Industry Trend Analysis - Sberbank-Yandex e-Commerce JV To Curb Chinese Influence - OCT 2017

BMI View : Although Yandex ' s new e-commerce JV with Sberbank is being pitched as a means of deepening customer relationships within its fast-growing digital services business, it will also seek to dilute growing competition f rom Chinese companies, thereby serving state-led data nationalisation strategies.

Sberbank will invest RUB30bn (USD500mn) in a joint venture that would transform Yandex's nascent online consumer-to-consumer (C2C) marketplace into a fully-fledged business-to-consumer (B2C) online shopping platform. We believe that platform would better support Russia's fragmented e-commerce sector, allowing traditional and digital retailers to better serve their customers' needs and significantly improve key elements of the shopping process, such as payment processing and logistics. Crucially, it would also serve to curb the competitive threat posed by cross-border players such as Alibaba, which has hampered Yandex's ambitions in the e-commerce space.

Russia Dominates CEE e-Commerce Landscape...
B2C, C2C e-Commerce Sales By Key Country (USDmn)
f = BMI forecast. Source: BMI

We believe Russia's B2C/C2C e-commerce market generated sales of USD20.07bn in 2016, a figure forecast to reach USD32.65bn by 2021. Approximately one third of 2016 sales were generated by non-Russian players (versus 29% in 2015) and we expect this to rise to 45% by 2021, although increased numbers of cross-border transactions will have a nominal impact on sales values as cross-border purchases tend to focus on low-value items.

The Association of Internet Trade Companies (AKIT) states that the Russian version of the Aliexpress B2C marketplace platform has the biggest online audience, reaching an audience of almost 22.2mn; this dwarfs the reach of the next largest players, and and frustrates Yandex's ability to grow its own Yandex.Market platform.

As a social media company, Yandex needs to constantly innovate in order to remain relevant and has been developing online payments services even as it invests in complementary social media-powered services and applications such as Uber. Developing its own logistics resources will be key to competing effectively with the Chinese in terms of fulfilment, and Uber can help with that. Similarly, Sberbank's banking and payments infrastructure will go a long way towards attracting and retaining high-value customers. This will add value to Sberbank's core savings and personal finance business as well as creating new revenue streams through more complex products such as loans and money transfer.

The JV will formalise the long-standing relationship between Yandex and Sberbank. The latter has been an investor in Yandex since 2009 and has owned 75% of an e-wallet service, Yandex.Money, since 2013. Its long-held aim has been to replicate the Amazon multi-channel business model, developing integrated B2C, B2B and B2C channels in a bid to deepen its relationships with consumers as well as bring more small businesses within its reach. It believes that the fragmented e-commerce landscape - where Russian businesses rely on poorly-connected self-built online shopping platforms that often lack key attractors such as trusted payments and warehouse-to-customer control of logistics - needs a strong, unifying player, and we believe the JV has the potential to see modest success in that regard. Modest, because it will come late to the market and it will be difficult to displace the highly efficient Chinese players.

The deal is also likely to be welcomed by the Russian government, which demands that all customer data generated and collected by online services be stored in in-country datacentres, ostensibly in the name of national security. Consumers' high reliance on cross-border players such as China present a clear risk to security, so the JV's ability to curb demand for such providers will be a key aspect of regulatory approval for the deal.

... But Chinese Players Dominate In Russia (Top 20 Online Platforms By Audience Size, 2016)
Platform Audience (000) Platform Audience (000)
Source: AKIT, attributed to TNS Russia 22,194 4,118 8,987 3,959 7,564 3,936 6,976 3,700 6,923 3,437 6,772 2,982 6,012 2,783 5,157 2,723 4,548 2,624 4,420 2,186