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Integrative Case Study 8 - Peng (2017). Global Strategy (4th ed.). Cengage

Wikimart: Building a Russian Version of Amazon*

How does a Russian Internet start-up grow? How does it line up financing? How promising are its
prospects?
Daniel J. McCarthy, Northeastern University
Sheila M. Puffer, Northeastern University

Wikimart was founded in 2008 by Stanford MBA students Maxim Faldin and Kamil Kurmakayev as an
online marketplace for Russia and Russian-speaking countries. Its focus was a B2C platform for Russian
retailers who listed goods at no charge but initially paid a minimum 3% fee to Wikimart on each
transaction, later reduced to 1.5%. Wikimart also provided services to these retailers including order
fulfillment, accounting and legal support, and e-commerce marketing tools. The company’s objective was
to become a dominant e-commerce marketplace in Russia and other countries of the former Soviet Union.

Time Line of Financing and Growth

In the first half of 2009, financing of $700,000 was secured from a number of sophisticated angel investors,
including Michael van Swaaij who had invested in Skype and eBay Europe; Mark Zaleski and Robert
Dighero who had invested in QXL Ricardo; Alec Oxen-ford, founder of OLX, DineroMail.com, and
DeRemate; Jose Marin, founder of DeRemate; and Kerim Baran, founder of Yonja.com. By mid-2009,
Wikimart’s web-site was attracting 5,000 daily visitors and had more than 1,000 online merchants offering
over 370,000 products.

In early 2010, Series A financing was secured from Tiger Global Management, a successful US-based
private equity investor specializing in technology start-ups, often in emerging economies. The deal raised
$5 million for Wikimart and resulted in 50% ownership for Tiger, according to a filing with the US Securities
and Exchange Commission. In August 2010, Wikimart secured Series B financing of $7 million, again from
Tiger Global.

By mid-2010, the company website had 2,000 online merchants generating $1.5 million in monthly
revenues for Wikimart that by 2011 had increased to 2,500 merchants and $3 million in monthly revenues.
Of course, online sales were a significant order of magnitude larger. Company revenues would have been
greater if the order completion rates could have been improved beyond the 68% level prevailing in 2011.
Achieving such an increase, however, would remain a major challenge to implementing the company’s
strategy as retailers often had insufficient inventories to fulfill customer orders.

By March 2011, the company had signed up 2,200 retailers that listed more than 528,000 products
through Wikimart’s website. The company reported that the site was attracting 2 million visitors per
month, although one of the founders stated that the number could be as large as 3 million. Among the
products prominent on its website were home goods and appliances, consumer electronics, wine and
tobacco, and virtually any product that could be found on Amazon’s website, with the best-selling
categories being clothing, sporting goods, and children’s products. The vast majority of the products were
familiar, internationally known brands.
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Integrative Case Study 8 - Peng (2017). Global Strategy (4th ed.). Cengage

Why Tiger?

One of Wikimart’s founders, Kurmakayev, explained in 2011 why the company had chosen Tiger Global
from among various potential core investors: “We chose Tiger because they did not impose their views
and did not seek to participate in the business management, but are ready for the long-term partnership.”
Other potential core investors included Accel Partners, a firm based primarily in the US, with offices in
Palo Alto, CA, and New York, that had invested in companies like Groupon and Veritas. Accel also had
offices in London, China, and India. Another potential core investor was Index Ventures, a US investor
with successful investments in technology start-ups like Skype and Dropbox. It seemed that all of these
investment firms might have been looking for the next Google, the hugely successful Internet giant
cofounded a decade earlier by Russian-born University of Maryland and Stanford University graduate
Sergei Brin.

Business Model

Wikimart’s business model centered on creating an Amazon-like online retail platform and business model
in the Russian-speaking countries of the former Soviet Union. Similar models had been developed in Korea
by Gmarket and in Japan by RakutenIchiba. The company’s business model offered free space online to
merchants while collecting a minimum of 1.5% of each transaction once sales began.

Company Strategy and Organization

The company’s strategy included reaching a younger, tech-savvy segment of customers in the Russian-
speaking world. The company was headquartered in Moscow, and merchants selling on its site delivered
goods only within Russia as of early 2011. One of the partners stressed that Wikimart’s objective was to
continue developing the Russian market even after it moved to new markets. The company planned to
expand overall services to other Russian-speaking countries of the former Soviet Union such as Ukraine
and Kazakstan. The partner reasoned that Russia was the tenth largest European country in terms of GDP
but had even greater promise in terms of Internet users. Although Wikimart seemed to have vast
potential, the company had not turned a profit by early 2012. However, the founders believed that 2013
could be a profitable year. With an objective of eventually attaining 20% to 30% share of the fast-growing
online retail market, company executives saw the possibility of annual revenues reaching as high as $15
billion by 2018.

The two founders initially assumed separate responsibilities, with Kurmakayev being in charge of
maintaining relations with retailers and developing the company’s technology and Faldin being
responsible for sales, marketing, and business development. As the company grew, the founders
recognized early that they had to change to a more corporate-like structure. Faldin became CEO
responsible for the operational aspects of the business, such as developing metrics and achieving goals.
Kurmakayev took on a strategic role incorporating forecasting and budgeting, as well as developing the
company’s competitive strategy.

