Independent Software Vendors
Russian independent software vendors (ISV) develop and sell software products and ready-made solutions on both the domestic market and for export. It’s difficult to estimate the total revenue of Russian software vendors as many large companies adhere to various non-disclosure policies while some tend to exaggerate their turnover. In addition, small firms with turnover of less than $100,000 are too numerous to take into account.
The overall volume of the ISV export sector is estimated at around $2 billion for 2012, demonstrating growth of about 17 percent on the year before according to the latest available figures. This represents a declining trend that can be traced back to a high of 30 percent in 2010, followed by 20 percent in 2011. Figures for 2013 are not yet available.
The main cause of the deceleration in software export is a cyclical pattern in the creation of startups. New software companies have historically appeared in Russia during, or just after, economic crisis. A number of successful software vendors first appeared during the collapse of the Soviet economy in the early 1990s. The next startup boom took place in the late 1990s and early 2000s, following a default by the country in 1998. The third wave is connected with the worldwide crisis of 2008, which also had a significant impact on the Russian economy.
The development of software vendors also follows certain cyclical patterns. For the few first years of their existence they tend to increase exports by 30 to 50 percent year-on-year. However, deceleration inevitably takes place when companies reach a certain size and saturate their market segment. In the last two or three years, all of the leading Russian software vendors reached this critical size, while fast-growing younger companies have not yet achieved large enough turnovers to compensate for the reduction in growth rates by industry leaders.
The prospects for an increase in software product export growth (or at least for retention of the relatively high rate of 15 to 20 percent) appear good. In recent years, Russian development of mobile applications (including computer games for mobile devices) has grown rapidly. Companies that specialize in such development are still very young and, as a rule, do not enjoy high visibility. Nevertheless, there are enough of them that it makes large-scale conferences on mobile applications and games development possible in Russia. Because mobile application development is still under investigated, it can only be assumed that the export of such applications most likely exceeds $200 million.
According to forecasts by J’son & Partners Consulting, the Russian market for mobile applications will reach $1.3 billion in 2016, eight times greater than the figure for 2012. As the developers of such solutions are mostly positioned on the global market, their export growth rates can be expected to remain relatively constant at 60 to 70 percent per year, on average. As a result, mobile application development has the potential to ensure an annual gain in software exports of at least $100 to $200 million. Currently, such products account for 5 to 10 percent of overall product export.
An essential gain in exports may also be provided by companies with export income in excess of $100 million, including Parallels (virtualization and automation software), Acronis (solutions for backup restoration and protection of operating systems and data), Transas (development of software solutions for the synthesis of 3D images navigation and traffic control systems, and sea and air transport simulators), and ABBYY (electronic dictionaries image recognition systems).
i-Free, with a turnover over $200 million, may also be added to the list of top software exporters. While the company does not reveal the extent of exports within its overall business, judging from its presence in Brazil, China and India, it can be assumed to exceed 50 percent of the company’s total revenue. i-Free is not only a mobile device applications developer but also distributes similar solutions made by other Russian companies, helping them to achieve sales of their products abroad.
A slight deceleration in growth has also been experienced by software development services. Staff shortage is the main roadblock for service companies. Labor force shortages also affect software vendors, but to a lesser extent because in many cases they can increase export by means of active marketing and the creation of an extended sales infrastructure abroad.
A number of mid-sized companies hold promise for the export of Russian solutions which have been successfully promoted on the domestic market. This promotion is, in particular, supported by their inclusion in Gartner’s Magic Quadrants. Russian vendors Diasoft (Core Banking Software), PROGNOZ (Business Intelligence) and InfoWatch (Data Loss Prevention) have all appeared in the Quadrants in 2012, while Moscow’s IntelTech topped Gartner’s Cool Vendors listing of promising companies.
PROGNOZ, which is mainly engaged in developing analytical tools and decision-making support systems, derives most of its income from sales in Russia. However, in 2012, the company opened a sales office in Zambia. The comapny plans to develop a statistics portal and applications for the African Development Bank, and to create statistics portals for Mozambique, Rwanda, and Nigeria. PROGNOZ sales offices currently operate in Beijing, Washington, Brussels, Kiev, Astana, Dubai, and Minsk.
Diasoft, which until recently focused on producing solutions for Russian banks, has good prospects thanks to an agreement for global cooperation signed with IBM (Global Alliance Attachment) in 2011. This agreement provides for the joint development and promotion of the Russian company’s banking solutions based on Service Oriented Architecture (SOA) on global markets. As part of the agreement, IBM will provide technical expertise, help introduce Diasoft optimization projects for banking systems and offers worldwide promotion for Diasoft products. The Russian company’s management expects that by 2015, about 30 percent of the company’s income will be connected with its operation on international markets.
ASCON, which dominates the Russian CAD/CAM/CAPP/PDM systems market is attempting to gain a foothold in the markets of developed countries. At the end of 2011, the company opened its first representative office outside the CIS in Munich, which is positioned to exploit the German, Austrian and Swiss markets. The company’s management has announced plans to open similar offices on all continents during the next ten years.
A number of other Russian companies, which previously operated almost exclusively on the Russian and CIS market, began to promote their solutions abroad in 2011 and 2012. Softline — a large Russian software distributor — began selling a product it developed in-house called DeskWork (an enterprise portal for the automation of business processes and organization of Intranets) in the U.S. As a result, the company could become a major software exporter in the future. To this end, it has created a marketing budget and established foreign sales channels. Softline currently has offices in 21 countries (in Europe, Asia, Africa and South America) where it sells software products made by various vendors.
In addition to the previously mentioned companies, there are a number of other Russian software product and standardized solution developers that are also active on the world market. They include: CBOSS (complex automation of the telecom business), Paragon Software Group (system utilities), SPIRIT (built-in software for voice video and data transfer), PROMT (machine translation systems), Speech Technology Center (speech recognition and synthesis), DevExperts (brokerage software) and Bercut (solutions for telecoms). All have smaller turnovers than the previously mentioned companies but nonetheless occupy a significant position in their respective fields on the global market. 1C (accounting and enterprise management systems) and DocsVision (document management) are also engaged in the export of their products and ready-made solutions, but are generally focused on the domestic Russian market.
As more and more Russian exporters of both services and solutions begin expanding into developing economies while continuing to consolidate gains made on the mature markets and at home, the outlook for Russian ISVs to increase exports and maintain a relatively high rate of 15 to 20 percent year-on-year growth would appear to be a reasonable assumption.
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