success of vkontakte in russia
TRANSCRIPT
SUCCESS OF VKONTAKTE IN RUSSIA
MIB 38 Option: Changing competitive environment and Ebusiness Instructor: Federico Pigni
Report by: Guillaume Houdremont, Wasim Al Mohamed,
Ekaterina Grigoryan, Dunja Pejovic
SUCCESS OF VKONTAKTE IN RUSSIA
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Table of Contents
Concept outline……………………………………………………………………...3
Introduction………………………………………………………………………….5
History of Vkontakte……………………………………………………………......5
Environmental characteristics…………………………………………………..…..7
Opportunities and Recommendations………………………….…….…………….17
Conclusion………………………………………………………………………...23
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Concept Outline
Title of you project: Success of Vkontakte in Russia
The name of your instructor: Federico Pigni
The name of your class: MIB-38
The names of the author:
Guillaume Houdremont
Wasim Al Mohamed
Ekaterina Grigoryan
Dunja Pejovic
Option: CHANGING COMPETITIVE ENVIRONMENT AND EBUSINESS
Name of the Organization: Vkontakte
URL: https://vk.com/
Abstract:
VKontakte is Russia's premier social networking website. Its rapid success has led to its
proliferation in neighboring countries such as Ukraine, Belarus, Kazakhstan and
Uzbekistan. It is currently ranked as the 8th most popular social platform in the world.
VKontakte functions similarly to Facebook but has a differentiated added value that
allows users to search for audio and video online. The platform also offers the
possibility to interact in 70 unofficial user generated translations which sets it apart
from other platforms. According to a survey, VKontakte has reached in 2015 301
million accounts. It is the second most viewed site in Russia, after Yandex (the most
popular search engine in Russia, beating Google) and recently ranked the 22nd in
Alexa’s Top 500 sites. As a valuable social network website and the largest one in
Eastern Europe, VKontakte created a phenomenal network effect that led to a market tip
whipping out competitors such as Facebook, Instagram, Snapchat and LinkedIn. Its
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business model consists of an online community that creates value for its users by
allowing special interactive capabilities and unique platform features attracting various
business opportunities such as advertisement support and affiliation. While the
technological boom of the 21st century may have seen to slow down, business
innovation ideas based on network economies have been continuously redefining
business models and determining how companies can create value with intangible
communication systems.
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Introduction
Created by Pavel Durov in 2006 while studying at St. Petersburg state university
(Successstory, 2014), he was inspired by the idea of Facebook and wanted to make one
such with a similar concept targeting a Russian-speaking audience. Since its launch the
network is experiencing considerable growth.
1. History of VKontakte
Upon registration of the site end of 2006, it was already used by a million people
in Russia by July 2007. One year later it became the biggest social networking site in
Russia beating “Odnoklassniki”, the formerly popular networking.
The VKontakte social networking site, which is far more successful in Russia
than Facebook experienced a growth rate from 1 million users in 2007 expending to
over 301 million users registered worldwide to this day. For too many Russians their
choice of VKontakte is a matter of national pride. Its popularity comes from its free
peer-to-peer file-sharing service where users can search for media and other things
through its search engine, more robust and elaborated compared to Facebook and even
beating Google in terms of overall search. Offering a file-sharing system that allows
users to easily find videos and music online. It incorporates media features that make it
more like YouTube, Pandora, and Myspace rolled into one (Trubilova, 2011).
Facebook users were more open towards the brand communication mainly to
emphasize their social status and represent a higher cultural level compared to the
average teenage VKontakte users in dominance, representing a segment with lower
buying power.
While other Social Medias were focusing on more factual information
spreading, VKontakte strength relied on its more entertaining and emotional aspect
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through its fun communities and pages where like-minded people share their opinions
and experiences.
1.1 The Internet and its users
The success of VKontakte is also a direct consequence of the growing number of
internet users in Russia, where more than half of the population regularly goes online.
According to internetlivestats.com the annual growth rate of internet users
averaged 17% from 2007 – 2015. In a country like Russia the average time spent on
Social Media is double the American one. Indeed VKontakte brand pages have twice
the engagement of Facebook’s Company pages. Further, VKontakte collects
considerable demographic information on its users, generating a very effective
marketing tool for brands and firms. In support it has a robust advertising platform
available to brands, offering targeted premium banners and video ads on either a cost
per click or cost per impression model, with pricing determined by auction.
From end of 2013 VKontakte statistics revealed revenues from 60% of
advertising and 40% of games (Entrepreneurial-insights, 2014).
