success of vkontakte in russia

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


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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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References

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[ONLINE] Available at: http://www.entrepreneurial-insights.com/using-

vkontakte-business-purposes/. [Accessed 09 April 15].

3. Katyatrubilova.wordpress.com. 2011. The largest social network Vkontakte

keeps evolving. [ONLINE] Available at:

https://katyatrubilova.wordpress.com/tag/vkontakte/. [Accessed 09 April 15].

4. Realspeaker.net (2014). About the company. [Online] Available at

http://www.realspeaker.net/ru/ [Accessed 24 Mar. 2015].

5. Successstory.com. 2014. VKontakte Success Story. [ONLINE] Available at:

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Respect', Nielsen Business Media. Available from: Factiva. [1 April 2015].

http://www.amberalert.com/about/