Internet in Russia

May 2011

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Internet in Russia
"We support constructive international cooperation in the field of Internet governance" (Russia’s Minister of Information Technologies and Mass Communications Shchegolev, Internet Governance Forum, 12 May 2011) Since 1994, when Russian citizens first acquired access to the World Wide Web, Internet has enjoyed steep growth in Russia. The number of people with access to the web is constantly increasing and the Internet business sector is flourishing. The government has also embraced the concept of maximizing the use of Internet technologies to increase the efficiency of state functioning and the quality of state services. Some of the most recent initiatives are described below, together with examples of leading Internet businesses in Russia. These will provide for an informed understanding of Russia’s position on the fair development of the Internet, which is both a G8 and a Russian priority. INTERNET PENETRATION IN RUSSIA: KEY FACTS “The share of the Internet economy in Russia's GDP has exceeded one percent... This number will only grow. Internet development is the question of the viability of the state, as well as survival and competitiveness of the national economy” (Russia’s Minister of Information Technologies and Mass Communications Igor Shchegolev, Internet Governance Forum, 12 May 2011) • The World Bank Development Indicators show exponential growth of Internet users in Russia from 2002 on, with the number of people with access to Internet reaching 59.7 million in 2009, indicating a 31.5% growth. According to The Independent, in March 2011 Russia was the second largest country by number of Internet users in Europe. According to Yandex statistics, Internet penetration in Russia amounted in 2010 to 43% of the country’s population, or 60 million people. According to Boston Consulting Group, Russia’s Internet economy contributed $19 billion (or 1.6% of GDP) to the Russian economy in 2009. Conservative estimates expects the Internet economy of Russia to grow by 22% annually (33% in the optimistic scenario) by 2015.

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GOVERNMENT INITIATIVES In recent years, the Russian government launched a number of initiatives aimed to help the state and the citizens fully benefit from the advantages that Internet offers. In parallel with the Internet boom, finding the right regulatory framework in Russia and globally has become even more pressing. Internet regulation • The G8 Summit Declaration, adopted in Deauville on 26-27 May 2011, reflects the Russian initiatives on countering cybercrime and the use of the Internet for child trafficking and sexual exploitation. The G8 leaders also renewed their commitment to ensuring effective action against IPR violations and effective protection of personal data and individual privacy on the Internet. “The net must be unrestricted, but a new way to protect copyrights is needed”. (President Medvedev on Twitter, 26 May 2011). According to Presidential Aide Arkady Dvorkovich, First Deputy Prime Minister Igor Shuvalov is heading a working group preparing Russia’s proposals on the Internet (including its legal framework) to submit to the G8 partners in the near future. In April 2011, President Medvedev met with representatives of the Russian Internet community to discuss government regulation of Internet access, privacy and copyright/IPR protection. In particular, the concept of Creative Commons licenses was presented - a legal instrument that allows authors to retain their copyrights while giving public access to their products under certain conditions. President Medvedev asked the participants to prepare a package of amendments to the Civil Code, which would strengthen the status of Creative Commons licenses in Russia.

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At the same meeting, Medvedev stressed that Russia will “make the right choice” on government regulation of Internet access: “When people talk about Internet regulation, there is a feeling that the state wants to stick its hand in and create the kind of barriers that only exist in specific countries”. Prime Minister Vladimir Putin also dismissed fears of full-blown state regulation, saying that "it is not possible to restrict anything [in the Internet]" (Address to the State Duma, 20 April 2011) This approach was seconded by Minister Shchegolev who said at the Second Russian Forum on Internet Governance (12 May 2011, Moscow) that the most effective policy in government regulation of Internet access is the so-called "soft control" when the state intervenes only in case of a conflict: "We stand for the free development of the Internet, for the availability of this instrument and do not intend to impose strict ‘police’ control".

Information society programme • In 2008, the Government adopted the State programme “Information society (2011-2018)”. The programme contains 6 main activity domains: o improving life quality and conditions for business development; o e-government and improving governance efficiency; o development of the Russian ICT market and Russian technologies, enabling the transition to the digital economy; o overcoming digital inequality and creating basic infrastructure for the information society; o ensuring security of the information society; o development of digital content and preservation of cultural heritage. All state levels – federal, regional and municipal - are involved in the programme, of which one of the most important elements is to attract private investments. The government is planning to allocate 375 billion roubles ($13 billion) to the programme until 2018.

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E-government • In December 2009, the state portal of public and municipal services Gosuslugi.ru was launched. Today, it features information on 15.116 state and municipal services of which 663 are provided by the federal institutions. More than 500.000 Russian citizens have already activated accounts at the portal. What is more, thanks to the new law on electronic signature, adopted in April 2011, businesses will also be able to register at the portal and request services online. Commenting on the portal in March 2011, Vladimir Putin expressed his wish that such a portal will become the rule, with "a single portal of public services, information and service websites, integrated communication channels, departmental and regional data banks – everything to help Russian citizens avoid red tape.” (PM Vladimir Putin, 24 March 2011) Zakonoproekt2011.ru is another initiative helping citizens participate in the governance online. Draft laws of significant social importance, such as the laws “On police” and “On education”, are posted on the website by the President’s decisions in order to open them for public discussion. Comments are gathered and analysed and can further be used in the development of a draft. On 1 June 2011, the government is planning to launch a similar initiative - “Open government”. The first draft law to be posted for discussion on the government website will concern healthcare.