Not yet as profitable compared to its rival “Odnoklassniki”, which extracts 2-3
times more revenue from each user, it can be explained due to their contrasting
strategies. At the moment VKontakte is still more focused on extending its market
domination, and so offers more free content.
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2. Environmental characteristics
2.1 Tipping the market
With more than 1 billion of active users Facebook is dominating the world’s
map of social networks. The site created by Zuckerberg is the number 1 in 127
countries from a total of 137 observed.
However, in the remaining 10 countries Facebook’s competitors have together
reached 1 billion users. Some of those networks are for example Qzone in China, Cloob
in Iran and of course, VKontakte in Russia.
VKontakte is of particular interest as it is one of the few regional networking services to
resist Facebook’s battle for dominance.
On the below map we may see the vast Russian territory covered by VKontakte
(Exhibit 1).
Exhibit 1
Source: ryan.ru, 2014
In the introductory part we have learned that VKontakte is the number 1 most
viewed site in Russian language. It has more than 301 million of registered users and
reaches a number of daily visits from more than 70 million visitors (vk.com, 2014).
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From its beginning VKontakte has experienced big growth and success on the Russian
market, in just 1 year (2006 - 2007) it has reached 10 millions of users - whereas, for
comparison sake, the total number of users Facebook has in Russia until now is a total
of 12,8 millions (vk.com, 2014).
You may ask yourself how is it possible that such a big country as Russia, with
over 142 millions of citizens, misses out of Facebook, the most important social
network of nowadays? The answer is simple: Russians go on VKontakte!
By many the most popular social network in Russia is seen as a Facebook’s trustful
copy, starting from the colour themes, private profiles and community pages, the “Like”
button, etc. But VKontakte does have something special to its users when compared to
Facebook which makes it the absolute leader in the respective market and as we think a
rival that Facebook cannot conquer. Some of the reasons might be:
a) Provides local users with local solutions.
b) Facebook is a platform developed for masses and does not adapt to cultural
differences.
c) Facebook’s dramatic IPO gave VKontakte the possibility to postpone its own IPO.
d) Facebook’s design is messy when compared to VKontakte’s that has a more user
friendly, minimalistic and intuitive interface.
e) Russians seem to be very loyal to and proud of their VKontakte, the respective
emotions Facebook could never evoke in its Russian users.
Initially, user registration to VKontakte was limited by invitations from already
existing members. However, knowing that in network economies the number of users
determines the value of the network this was soon abandoned. They knew that they had
to be more flexible as well as to implement new and innovative features that would
attract users to sign in. This change contributed to the even faster growth of VKontakte
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and finally to a “vicious” growth cycle. The strong feedback VKontakte was
experiencing had brought to a market tip in its favour - in 2008 VKontakte had
overpassed the number of Odnoklassniki network users (it’s only significant national
rival at the time). Winning over Odnoklassniki was the first major step - this network
was already having around 30 million users and has been winning the country’s top web
prizes. From that moment the more VKontakte was growing the more users were
signing in. Thanks to this network effect more and more users were deciding rather to
go for VK than Odnoklassniki. We can say that the monopolist position VKontakte is
enjoying now is due to the “winner takes it all” characteristic of the social network
market.
The below chart clearly shows the only tendency VKontakte knows from 2008 and
that is the continuous growth (Exhibit 2).
Exhibit 2
Source: dreamgow.com, 2014
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Having secured the local position, the next step was expanding the market share.
In 2009 VKontakte was translated in 20 different languages and the result was
remarkable: VKontakte has reached more than 50 millions of users in a short notice!
They knew this was a strategy to be continued so nowadays VKontakte is translated in
67 languages, as mentioned before. This feature contributed to an easier penetration
within other countries so today VKontakte is the 1st most popular site in Belarus, 3rd in
Ukraine and 4th in Kazakhstan.
On the below charts we may see the market share composition of VKontakte
(Exhibit 3).
Exhibit 3
Source: digitalintheround.com, 2014
2.2 A risky strategy?
As the market always demands further and further improvements, VKontakte
has proven to be very intuitive in implementing sustaining technologies, the company is
constantly growing while at the same time its actual users remain loyal. An example of
such an innovation is the collaboration of VKontakte with telephone operators, not only
in Russia but also other countries, as Moldavia for instance. This collaboration allows
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users to receive notifications and messages from VKontakte via free of charge SMS
when they don’t have internet and to comment or reply also via SMS for a symbolic fee.
