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Smartphone manufacturers ditch Google applications to lure patriotic Russian buyers, as m-tailing soars among country's consumers

With purchasing via smartphones doubling over the last 12 months, Russian consumers are now being wooed by localised interfaces and proprietary software, with the Yandex search-engine emerging as the handset 'kingmaker'.

Photo: Yandex: out-Googling Google for Russian consumers.
Yandex: out-Googling Google for Russian consumers.

Online shopping via mobile devices is growing dramatically in Russia. In 2013, some 40% of Russians used their smartphones to make purchases, up from 28% in 2012. The trend was mirrored by the number of users opting to buy online via their tablets.

Both trends are said to have been boosted by the increased availability of mobile internet subscription plans, the implementation of the LTE and 4G protocols and the introduction of free Wi-Fi on a number of Moscow and St. Petersburg subway routes. The combined impact of these changes is expected to see the country's number of mobile internet service subscribers reach 100 million by 2017.

According to Euromonitor International, Russia's e-tail market was worth US$17.5 billion in 2013 (excluding travel services sales). It currently accounts for around 3% of Russia's total retail sales, with many analysts predicting this figure to rise by a massive 400% over the next four years.

The same survey showed that some 50% of internet-connected Russians now monitor their preferred brands and products via social media, with some 40% using social media applications to actually make purchases. Remarkably, some 30% of these active shoppers actually interact with their brands of choice and are keen to share their user experience/brands insights with other users.

While many wealthy Russians favour Apple phones and their associated products, Android devices remain the most popular choice with most consumers, with Samsung the undisputed market leader. Overall, some 80% of the 17.6 million smartphones sold in Russia last year were Android-based.

Localisation has been a key factor in driving smartphone choice, with the majority of consumers clearly favouring locally-developed Russian language-based applications and platforms. Yandex – often seen as "Russia's Google" – remains, for instance, the most popular search engine, email portal and reference site in the country.

Photos: Russia ready: Yandex-friendly handsets from Explay and Huawei.
Russia ready: Yandex-friendly handsets from Explay and Huawei.

In light of this, both China's Huawei and Explay, a domestic phone manufacturer, are launching customised new models in Russia this month. Both models come pre-configured to use Yandex, with Google having been summarily dropped by the two companies.

The phones have been optimised for Yandex.Kit, the Russian search engine's proprietary interface. With the system pre-installed, users have immediate access to the Yandex search engine, its email service as well as Traffic Jam, the company's GPS navigation system.

The first two such models to be made available in Russia's tier one cities are the Huawei Honor 3 Yandex (US$360) and the Explay Flame Yandex (US$180). Overall, such co-operation with mobile phone manufacturers is nothing new for Yandex. Although firm data is hard to come by, it is widely believed that Yandex operates a profit share with those manufacturers adopting/promoting its paid-for applications.

In this scenario, Yandex would retain 30% of the cost of an app, with the device manufacturer receiving the other 70%. In terms of pre-installed applications, it is believed a 50-50 revenue split has been adopted.

Overall this business model could represent a distinct business opportunity for smartphone manufacturers in Southeast Asia. Although Huawei and Explay have already established themselves in the Russian market, it is believed smaller, niche players could successfully target re-sellers, distributors and even consumers by means of e-tailing, social media and via Yandex itself.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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