Wikimart: Building a Russian Version of Amazon*How does a Russian Internet start-up grow? How does it line up financing?
Posted: Sun Jun 05, 2022 4:48 pm
Wikimart:
Building a Russian Version of Amazon*How does a Russian Internet
start-up grow? How does it line up financing? How promising are its
prospects?Daniel J. McCarthy,Northeastern UniversitySheila M.
Puffer,Northeastern UniversityWikimart was founded in 2008 by
Stanford MBA students Maxim Faldin and KamilKurmakayev as an online
marketplace for Russia and Russian-speaking countries. Its focus
was a B2C platform for Russian retailers who listed goods at no
charge but initially paid a minimum 3% fee to Wikimart on each
transaction, later reduced to 1.5%. Wikimart also provided services
to these retailers including order fulfillment, accounting and
legal support, and e-commerce marketing tools. The company’s
objective was to become a dominant e-commerce marketplace in Russia
and other countries of the former Soviet Union.Time Line of
Financing and GrowthIn the first half of 2009, financing of
$700,000 was secured from a number of sophisticated angel
investors, including Michael van Swaaij who hadinvested in Skype
and eBay Europe; Mark Zaleski and Robert Dighero who had invested
in QXL Ricardo; Alec Oxen-ford, founder of OLX, DineroMail.com, and
DeRemate; Jose Marin, founder of DeRemate; and KerimBaran, founder
of Yonja.com. By mid-2009, Wikimart’s web-site was attracting 5,000
daily visitors and had more than 1,000 online merchants offering
over 370,000 products.In early 2010, Series A financing was secured
from Tiger Global Management, a successful US-based private equity
investor specializing in technology start-ups, often in emerging
economies. The deal raised $5 million for Wikimart and resulted in
50% ownership for Tiger, according to a filing with the US
Securities and Exchange Commission. In August 2010, Wikimart
secured Series B financingof $7 million, again from Tiger Global.By
mid-2010, the company website had 2,000 online merchants generating
$1.5 million in monthly revenues for Wikimart that by 2011 had
increased to 2,500 merchants and $3 million in monthly revenues. Of
course, online sales were a significant order of magnitude larger.
Company revenues would have been greater if the order completion
rates could have been improved beyond the 68% level prevailing in
2011. Achieving such an increase, however, would remain a major
challenge to implementing the company’s strategy as retailers often
had insufficient inventories to fulfill customer orders.By March
2011, the company had signed up 2,200 retailers that listed more
than 528,000 products through Wikimart’s website. The company
reported that the site was attracting 2 million visitors per month,
although one of the founders stated that the number could be as
large as 3 million. Among the products prominent on its website
were home goods and appliances, consumer electronics, wine and
tobacco, and virtually any product that could be found on Amazon’s
website, with the best-selling categories being clothing, sporting
goods, and children’s products. The vast majority of the products
were familiar, internationally known brands.
Why Tiger?
One of Wikimart’s founders, Kurmakayev, explained in 2011 why
the company had chosen Tiger Global from among various potential
core investors: “We chose Tiger because they did not impose their
views and did not seek to participate in the business management,
but are ready for the long-term partnership.” Other potential core
investors included Accel Partners, a firm based primarily in the
US, with offices in Palo Alto, CA, and New York, that had invested
in companies like Groupon and Veritas. Accel alsohad offices in
London, China, and India. Another potential core investor was Index
Ventures, a US investor with successful investments in technology
start-ups like Skype and Dropbox. It seemed that all of these
investment firms might have been looking forthe next Google, the
hugely successful Internet giant cofounded a decade earlier by
Russian-born University of Maryland and Stanford University
graduate Sergei Brin.Business ModelWikimart’s business model
centered on creating an Amazon-like online retail platform and
business model in the Russian-speaking countries of the former
Soviet Union. Similar models had been developed in Korea by Gmarket
and in Japan by RakutenIchiba. The company’s business model offered
free space online to merchants while collecting a minimum of 1.5%
of each transaction once sales began.Company Strategy and
OrganizationThe company’s strategy included reaching a younger,
tech-savvy segment of customers in the Russian-speaking world. The
company was headquartered in Moscow, and merchants selling on its
site delivered goods only within Russia as of early 2011. One of
the partners stressed that Wikimart’s objective was to continue
developing the Russian market even after it moved to new markets.