This is a precious feature for travellers who do not need to think about high internet
roaming bills. Another example is the possibility to create one’s own graffiti, a feature
similar to Microsoft’s Paint that allows people to be creative and share their drawings
with others.
Below we may see a graffiti example (Exhibit 4).
Exhibit 4
Source: mediainjection.com, 2014
However, the features that give VKontakte the significant advantage over
Facebook are the possibility to watch movies and listen to music for free, something
Facebook is not able to do and of course, because it is illegal. Not only that the movies
are new releases, sometimes even blockbusters, but they are also subtitled in Russian.
The music is various, from classics to pop hits, from Russian to Romanian artists. This
feature reduces time, effort and money to access movies and music. Thanks to this its
users often leave VKontakte running in the background while surfing online or
performing other activities. However, VKontakte is now facing sues from three major
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record labels (Sony Music Russia, Universal Music Russia and Warner Music UK) for
large- scale piracy. It is assumed that it is the availability of pirated information is
hurting VKontakte’s competitors. At the same time we have to take into account how
much piracy is entrenched in Russia’s consumer culture - even though the international
discontent these features are still attracting new members and encouraging the actual
ones to spend more time online (bbc.com, 2014).
An UK- based Russian social media blogger and Vkontakte user,Katya
Trubilova, shares her opinion:
“ Nevertheless, VKontakte offers a special feature which attracts more new members
daily and makes them spend a lot of time online. Members are able to view thousands of pirated
copies of domestic and foreign movies translated into Russian. In addition, it’s possible to
upload and download video and audio files via VK Tracker application. This is the most
significant advantage of VKontakte over Facebook. It can be perceived that the majority of
VKontakte members will not be as easily persuaded to join Facebook and to give up their
convenient online entertainment. ”(adweek.com, 2014).
Russians are considered to be the most socially engaged media users in the
world, with 12.8 hours a month they spend twice as much time on social media than the
global average which is 5.7 hours (Exhibit 5).
This makes “VKontakte the most efficient tool to waste time”, joked Pavel Durov, the
found of the company (ewdn.com, 2014).
Exhibit 5
Source: russia-direct.org, 2014
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The below charts present the average daily duration spent on VKontakte vs
Facebook (Exhibit 6 and 7).
Exhibit 6
Exhibit 7
Source: dreamgrow.com
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2.3 VKontakte user composition
VKontakte’s most typical user is a working middle- and lower- middle income
young professional. In last October the site was visited by 53 430 000 people
between 12 to 64 years old. Out of these visitors 67.4% (35 990 000 people) are
employed, where:
21.8% (11 626 000 people) work as specialists/ experts
20% (10 686 000 people) are students
18.5% (9 867 000 people) are employees (non- specialists)
13.3% (7 087 000 people) are workers
12.6% (6 757 000 people) hold management positions
7.3% (3 900 000 people) are unemployed
6.2% (3 300 000 people) are housewives
VKontakte’s members of school age – from 12 to 17 years – account for only 11% of
the total user base (russiansearchtips.com, 2015).
VKontakte’s mostly young members’ composition has had impact on the visual
and contextual aspect of the network.
Below we may see the screenshot reflecting the most popular pages on
Facebook and VKontakte, showing us that VKontakte is all about fun and
entertainment. Russians would rather play games, watch videos, share pictures and read
jokes.
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Exhibit 7
Source:vk.com, 2015
2.4 E- Commerce success
As we know an important aspect of social networks is the two sided network
characteristic meaning having two types of members each creating value for each other.
The always growing number of users on both sides makes VKontakte an important E-
commerce factor. It is affordable, accessible, and easy to use and it has open standards.
The site is a valuable channel for B2C and C2C interactions.
Many brands are already advertising on VKontakte, in 2013 advertisers spent
83.7 million $ on the site (russianserchtips.com, 2015).
The respective revenue models are advertising support and affiliation.
VKontakte is so the most important online market place both for brands and for
VKontakte members. The site allows better consumer targeting options than any other
social network in Russia. If wisely used, VKontakte can be a very efficient marketing
tool for the companies. For example, if you are working in tourism and travelling it is
possible to target people who log into their account from abroad at least twice a year.
This is possible because Russian legislation is not yet strict about privacy, which is
good for marketers (lumolink.com, 2014).
VKontakte also offers, “Targeted ads”. Those appear on the left side of the page
and are offered on a pay- per- click or pay- per- view basis. Targeting options include
geographic and demographic data such as age and place of residence, along with more
specific characteristics ranging from the users’ general interests to the subway stations
near their work (serachcowboys.com, 2010).
