now owns four of the UK’s biggest newspapers.

i (yes, they’re determinedly sticking to the lower case i popularized by Apple with their iPod/iPhone/iPad brand, although there’s no indication of whether there will be an iPaper app for the iPad) is described by itself as “a new paper…combines intelligence with brevity, and depth with speed of reading”. Basically, I think that means it’ll be a stripped down, sexed up version of it’s parent paper the Independent.

At a time when the paid newspaper market is shrinking rapidly (so rapidly that Lebedev bought one newspaper, the London Evening Standard, recently and turned it into a free newspaper), it’s a real gamble for Lebedev to launch a brand new newspaper, let alone one that people will have to pay money to read. Even though i will cost only 20p (that’s about 31 cents), it’s still going to be a challenge to persuade people to part with cold hard pennies in exchange for a brand new newspaper that they’ve never heard of.

Lebedev told the press that the i launch would be a milestone for the British press:

“I am very proud to launch i, which will be the first quality daily paper to have launched in Britain since The Independent itself in 1986. I believe that a free press is a fundamental tool of a democracy, and I believe that newspapers still have a future, and a very important one.”

I’ll keep an eye out at lunchtime to see if I can find a copy, and let you know if it’s is any good…

i Newspaper is a post from: Siberian Light

The long awaited 5th generation Russian Stealth Fighter, classified as the Sukhoi Pak-FA T50, flew its first test flight on 29 January 2010.�

Piloted by Sergei Bogdan, a test pilot for Sukhoi, the T50 made a successful 47 minute testflight, taking off and landing from Sukhoi’s factory runway. On touching down, Bogdan told reporters that everything went well, and that he was impressed by the way the T50 handled:

�In the course of the flight we�ve conducted initial evaluation of the aircraft controllability, engine performance and primary systems operation, the aircraft had retracted and extracted the landing gear. The aircraft performed excellently at all flight-test points scheduled for today. It is easy and comfortable to pilot�

Here’s a video report of the test flight, courtesy of Russia Today:

The T50 is Russia’s first 5th generation plane, and is their answer to the US F22 and F35 fighters, and the long awaited European Joint Strike Fighter.� It has stealth capabilities, much improved on board electronics (which will take a lot of load off the pilot) and the ability to fly at supersonic speeds for the entire length of its flight, but opinion is divided as to it’s true quality.�

Obviously, Sukhoi and the Russian government are talking up it’s qualities, but others are less impressed.� Military analyst Pavel Felgenhauer (who, it should be noted, is usually critical of the Russian military and government) had this to say:

“It’s a humbug.� It’s just a prototype lacking new engines and a new radar. It takes new materials to build a fifth-generation fighter, and Russia lacks them.”

When you combine this with cautious statements from Prime Minister Putin, who called the test flight of the Pak-FA “a big step forward,” but tempered his praise by noting that “a lot remains to be done in terms of engines and armament”, it’s fair to observe that Russia’s plane may not be of quite the high quality of its US and European competitors.

Nonetheless, Russia has pumped almost $10 billion into research and development for their new stealth plane.� In order to recoup all that money, they won’t be able to just reserve it for the Russian military.� Yes, the Russian air force will order around 150-200, at a cost of around $100 million apiece, but the investment will be realised when Sukhoi makes them available on the international market.� India, who were partners in the development of the fighter are said to be going to buy around 200-250 and, if the Pak-FA is of good enough quality and at the right price point, it wouldn’t be a surprise to see global sales top a thousand pretty quickly.

(By the way – in a surprising move, there are rumours that the Pak-FA’s sold to India may actually be constructed in India, in order to keep costs down.� If this proves an profitable strategy, we may see the production of even more Russian military equipment outsourced to countries where labour is cheaper.)

For more information, check out our post on Sukhoi Pak-FA concept designs, and on Russia’s aircraft carrier expansion programme.

Sukhoi Pak-FA T50 (aka Russian Stealth Fighter) makes its first test flight is a post from: Siberian Light

The N1 rocket. The Arktika nuclear-powered icebreaker. The Energia space launcher. The Ekranoplan KM ground effect vehicle. The TU-144 supersonic passenger plane.

These are just a few examples of significant Soviet military or scientific achievements that have become the inspiration for modern Russian wristwatches.