One of the founders claimed that a significant percentage of company costs stemmed from intensive
development efforts. Wikimart, although an online retail business, was basically a technology company.
The vast majority of the 260 employees in 2011 were programmers who wrote software code to support
the company’s online business. They were guided in their development work with Silicon Valley expertise
provided by their investors and consultants.
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Integrative Case Study 8 - Peng (2017). Global Strategy (4th ed.). Cengage

Russia’s Internet Industry and Wikimart’s Competition

The overall Russian e-commerce market was estimated at $7 billion to $9 billion in 2011, a substantial
increase over the $6 billion in 2010, growth that attracted many competitors. Exponential future growth,
with forecasts of 40% annually, saw estimates of up to a $50 billion market by 2018. Such forecasts added
luster to the already attractive Russian online retail market. Wiki-mart’s largest competitor was Ozon.ru,
the oldest e-commerce giant of the Russian Internet. Sites like Groupon and KupiVip offering group
discounts on products and services were also substantial competitors, and both had attracted relatively
large investments from US firms. The order fulfillment challenge for Wikimart noted earlier was due to
retailers relying on relatively poor IT technologies. One of Wikimart’s founders noted that the online retail
industry in Russia required huge investments in IT and supply chain. In 2012, only 1.5% of all Russian retail
purchases took place online, but the founders believed that the number would grow to 10% to 20% within
five to 10 years.

Some Russian companies, such as mail.ru, had already become powerful Internet players within Russia.
That firm’s parent, the mail.ru Group, was formerly known as Digital Sky Technologies and was an early-
stage investor in Facebook, owning 5%–10% of that company by 2011 according to various reports. It had
invested $200 million in 2009 and an additional $500 million in 2011. This is another example of the
globalization of private investments; this time, however, the participants were a Russian investment group
taking a stake in a US online venture. Mail.ru itself was an extremely successful publicly traded Internet
company. Other successful Russian online companies included Vkontakte and Rambler. Vkontakte was a
private company that offered social network services and was notable for design and functionality that
mimicked Facebook. As of February 2012, Vkontakte reportedly had 116.6 million user accounts and was
the fourth most popular Russian Internet website. Rambler was a search engine that offered Web 2.0
services such as e-mail aggregation and e-commerce, with its main competitors being mail.ru and Yandex.
Yandex had a reported 64% market share of the Russian search provider space and was the fifth largest
search engine worldwide with 1.7% of global searches as of September 2011. The company had enjoyed
a decade of success before going public in 2011 on NASDAQ in the US. Its IPO raised $1.3 billion, and its
stock price soon traded up by 55%. The price of $1.3 billion valued the company at about $8 billion.

Wikimart’s Future

Analysts noted that start-ups like Wikimart had become attractive for strategic investors as the Internet
expansion in Russia accelerated. In 2012, the number of Internet users in Russia was not large but was
expected to grow by approximately 10% per year. Some analysts expected that if Wikimart continued to
increase revenues and profits, it could soon be targeted by strategic investors such as Amazon or eBay.
Having US investors like Tiger Global that were very familiar with the Russian Internet market could help
attract others, including strategic investors who might invest funds with the intention of acquiring
Wikimart at some point. Wikimart’s founders and other major shareholders, such as Tiger Global, might
eventually have to decide between selling the company to a strategic investor or continuing to maintain
control while growing the company to its full potential. As is typical in such cases, timing would be a key
factor.
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Integrative Case Study 8 - Peng (2017). Global Strategy (4th ed.). Cengage

Questions

1. From an industry-based view, given the fragmented, rapidly growing nature of online retail space
in the Russian-speaking world, how would you characterize the competition in this industry?
2. Why was Wikimart able to secure financing during its early stages of growth? Put differently, if
you were an angel investor or private equity investor, what special qualities of Wikimart would
attract you?
3. While Wikimart’s objective is to become a dominant ecommerce marketplace in Russia and other
countries of the former Soviet Union, given the existing competition (such as Ozon.ru), is such
ambition realistic?
4. What are some of the viable exit strategies for the two founders?

Sources:

1) DST smenilanazvanie (DST changes its name), 2010,

http://www.vedomosti.ru/companies/news/1103680/dst_smenila_nazvanie;

2) A. Hesseldahl, 2012. Zuckerberg is the billion-share man: Who owns what, who makes what in the
Facebook IPO, AllThingsD, February 1, http://allthingsd.com/20120201/facebooks-ipo-filing-who-
owns-what-who-makes-what/;

3) Forbes, 2011, Mystroim Amazon in Russia (We are building Amazon in Russia), July 20,
http://www. forbes.ru/tehno-opinion/internet-i-telekommunikatsii/70954-my-stroim-amazon-
v-rossii;

4) RT, 2011, Tiger Global ups the ante on Wikimart, March 2, http://rt.com/business;

5) http://bloomberg.com/news/2011-05-24/yandex-jumps-after-raising-1-3-billion-in-biggest-
technology-ipo-of-the-year.html;

6) http://en.wikipedia.org/wiki/Yandex.

Note: *This case was written by Daniel J. McCarthy (McKim d’Amore Distinguished Professor of Global
Management and Innovation, Northeastern University) and Sheila M. Puffer (University Distinguished
Professor and Cherry Family Senior Fellow of International Business, Northeastern University). The
authors would like to acknowledge the excellent research assistance provided by Northeastern University
College of Business student Maxim Russkikh. © Daniel J. McCarthy and Sheila M. Puffer. Reprinted with
permission.