Other than the extensive targeting options, VKontakte has special features within group
and company pages allowing the administrators to see charts, graphics and statistics
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about who is paying most attention to their posts, their social media habits and how is
their group members’ composition is changing, allowing companies to adapt and
retarget.
What is there of value for the customer is that they can always filter the updates
from brands and communities so they don’t get spammed or harassed.
Below we can see an example of how the targeting could be done in Vkontakte
Exhibit 8
Source: vk.com, 2015
Even in a globalised world as it is today certain national and cultural
characteristics manage to prevail over mainstream trends. After having seen that it is a
certain ex- Soviet spirit and a specific national culture that have contributed to the
success of VKontakte not only in Russia but also in the region we proceed to
identifications of opportunities and recommendations of future steps that would
maintain the current “leader” position and enable expansion.
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3. Opportunities and Recommendations
3.1 Opportunity: Create a business communication platform
Social media has influenced greatly the way we communicate. Since its creation
as a simple tool that allows users to stay in touch through a shared common platform,
social media represents the fastest and easiest form of communication. The opportunity
for VKontakte is to use these advantages in order to improve the communication within
the business between members of the same organization. This business communication
platform will allow the interaction of members within the same organization to
communicate effectively in a work related platform.
3.1.1 Recommendation: VKontakte at work
Many companies in Russia prohibit using VKontakte.com at work place, hence
it reduces the employee’s productivity (the same in Facebook.com). The visual design
would be the same as traditional VKontakte page, but the corporate data would be
separately stored out of personal data (personal photos). The aim of this new social
network is to help workers sharing their ideas, using chats, renewing statuses and
uniting in groups. For instance, when employees publish important information, the
notification immediately appears to other participants, spreading through the company.
The participants of this platform can add each other as a “friend” or follow others
discussions. For example an ordinary collaborator can read the manager’s news feed
without being “friends” with him. It is assumed that the new platform will compete with
network systems as Google, Microsoft and LinkedIn, but of course the main attention
will be paid to intercorporate communication.
3.2 Opportunity: Improve brand image
The growing numbers of users in VKontakte offers significant opportunities
aimed to reach a wider scale of audience. Emergency situation broadcasts can greatly
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benefit from this by having a more significant exposure of alerts through VKontakte.
The opportunity here is to use VKontakte platform in order to serve better the
community.
3.2.1 Recommendation: “Ne dopusti” (Don’t allow)
The collaboration with the warning system “Ne dopusti”, that would spread
information about kidnapped children will benefit VKontakte as a barter trade.
VKontakte would post information that would alllow “Ne dopusti” to find out faster
where the child is situated. Users in VKontakte would get notifications “Ne dopusti” in
Russia on their smartphones whether they are staying in location where the child is
kidnapped. Information would appear in the News section of VKontakte, containing the
child’s picture and all the other relevant information describing the situation. For
example, the same system works in the USA (Amber Alert): in 2013 the 11-years old
girl was saved because Facebook posted messages, so the worker of a hotel recognized
the girl and saved her life. This co-operation would increase the brand image of a
socially responsible company by helping families find their missing children
(amberalert.com, 2013).
3.3 Opportunity: Improve communication
Social networking sites are always seeking new ways to improve their features
or expand their current functionality. The introduction of new technological
innovations and development of new interfaces helps the company differentiate itself
among the competitors. Communicators of today require more efficient interfaces that
allow fast and reliable communication thus minimizing message typing mistakes. The
opportunity for VKontakte is to use modern technologies to improve communication
between peers.
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3.3.1 Recommendation: Enabling dictation
Using dictation instead of traditional keyboard typing is a really helpful tool,
gradually becoming a trend among writers, bloggers, businessman, students, disabled
people and etc. It could save 20-30% of personal time, which nowadays is priceless
(realspeaker.net, 2014). A young Russian innovator, Victor Osetrov, created one of
these start-ups, it is called Realspeaker. The purchase of this project by VKontakte
wouldn’t be too expensive, because Realspeaker is currently looking for any kind of
budgeting contribution. Dictation would be a unique feature within VKontakte, which
would add great value for users by saving their time.
3.4 Opportunity: Control published content
The increasing amount of information shared through social networking sites
everyday is presenting a major concern for users and developers. Sensitive information
published can sometimes lead to disappointment among users. VKontakte has the
opportunity to control the data been published through the development of applications
that hide content that is not desirable by users.