The company planned to expand overall services to other
Russian-speaking countries of the former Soviet Union such as
Ukraine and Kazakstan. The partner reasoned that Russia was the
tenth largest European country in terms of GDP but had even greater
promise in terms of Internet users. Although Wikimart seemed to
have vast potential, the company had not turned a profit by early
2012. However, the founders believed that 2013 could be a
profitable year. With an objective of eventually attaining 20% to
30% share of the fast-growing online retail market, company
executives saw the possibility of annual revenues reaching as high
as $15 billion by 2018.The two founders initially assumed separate
responsibilities, with Kurmakayev being in charge of maintaining
relations with retailers and developing the company’s technology
and Faldin being responsible for sales, marketing, and business
development. As the company grew, the founders recognized early
that they had to change to a more corporate-like structure. Faldin
became CEO responsible for the operational aspects of the business,
such as developing metrics and achieving goals. Kurmakayev tookon a
strategic role incorporating forecasting and budgeting, as well as
developing the company’s competitive strategy.One of the founders
claimed that a significant percentage of company costs stemmed from
intensive development efforts. Wikimart, although an online retail
business, was basically a technology company. The vast majority of
the 260 employees in 2011 were programmers who wrote software code
to support the company’s online business. They were guided in their
development work with Silicon Valley expertise provided by their
investors and consultants.
Russia’s Internet Industry and Wikimart’s Competition
The overall Russian e-commerce market was estimated at $7
billion to $9 billion in 2011, a substantial increase over the $6
billion in 2010, growth that attracted many competitors.
Exponential future growth, with forecasts of 40% annually, saw
estimates of up to a $50 billion market by 2018. Such forecasts
added luster to the already attractive Russian online retail
market. Wiki-mart’s largest competitor was Ozon.ru, the oldest
e-commerce giant of the Russian Internet. Sites like Groupon and
KupiVip offering group discounts on products and services were also
substantial competitors, and both had attracted relatively large
investments from US firms. The order fulfillment challenge for
Wikimart noted earlier was due to retailers relying on relatively
poor IT technologies. One of Wikimart’s founders noted that the
online retail industry in Russia required huge investments in IT
and supply chain. In 2012, only 1.5% of all Russian retail
purchases took place online, but the founders believed that the
number would grow to 10% to 20% within five to 10 years.Some
Russian companies, such as mail.ru, had already become powerful
Internet players within Russia. That firm’s parent, the mail.ru
Group, was formerly known as Digital Sky Technologies and was an
early-stage investor in Facebook, owning 5%–10% of that company by
2011 according to various reports. It had invested $200 million in
2009 and an additional $500 million in 2011. This is another
example of the globalization of private investments; this time,
however, the participants were a Russian investment group taking a
stake in a US online venture. Mail.ru itself was an extremely
successful publicly traded Internet company. Other successful
Russian online companies included Vkontakte and Rambler. Vkontakte
was a private company that offered social network services and was
notable for design and functionality that mimicked Facebook. As of
February 2012, Vkontakte reportedly had 116.6 million user accounts
and was the fourth most popular Russian Internet website. Rambler
was a search engine that offered Web 2.0 services such as e-mail
aggregation and e-commerce, with its main competitors being mail.ru
and Yandex. Yandex had a reported 64% market share of the Russian
search provider space and was the fifth largest search engine
worldwide with 1.7% of global searches as of September 2011. The
company had enjoyed a decade of success before going public in 2011
on NASDAQ in the US. Its IPO raised $1.3 billion, and its stock
price soon traded up by 55%. The price of $1.3 billion valued the
company at about $8 billion.Wikimart’s FutureAnalysts noted that
start-ups like Wikimart had become attractive for strategic
investors as the Internet expansion in Russia accelerated. In 2012,
the number of Internet users in Russia was not large but was
expected to grow by approximately 10% per year. Some analysts
expected that if Wikimart continued to increase revenues and
profits, it could soon be targeted by strategic investors such as
Amazon or eBay. Having US investors like Tiger Global that were
very familiar with the Russian Internet market could help attract
others, including strategic investors who might invest funds with
the intention of acquiring Wikimart at some point. Wikimart’s
founders and other major shareholders, such as Tiger Global, might
eventually have to decide between selling the company to a
strategic investor or continuing to maintain control while growing
the company to its full potential. As is typical in such cases,
timing would be a key factor.
