China vs. Russia: E-commerce boom or bust? by Matt Vella @FortuneMagazine January 24, 2012, 10:04 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons By Maelle Gavet, contributor FORTUNE — While debates rage on about the economic stability of Western European and the US, emerging markets are stealing the attention of foreign investors on the prowl for growth markets and huge returns. China’s internet and e-commerce venture potential is one such example. US and European investors have been white hot on China’s Internet and e-commerce venture potential for some time. This is due in large part to the natural assumption that China’s burgeoning 1.34 billion population reflects massive growth potential for e-commerce opportunities. On the whole that notion makes tremendous sense –- more people equals more spending. However, not often taken into consideration is the fact, despite an explosive population, there are many in China who do not have the disposable income necessary to drive and sustain a successful eTail environment at this time. Take a slight jog to the West and hit the streets of Moscow, and the investment story is similar but with a couple of huge differences. Not only is it one of the fastest growing Internet markets in the world but it’s also home to the highest billionaire population of any city in the world. Prada, Gucci and Armani are right at home here in the Russian capital, the heart of a country with 140 million population, 59.7% of whom are Internet users, (that is a 42.8% penetration rate). It is the Russian’s affinity, not just for high-end merchandise, but also for accessibility to product not often found in local stores – and the growing infrastructure making it easier to procure these items – that is, in part, continuing to drive the eTail boom. With the seventh-largest Internet audience in the world, Russian companies are capitalizing on this explosive growth. For example, OZON.ru, the Amazon.com and Expedia of Russia, has enjoyed a 34% increase in revenue growth from 2010 – 2011, bringing in $150 million in returns. After closing out on a record-breaking fundraiser of $100 million in September 2011, the company now pulls in over $1million in revenue per day, keeping them well on track to reach $1billion annual turnover in the next 3-5 years. The emerging e-commerce market also benefits from Russians’ exceedingly low debt and large disposable income. With an estimated 87% disposable income per capita, Russians are warming up to the ease and accessibility afforded by the Internet. While an estimated 25% of online users in Russia have made a purchase in relation to China’s 23%, (representing 3.3% of China’s total retail value), the number of online shoppers in Russia will increase by 120% over the next five years, with the size of the market jumping 145%. Astonishingly, the online retail market makes up less than 1% of the total retail market. This is incredibly small when you compare it to the UK e-commerce market – which takes up 7% of the total UK retail market. However, the tides are turning and Russia is finally reaching the point where retail is becoming an accepted form of shopping. While it remains true that only a slight percentage of Russian monthly Internet users make purchases online today, the future of online retail is clearly set to explode. This is a market that offers boundless growth opportunity parallel to that of the US market in the early 2000’s. For today China may be the belle of the ball, but Russia is on par to be an equally attractive and sustainable investment opportunity in the days and years ahead. Maelle Gavet was born in France. Education: Sorbonne University (Paris, France), Ecole Normale Supérieure, Fontenay-St-Cloud (France), Institut D’Etudes Politiques (France, Paris). Worked at Non-Profit Preobrazhenie Foundation as project manager(1999 –2001). Predstavitelskij Dom, Founder and Managing Director (2001 –2003). The Boston Consulting Group (2003 – 2009). OZON.ru, head of Marketing department (2009-2011) . OZON.ru, CEO (2011 – present).