3.4.1 Recommendation: VKontakte Spoilers
Spoilers have created big tension in many social networks, even VKontakte.
Without any intentional purposes people post information about the endings of last
seasons of ours favorite soap operas or films. Moreover, when people are too passionate
about something they tend to post information every 15 minutes, without realizing how
irritating this could be for other users. However, with the VKontakte spoiler this would
be possible to avoid such spoilers, but how? The answer is simple, the application
would hide the spoiled posts, using key words and templates, or even reposts (Exhibit
9).
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Exh.9 VKontakte spoiler example.
3.5 Opportunity: Photo downloads
The increasing numbers of photos shared through social networking sites has been on a
constant rise. The creation of Instagram after Facebook demonstrates well this effect.
People tend to share photos because they are more valuable than words and attract a
greater attention towards viewers. VKontakte's opportunity is to improve its photo
sharing capabilities by developing a new application that covers the usage and upload of
photos anywhere from the net into the social media platform.
3.5.1 Recommendation: VKontakte photo Saver
While surfing the Internet people often find nice or funny images that could be shared
with friends, but we might forget to upload them on the social network, and then we do
not remember where we have seen them. The VKontakte photo saver is the application
that enables saving pictures from the Internet directly to the VKontakte album or on the
timeline (Exhibit 10).
Exh.10 VKontakte photo saver
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3.6 Opportunity: Personal messaging
Since the rapid technological advancements of mobile phone platforms,
members of social networking sites have the possibility to interact using their
Smartphone. Application developers have continuously tried to link the usage of instant
messaging apps with social networking platforms. A great example is Facebook
messaging application that reduces log in time and allows convenience in
communicating with various peers. Currently, VKontakte lacks a personal messaging
application that is effective and reliable to users. The opportunity here is to create an
application that is linked to the social network platform in order to enhance the
connection of members and interface.
3.6.1 Recommendation: VKontakte messenger
VKontakte should actively monitor the market in order to find interesting start-ups,
which would supplement the variety of applications and increase the technological
potential, making the user experience intriguing. The critical point is that VKontakte
should not focus only on the growth of the audience, but also it should increase users
daytime spending in VKontakte. Based on such market researches it would be easier to
create useful application. The possible application would be VKontakte messenger for
smartphones, which will allow responding to messages as fast as it possible. The
VKontakte’s issue now is that application in smartphones is working with interruption
and users have to wait when the messages download. Checking existing application
such as Telegram (has already operated in Russia), identifying problems (e.g. time) the
VK messenger would be positively accepted by users.
3.7 Opportunity: Rising E- commerce
According to Cushla Sherlock head of Corporate Communications in Credit
Suisse "The Ecommerce industry is a force that no investor can afford to ignore".
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VKontakte has more than 301 million potential clients. The opportunity here is to
establish an exchange business model that will allow users to buy and sell through a
common platform.
3.7.1 Recommendation: VKontakte Market
Create a VKontakte platform for E-Commerce; it could be called VKontakte Market.
The goal is to build the platform, with the special functionality, supporting to buy and
sell whereas VKontakte will perform as intermediary, earning money on advertisement
and commissions. This tool will be in demand for private users as for companies that’s
why Vkontakte will gain profit in the future.
3.8 Opportunity: Marketing tools
Recent trends for gathering valuable information for marketers and companies through
social media sites have improved general companies performance. Companies can now
have access to detailed information about the demographics of purchasers, their
geographical location and their interest in the product through social media platforms.
The opportunity for VKontakte is to attract potential businesses to use VKontakte
platform as an information gatherer and generator for conducting market research.
3.8.1 Recommendation: Generating revenue from Marketing Search
Engine
By creating the group in VKontakte, its admin has the access to check all the relevant
information regarding the targeted audience. It includes the “statistics” of the
community: gender, age, country, the unique reviews and referrals. All of this important
data is for free, while Google, using Google Analytics, asks users to pay if they want to
get the provided information. VKontakte would promote this marketing tool for
freelancers, marketers and people who really need it for business purposes, but on fee
basis and by this get more members.
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Conclusion
On the political and economic perspective, Russia is facing economic sanctions,
conflicts in Ukraine, impoverished currency and sinking oil prices that led investors
and businesses skeptical on whether they should invest their money in Russia or not.
But nevertheless, the online social networks platforms have seen constant growth rate
and were able to maintain this growth in this fragile political and economic situation.
The following recommendations will help Vkontakte create value for the firm and
remain the dominant social networking site in the region.
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