While Wikimart’s objective is to become a dominant ecommerce
marketplace in Russia and other countries of the former Soviet
Union, given the existing competition (such as Ozon.ru), is such
ambition realistic?
please give a detailed explainantion
Building a Russian Version of Amazon*How does a Russian Internet
start-up grow? How does it line up financing? How promising are its
prospects?Daniel J. McCarthy,Northeastern UniversitySheila M.
Puffer,Northeastern UniversityWikimart was founded in 2008 by
Stanford MBA students Maxim Faldin and KamilKurmakayev as an online
marketplace for Russia and Russian-speaking countries. Its focus
was a B2C platform for Russian retailers who listed goods at no
charge but initially paid a minimum 3% fee to Wikimart on each
transaction, later reduced to 1.5%. Wikimart also provided services
to these retailers including order fulfillment, accounting and
legal support, and e-commerce marketing tools. The company’s
objective was to become a dominant e-commerce marketplace in Russia
and other countries of the former Soviet Union.Time Line of
Financing and GrowthIn the first half of 2009, financing of
$700,000 was secured from a number of sophisticated angel
investors, including Michael van Swaaij who hadinvested in Skype
and eBay Europe; Mark Zaleski and Robert Dighero who had invested
in QXL Ricardo; Alec Oxen-ford, founder of OLX, DineroMail.com, and
DeRemate; Jose Marin, founder of DeRemate; and KerimBaran, founder
of Yonja.com. By mid-2009, Wikimart’s web-site was attracting 5,000
daily visitors and had more than 1,000 online merchants offering
over 370,000 products.In early 2010, Series A financing was secured
from Tiger Global Management, a successful US-based private equity
investor specializing in technology start-ups, often in emerging
economies. The deal raised $5 million for Wikimart and resulted in
50% ownership for Tiger, according to a filing with the US
Securities and Exchange Commission. In August 2010, Wikimart
secured Series B financingof $7 million, again from Tiger Global.By
mid-2010, the company website had 2,000 online merchants generating
$1.5 million in monthly revenues for Wikimart that by 2011 had
increased to 2,500 merchants and $3 million in monthly revenues. Of
course, online sales were a significant order of magnitude larger.
Company revenues would have been greater if the order completion
rates could have been improved beyond the 68% level prevailing in
2011. Achieving such an increase, however, would remain a major
challenge to implementing the company’s strategy as retailers often
had insufficient inventories to fulfill customer orders.By March
2011, the company had signed up 2,200 retailers that listed more
than 528,000 products through Wikimart’s website. The company
reported that the site was attracting 2 million visitors per month,
although one of the founders stated that the number could be as
large as 3 million. Among the products prominent on its website
were home goods and appliances, consumer electronics, wine and
tobacco, and virtually any product that could be found on Amazon’s
website, with the best-selling categories being clothing, sporting
goods, and children’s products. The vast majority of the products
were familiar, internationally known brands.
Why Tiger?
One of Wikimart’s founders, Kurmakayev, explained in 2011 why
the company had chosen Tiger Global from among various potential
core investors: “We chose Tiger because they did not impose their
views and did not seek to participate in the business management,
but are ready for the long-term partnership.” Other potential core
investors included Accel Partners, a firm based primarily in the
US, with offices in Palo Alto, CA, and New York, that had invested
in companies like Groupon and Veritas. Accel alsohad offices in
London, China, and India. Another potential core investor was Index
Ventures, a US investor with successful investments in technology
start-ups like Skype and Dropbox. It seemed that all of these
investment firms might have been looking forthe next Google, the
hugely successful Internet giant cofounded a decade earlier by
Russian-born University of Maryland and Stanford University
graduate Sergei Brin.Business ModelWikimart’s business model
centered on creating an Amazon-like online retail platform and
business model in the Russian-speaking countries of the former
Soviet Union. Similar models had been developed in Korea by Gmarket
and in Japan by RakutenIchiba. The company’s business model offered
free space online to merchants while collecting a minimum of 1.5%
of each transaction once sales began.Company Strategy and
OrganizationThe company’s strategy included reaching a younger,
tech-savvy segment of customers in the Russian-speaking world. The
company was headquartered in Moscow, and merchants selling on its
site delivered goods only within Russia as of early 2011. One of
the partners stressed that Wikimart’s objective was to continue
developing the Russian market even after it moved to new markets.
