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Summary:

Russia’s biggest online commerce company, Ozon, is about to get bigger thanks to a huge injection of cash and ambitious plans to take its business to the next level. But is it biting off more than it can chew?

Maelle Gavet, Ozon.ru

Maelle Gavet, Ozon.ruWhen people call Moscow-based online retailer Ozon.ru the “Amazon of Russia,” that’s largely because of what it does — sell books, DVDs and electronics online — rather than some grand claim to be one of the world’s most powerful and disruptive Internet companies. Now, however, it looks like the company wants to live up to the label, announcing it is taking on $100 million of investment to fund a massive expansion program.

The money comes from an interesting spread of sources, including Rakuten, one of Japan’s most popular shopping sites, and Swiss group Alpha Associates, as well from existing shareholders Index and ru-net.

“It’s a lot of money,” admits CEO Maelle Gavet. “And it’s very exciting.”

The fact is that Ozon has been pushing forward for a few years; in fact, it was hovering around the edge of the GigaOM Euro 20, our list of the continent’s pre-eminent startups. But until recently, it wasn’t clear what, exactly, the company wanted to do next. Rumor had it that the owners were looking to sell a 10-percent share valued at $40 million. Instead, it seems Gavet has blown that out of the water and gone way, way bigger.

“We didn’t need the money,” she points out. “This was a conscious decision. It’s a step we chose to take. We’re growing… and the idea is to accelerate that growth.”

She’s not kidding. Most of the money — some 95 percent — will go straight into the company, rather than going to pay off existing shareholders (take note, Groupon). Which is good, because Gavet has big plans for it. She wants to expand the company’s footprint radically and turn it into a billion-dollar company over the next three years by dramatically boosting its size and scope. To do this, the company has to build rapidly on the existing foundations.

Triple threat

“Ozon is really several businesses,” she says. “There’s Ozon.ru, the Amazon of Russia; there’s Ozon Travel, the Expedia  of Russia, and then there’s a third one, which is Ozon’s logistics, the DHL of Russia.”

In addition to the central Ozon.ru — which does well enough with $137 million in revenues last year, mainly in books and electronics — the company is looking at other ways to grow, like fashion and through acquisitions. But the crucial piece of the puzzle may be that third plank: logistics. Because, however you look at it, the site’s fortunes may live or die on how well it does at actually getting an item from an online shopping basket and into people’s hands.

“Right now, 80 percent of our packages are delivered within 24 hours, but we want to increase that,” says Gavet, a French executive who was previously Ozon’s head of marketing and customer relations. “To get there requires more infrastructure, more hubs, more of everything. Today the infrastructure is handling what we do… but I think you can’t rely on the existing infrastructure — the Russian postal service just isn’t enough.”

But there are cultural problems, too. Russian manufacturers aren’t necessarily used to producing the large levels of stock Ozon needs at the pace it needs it; many of the country’s Internet shoppers still like to pay cash on delivery; and even customer service can be problematic.

Getting logistics to work in a country as vast and disparate as Russia is a major headache, but in the short term, the even bigger problem may be hiring.

“It’s hard to find qualified people in Russia — nobody has the logistical experience because it just hasn’t happened here before. I think Russia is a difficult country, and it’s very difficult for people to adapt here, especially if they don’t speak the language well.”

Gavet told me that ambitious Russian startups are facing a terrible time trying to bring in experienced staff, since lack of supply and rabid competition has pushed prices sky-high.

“We were comparing prices of developers in different places, and it’s actually more expensive in Moscow than in San Francisco,” she says. “I keep asking them why!”

Cost center

It turns out that the reasons are multitudinous. For a start, anyone who has visited Moscow knows it is a ludicrously pricey place, and it’s officially ranked as one of the world’s most expensive cities. But there’s a perfect storm of other factors, too.

“There’s not enough developers,” she adds. “Russia probably needs two or three times more. And there are only a few big companies to fight; Yandex, for example, has often paid whatever it takes to get staff and keep them, and not everyone can compete with that. And then there are lots of [Russian] startups that don’t last for long, but get a lot of small private investment — where they get a nice check they use [it] to poach staff. That’s not going to last forever.”

Indeed, finding high-quality Russian staff (not just in development, but also in logistics and customer service) is so difficult that Yandex decided to forge links with universities to try to encourage more people to get the skills it required. Ozon, for its part, is setting up training schemes to help train people on the job.

Still, no matter how many people Ozon trains, there must be concern about the number of tasks it is taking on. Most startups would have their hands full trying to push one of these businesses forward — let alone all of them, simultaneously. Is it folly?

“There’s always a fine line between being too focused and missing opportunities, or being too wide and taking on too many,” says Gavet. “We have to keep questioning. Maybe at some point, in five or 10 years, we’ll talk to shareholders and maybe pare down what we do. But that’s so far away.”

But isn’t it her job to try to pick winners? She laughs, and throws out a line that just about sums the situation up.

“The Internet being the Internet, and Russia being Russia, it’s very hard to predict.”

  1. “We were comparing prices of books and electronics in different places, and it’s actually more expensive in Ozon than in other ru e-Shop”. “We keep asking them why!”

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  2. It is good to see that Russian e-commerce is expanding. May be the change for Russia is starting with online retail companies, like Ozon.

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