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Cyrillic (.РФ) domain name • • • With the support of President Medvedev and Prime Minister Putin, the first Internet domains using the Cyrillic script were launched in May 2010. By November 2010, 500.000 Russian websites were using the new Cyrillic (.РФ) domain name. The Russian Federation has become a pioneer in introducing country domains in national languages. According to TLD.RU (the office governing Russia’s .ru and .рф domains), there are currently around 830.000 registered cyrillic domains with on average 750 domains registered daily. According to Minister Shchegolev, “Domain .РФ became the fastest growing national top-level domain in the World web in the past year.” (Internet Governance Forum, 12 May 2011). He also

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pointed out that “The introduction of Cyrillic domain name will help ensure that Internet penetration will increase among those users who are older than 45 years. The wider the range of Internet users, the more successful we will be in implementing informatisation programs, including provision of services in an electronic form”. Skolkovo IT cluster • Skolkovo IT cluster is part of the Skolkovo Innovation Centre launched in 2010 to develop and commercialise innovative solutions, as part of President Medvedev’s modernisation agenda. Among its principle objectives for 2011 are support of around 30 new projects and establishing a network of R & D Centers with the key partners (Intel, Microsoft, Cisco, Boeing, etc.) and universities. A number of innovation projects are already launched as part of the IT cluster, including in the areas of generation of multimedia search engines, WebX.0 and cloud computing. For example, Runapark is working on the “Runa-Park cloud incubator” project to create web services infrastructure based on the “Software as a Service” model.

INTERNET BUSINESS IN RUSSIA “Runet is … the second-largest Internet market in Europe … and the sixth-largest globally” (Timothy Post, Managing Director of Runet Labs, 16 March 2011) • Russia’s search engine Yandex generates 64% of search traffic in the country, compared to Google’s 22% market share. The company went public on the Nasdaq market on May 23, raising $1.3 billion in its public offering, making the deal the second largest of its kind since Google debut in 2004 ($1.7 billion) and the biggest tech IPO in 2011. “Investors are very interested in Internet leaders in large unpenetrated markets and Yandex certainly fits the bill” (Paul Bard, Vice President of Research at Renaissance Capital, 28 April 2011) Yandex.Money is the Russian developed Internet payment system rivaling PayPal. More than 3000 Russian and international online stores are linked to Yandex.Money. More than 8000 new accounts are registered and more than 80.000 transactions are made in the system daily. It now has developed smartphone and mobile applications allowing purchases, payments and balance inquiries from various 3G platforms. Mail.Ru Group is the largest Internet company in the Russian-speaking world and one of the leading Internet companies in Russia. It operates two of the three largest Russian language online social networking sites (Odnoklassniki and Moi Mir). The Company also operates the two largest Instant Messaging networks in Russia (Agent and ICQ), as well as the country’s leading email service, second largest Internet portal Mail.ru, and largest online games platform. It also holds strategic minority equity stakes in Russia's largest social networking site vKontakte and one of Russia's leading payment processing companies Qiwi. Mail.Ru Group owns minority interests in Facebook, Zynga Game Network and Groupon. KupiVIP is Russia’s largest high-end online auction/shopping club. The company has revenues of $100 million a year, and employs 750 people in its own delivery firm, call center, and warehouse. A group of European and US venture-capital funds has made a $55m investment in KupiVIP. Commenting on continued success of e-commerce sites like his in Russia, Founder Oskar Hartmann said: “If we make the right decisions it’s going to be an $80 billion market. If we make the wrong decisions it will still be a $40 billion market”. Kaspersky Lab is an international group with headquarters in Moscow that operates in more than 100 countries worldwide. It is one of the world’s top 5 software and Internet security firms. Yota is the first Russian high-speed wireless network based on Mobile WiMAX. The company provides 4G Internet access across five Russian cities: Moscow, St. Petersburg, Ufa, Sochi and Krasnodar, covering population of over 20 million people. Ozon.Ru was founded in 1998 and has become one of the largest business-to consumer businesses in Russia today. Currently it is the most popular online retail store in the country, selling books, software, consumer goods and other products – over 850 000 products in 15 categories. In March 2011, Ozon had over 4.7 million registered users and 600.000 visitors a day.

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According to Yandex statistics, the Russian Internet advertising market has been steadily growing. In 2010, the growth amounted to 37%, with the market reaching $817 million. The figure is projected to reach $1.3 million by 2012.

FURTHER INFORMATION • • • Minsvyaz.ru - Ministry of Information Technologies and Mass Communications (in Russian) Gosuslugi.ru – portal of state services (in Russian) Skolkovo IT cluster – overview of the cluster’s focus areas and current projects (in English)

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