The company planned to expand overall services to other
Russian-speaking countries of the former Soviet Union such as
Ukraine and Kazakstan. The partner reasoned that Russia was the
tenth largest European country in terms of GDP but had even greater
promise in terms of Internet users. Although Wikimart seemed to
have vast potential, the company had not turned a profit by early
2012. However, the founders believed that 2013 could be a
profitable year. With an objective of eventually attaining 20% to
30% share of the fast-growing online retail market, company
executives saw the possibility of annual revenues reaching as high
as $15 billion by 2018.The two founders initially assumed separate
responsibilities, with Kurmakayev being in charge of maintaining
relations with retailers and developing the company’s technology
and Faldin being responsible for sales, marketing, and business
development. As the company grew, the founders recognized early
that they had to change to a more corporate-like structure. Faldin
became CEO responsible for the operational aspects of the business,
such as developing metrics and achieving goals. Kurmakayev tookon a
strategic role incorporating forecasting and budgeting, as well as
developing the company’s competitive strategy.One of the founders
claimed that a significant percentage of company costs stemmed from
intensive development efforts. Wikimart, although an online retail
business, was basically a technology company. The vast majority of
the 260 employees in 2011 were programmers who wrote software code
to support the company’s online business. They were guided in their
development work with Silicon Valley expertise provided by their
investors and consultants.
Russia’s Internet Industry and Wikimart’s Competition
The overall Russian e-commerce market was estimated at $7
billion to $9 billion in 2011, a substantial increase over the $6
billion in 2010, growth that attracted many competitors.
Exponential future growth, with forecasts of 40% annually, saw
estimates of up to a $50 billion market by 2018. Such forecasts
added luster to the already attractive Russian online retail
market. Wiki-mart’s largest competitor was Ozon.ru, the oldest
e-commerce giant of the Russian Internet. Sites like Groupon and
KupiVip offering group discounts on products and services were also
substantial competitors, and both had attracted relatively large
investments from US firms. The order fulfillment challenge for
Wikimart noted earlier was due to retailers relying on relatively
poor IT technologies. One of Wikimart’s founders noted that the
online retail industry in Russia required huge investments in IT
and supply chain. In 2012, only 1.5% of all Russian retail
purchases took place online, but the founders believed that the
number would grow to 10% to 20% within five to 10 years.Some
Russian companies, such as mail.ru, had already become powerful
Internet players within Russia. That firm’s parent, the mail.ru
Group, was formerly known as Digital Sky Technologies and was an
early-stage investor in Facebook, owning 5%–10% of that company by
2011 according to various reports. It had invested $200 million in
2009 and an additional $500 million in 2011. This is another
example of the globalization of private investments; this time,
however, the participants were a Russian investment group taking a
stake in a US online venture. Mail.ru itself was an extremely
successful publicly traded Internet company. Other successful
Russian online companies included Vkontakte and Rambler. Vkontakte
was a private company that offered social network services and was
notable for design and functionality that mimicked Facebook. As of
February 2012, Vkontakte reportedly had 116.6 million user accounts
and was the fourth most popular Russian Internet website. Rambler
was a search engine that offered Web 2.0 services such as e-mail
aggregation and e-commerce, with its main competitors being mail.ru
and Yandex. Yandex had a reported 64% market share of the Russian
search provider space and was the fifth largest search engine
worldwide with 1.7% of global searches as of September 2011. The
company had enjoyed a decade of success before going public in 2011
on NASDAQ in the US. Its IPO raised $1.3 billion, and its stock
price soon traded up by 55%. The price of $1.3 billion valued the
company at about $8 billion.Wikimart’s FutureAnalysts noted that
start-ups like Wikimart had become attractive for strategic
investors as the Internet expansion in Russia accelerated. In 2012,
the number of Internet users in Russia was not large but was
expected to grow by approximately 10% per year. Some analysts
expected that if Wikimart continued to increase revenues and
profits, it could soon be targeted by strategic investors such as
Amazon or eBay. Having US investors like Tiger Global that were
very familiar with the Russian Internet market could help attract
others, including strategic investors who might invest funds with
the intention of acquiring Wikimart at some point. Wikimart’s
founders and other major shareholders, such as Tiger Global, might
eventually have to decide between selling the company to a
strategic investor or continuing to maintain control while growing
the company to its full potential. As is typical in such cases,
timing would be a key factor.
While Wikimart’s objective is to become a dominant ecommerce
marketplace in Russia and other countries of the former Soviet
Union, given the existing competition (such as Ozon.ru), is such
ambition realistic?
please give a detailed explainantion