The company behind these history-inspired Russian watches is Vostok-Europe. Based in Vilnius, Lithuania, Vostok-Europe has been making watches for the international market since 2004 using self-winding, mechanical movements supplied by the Vostok factory in Chistopl, Russia.

“Every one of our watches has a link to an industrial or scientific breakthrough during the Soviet era which made a significant influence to human history,” explained Igor Zubovskij, the company’s Managing Director. “This is in accordance with our philosophy and slogan ‘Soviet Techno Design’”.

And these modern Vostok watches don’t just use historic achievements as a crass marketing gimmick. Each Vostok watch genuinely attempts to incorporate the spirit of the achievement in the watch’s design and function.

Take for example the newest watch in Vostok-Europe’s catalog, the Ekranoplan KM, also known as the “Caspian Sea Monster”. The Ekranoplan KM holds the distinction of being the largest ground effect vehicle ever built.

If you’ve never heard of a ground effect vehicle before, think of it as a cross between a hovercraft and an airplane. It flies near the surface of the Earth on a cushion of high-pressure air. This cushion of air is the so-called “ground effect”.

Ekranoplans were originally developed by the Soviet Union as high-speed military transports, and were based mostly on the shores of the Caspian Sea and Black Sea. The massive Ekranoplan KM measured 100 meters long, weighed 544 tons and was powered by ten Dobrynin VD-7 turbojet engines.

Like its namesake, the Ekranoplan KM watch is huge with a 47 mm case — much bigger than your average men’s wristwatch.

One interesting design element of the watch, the trigalight microtubes on the dial and hands provided for night time visibility, posed an unexpected hurdle to American export sales. Because the microtubes produce illumination from tritium gas and yield a minute amount of radiation, the watches must be laboratory tested, certified, packed and shipped according to special US regulations before being allowed into the country.

Another watch in the Vostok-Europe collection is the TU-144, named after the world’s first supersonic passenger plane. The plane’s maiden flight took place on December 31, 1968. The fleet remained in service until 1978. The TU-144 is still part of NASA’s high speed research program.

As you might expect, the TU-144 watch has classic aviator styling with a dual time function and rotating bezel with a 24 hour scale. Here’s a video about the TU-144 by the Watch Komrade.

More than twenty years ago the USSR built the most powerful space launcher in history. The Energia, built between 1976 and 1987, had a payload capacity of 100 tons. The Energia watch takes its design cues from the space launcher. It’s a big, powerful watch with asymmetrical positioning of the dial and subdial reminiscent of the space launcher and its side boosters.

Other noteworthy Vostok watches include the Gaz-14, a luxury-style Russian watch named after a luxury government limousine; the Arktika, which was the first surface ship to reach the North Pole back in August 1977; and the Maxim Gorky, which was the biggest airplane in the world in the 1930′s.

Russian Watches Inspired by Soviet-Era Achievements is a post from: Siberian Light

Russia is the only European country where Google doesn’t have a dominant position in the online advertising market – it’s been struggling to push its way past both Rambler’s Begun and Yandex Direct.� So the deal, which would have been worth around $140 million, would have massively boosted Google’s share of the online advertising industry in Russia.

Some are speculating as to whether this is a manifestation of government protection of Yandex who, of course, will be thrilled at Google’s defeat – they no longer face the immediate prospect of a super-competitor.

I think there is certainly an aspect of government protection of key Russian firms.� But I also think the move will genuinely improve competition – a three way battle for market share can’t help but lead to innovation.� If all goes well, Russia could become a testbed for all kinds of exciting innovations in contextual advertising, which will benefit Russia in the longer term.

Small Russian publishers will also be rejoicing – apparently, Google is much slower at paying its publishers than its Russian counterparts.

Rambler will understandably be annoyed, though – they’ve lost out on a profit of $50 million, which they had planned to invest in future acquisitions themselves.� That in itself will have a bit of a knock on affect on smaller Russian companies, who may now find it more difficult to take their more innovative projects into the mainstream without the support that investment from a large company like Rambler could have provided.

Yandex’s new office in Silicon Valley

This week’s other Russian internet news of note is Yandex’s decision to open their first office in Silicon Valley. Here are some pretty pictures:

Not quite sure what Yandex plan to do in their shiny new US office. Anyone know?

Google barred from buying Russian advertising company is a post from: Siberian Light