Analysis: As foreign digital firms leave, Russia's domestic providers pounce

VK

01/04/2022 15:16

April 1 (Reuters) - Russian domestic tech companies, led by
entities controlled or associated with state-owned gas giant
Gazprom, are pouncing on  the blockade and exodus of foreign
internet firms, sensing opportunities in Russia's growing
digital isolation.
    Russia has restricted access to Twitter  TWTR.N  and Meta
Platforms'  FB.O  flagships Facebook and Instagram since sending
thousands of troops into Ukraine on Feb. 24, as the country's
long-simmering dispute with Big Tech escalates into a battle to
control information flows. 
    The digital exodus provoked by Western sanctions, and a
clampdown by Russian media regulators, has opened the door to
domestic players, with VK  VKCOq.L , which runs the country's
most popular social media site VKontakte, leading the charge. On
Thursday it published a step-by-step guide for businesses
looking to migrate away from other platforms.
    For years considered Russia's answer to Facebook, VKontakte
has more than 50 million daily active users on average and
reaches 80% of Russia's online monthly audience, the company
said.
    That dwarfs Facebook's 7.5 million users in Russia as of
last year, according to estimates from researcher Insider
Intelligence. 
    More than 585,000 new business owners created their own
communities on the platform in March, VKontakte said, from hair
salons to clothes shops. 
    VKontakte has set new records for user activity since Russia
began what it calls a "special operation" to demilitarise its
neighbour, with an 11% jump in content volumes on its platform
from Feb. 24 to March 24, according to monitor Brand Analytics.
 urn:newsml:reuters.com:*:nL5N2VL2RI
    The volume of Russian-language content published on Twitter,
Facebook and Instagram dropped 5%, 16% and 30% respectively in
that period, the monitor said. 
    Vkontakte, which makes money through adverts, commission
from app developers and user payments for subscriptions and
one-off payments, contributed a little over a fifth of the
company's 125.8 billion roubles ($1.5 billion) in revenue last
year.
    VK's other business lines include email provider mail.ru,
gaming unit MY.Games and education technology assets.    
    "The domestic market for interactive services now has a
great chance to show its potential to its audience," Anton
Gorelkin, a member of Russia's State Duma committee on
information and communications, told the Telesputnik media
outlet in late March. "Russian users don't just have an
alternative, they have a choice."
    
    GAZPROM INFLUENCE
    While there is no direct policy on replacing foreign social
media, the government has promised income tax breaks and
preferential loans for IT companies and employees can get their
military service deferred. Politicians are also encouraging
users to switch to domestic providers.
    The government may also be playing an indirect role in the
country's tech future through a complicated series of
investments that involve Gazprom  GAZP.MM  and its media
division. 
    A shareholder and management shake-up late last year saw
Gazprom Media acquire a decent chunk of VK's voting rights in
December, adding to a burgeoning media empire controlled by the
state energy giant.  urn:newsml:reuters.com:*:nL8N2SO3IY
    Its investments may soon pay off after a stumble. Trading of
VK's London-listed shares was suspended in early March after
they plunged to almost zero as Western investors abandoned
Russian assets.
    When trading in VK's depositary receipts resumed in Moscow
on Wednesday after a more than month-long suspension, they leapt
72% in one session from record lows  VKCODR.MM , which analysts
linked to reduced foreign competition.
    In late 2020, Gazprom Media acquired RuTube, a video-hosting
platform that bears a striking resemblance to Alphabet's
 GOOGL.O  YouTube, and whose weekly user numbers jumped 5.5
times in early March, TASS cited the company as saying. 
    Those numbers could surge higher as YouTube is under
pressure from Russia's state communications regulator
Roskomnadzor, and may soon suffer the same fate as Facebook,
Instagram and Twitter.  urn:newsml:reuters.com:*:nL5N2VL2RI
    Despite being restricted, those sites can sometimes still be
accessed using Virtual Private Networks (VPN), demand for which
has skyrocketed in Russia. YouTube remains freely accessible.
 urn:newsml:reuters.com:*:nL5N2VH4L3 
    But critics say RuTube has a long way to go to rival
Google's video product. 
    RuTube's number of unique monthly users was 17.7 million at
the end of December, Gazprom Media's Deputy CEO Alexander
Moiseev said in February. That compares to YouTube's 89.5
million in Russia in January 2022, according to Mediascope. 
    And while RuTube's video player works well, it lacks the
algorithmic recommendations that have made YouTube so popular,
Sarkis Darbinyan, head of the legal department at digital rights
group Roskomsvoboda, told Reuters.
    "These services are no match for the quality and speed of
services, above all American services, that users have become
accustomed to," Darbinyan said. 
    VKontakte said all its products underwent "rigorous testing"
before release, and that it had launched 230 product updates to
improve the user experience in the past year.
    RuTube did not respond to a request for comment. 
    
    NEWER FACES
    Other domestic alternatives to popular foreign services have
launched more recently. Gazprom Media unveiled Yappy in
November, a rival to video-sharing platform TikTok, which has
suspended live-streaming and new video uploads in Russia. 
    Since its launch, around 3.2 million users in Russia have
installed Yappy, compared to more than 10 million for TikTok,
according to estimates up to March 27 from tracker Sensor Tower.
    Rossgram, an imitation of Instagram in name, design and
colour scheme, was set to launch this week, but its founders
only succeeded in publishing a video of a prototype hours after
the scheduled launch time.    
    Different developers said they were launching a black and
white, melancholy alternative to the U.S. photo sharing
platform, called 'Grustnogram', or 'Sadgram' in English. Others
are building a Google Play store alternative.  urn:newsml:reuters.com:*:nL2N2VX2TV
 urn:newsml:reuters.com:*:nL5N2VW55W
    Another service that Gorelkin and other government figures
have promoted in recent weeks is messaging app Telegram,
seemingly recovering from its chequered past with the Russian
state, which tried unsuccessfully to block it in 2018.
    Telegram founder Pavel Durov was also the brains behind
VKontakte, but fled Russia in 2014 after allies of the Kremlin
gained control of the platform.           
    Telegram says its more than 500 million global users
generate over 500 billion views in one-to-many channels every
month. It allows sponsored messages of related content in public
channels. Already hugely popular in Russia, the platform would
benefit from any outflow of users from WhatsApp.
    Used by around 67 million people in Russia last year,
according to Insider Intelligence estimates, WhatsApp remains
available for now.  urn:newsml:reuters.com:*:nL5N2VO1YL

($1 = 83.6600 roubles)

 (Reporting by Reuters; editing by John Stonestreet)