[Editor's Note] Milos Bezanov is a second year student currently studying International Politics at King’s College London.
It's easy to ask the question what separates the best from everyone else. What do Mark Zuckerberg, Steve Jobs, Bill Gates have in common? A lot of the time you see money and a big business and it pretty much ends there. But how did they get there? What challenges did these businesses face? And how did they overcome these? These questions lead to much more varied and interesting answers that give insight into that unique path every business takes. Avito.ru, a Russian classified ads website, is on that path, and a fairly complex one at that. Despite running the business, Jonas Nordlander and Filip Engelbert only own 20% of the business and 70% is owned by major investment companies Kinnevik and Vostok Nafta (10% is MIA apparently..). Even the question of “when did it start” can't be answered straightforward. Various sources say 2007, but many other sources state 2008. These may seem like unimportant and uninteresting facts, but when trying to piece the puzzle together, making sense of them is the first step.
Avito.ru is a website hosting classified ads, which are advertisements for small scale goods and services like house cleaning and are usually much cheaper to book. Found in newspapers, Avito moves this to the internet, creating a platform where people can post classified ads for free, and match them with buyers. I know, right, what's so special about that? It's not really a new concept as such, and if it's free how does it make money? Filip Engelbert gives three answers; First, online advertising. As with anything on a virtual platform, it's much easier to transfer information to a wide audience and thus market quickly. Secondly, they charge for extras (e.g. services that the consumer wants) which not only accounts for 5% of all revenue but also maintains a focus on customer service and product/service quality. Thirdly, they lease virtual space to entrepreneurs who want to start shop in Avito.ru, “we have one client who sells watches..he's bought a shop in Avito.ru for 25,000 roubles”.
The way they operate is similar to an internet magazine, but Filip points out “it's not as complicated” and it's not hard to see why. Magazines sell advertising space but don't directly connect potential buyers of a product. They may find something they like, but getting in touch with the business may not be as easy. Nordlander believes this interactive element that separates Avito.ru; “Essentially it's like a bulletin board where people meet to sell everything from cars to cellphones..there hasn't been a marketplace like this in Russia”. Although innovative, again they are not alone in this category. Sites like irr.ru also connect buyers and sellers, but Filip says they don't specialise; “they have a profitable printing aspect, we focus on online”. The innovative ways Avito differentiate themselves are not in vain. Since launching Avito.ru has grown rapidly, with a third of the Russian population now using the site and six million new items added every month.
Despite all it has going, there are many unanswered questions. One negative is that it doesn't help with distribution costs, these are borne by the parties involved. This consequently makes it less appealing to use particularly for entrepreneurs, who already pay a certain fee for using the site, and this dissatisfaction is echoed by the fact Avito is still operating at a loss. With all this in mind, it's difficult to see how Avito is better than it's competitors, making it's recent $75 million investment from Baring Vostok and Kinnevik this year that much harder to swallow. Again we return to the question, what is so special about this classified ads site?
Like the last time, the answer lies in the less obvious. Yes it's true it hasn't turned a profit, but revenues increased by 10 million in only one year, between 2010 and 2011. Moreover, despite only 43% market penetration “It is the sixth largest market in the world with over 60 million users...which indicates potential for serious growth”. Vostok Nafta manager Per Brilioth isn't the only one who thinks so. It is unlikely that the earlier investors Northzone, Kinnevik and Baring Vostok would have thrown their hat into the ring if they doubted the potential. So what? Well if you look at Baring Vostok's past list alone, it includes the likes of Groupon and Facebook, so it's safe to say they know what potential looks like.
Investment will be used to expand market penetration and make use of this potential, by adding more detail and shifting it's business model closer to ebays. Here and now, it's beginning to grow fast, with “Over 2,500 entrepreneurs already paying clients of Avito.ru and adding hundreds every month.” The truth is, Avito is not like facebook. It does not pose a new, revolutionary model that will turn the market on it's head. Classified ads have existing for a while and will continue to do so as long as there are people who need oddjobs, or require certain products. Being involved in such a market has led to questions you don't often see from disruptive ideas, like “what's so good about what you do” and “what makes you unique”. Avito's responses have continued to be innovative, and bit by bit these responses add up to what you see today. It's journey is far from complete, and it will be interesting to watch how Avito continues to evolve. One thing's for sure, if it ever becomes as big as facebook, you need not look far to see the differences.