“We will easily beat Amazon in Russia”
The CEO of Selectel told us why cloud business in Russia is growing despite economic headwinds.
In an interview with RBC St. Petersburg, Selectel CEO Pavel Alimov discusses why the Russian cloud market is attractive for foreign players, why both Russian and International players can be successful here, and the benefits of government regulation in the industry.
– What market trends do you consider the most significant and why? Which of these do you consider the biggest drivers and threats to your business?
Over the past 20 years, companies globally have transformed how they plan, acquire, and manage their IT infrastructure. Where previously companies sought total control over their infrastructure, they now prefer to focus on key competencies, while outsourcing peripheral services to professional players and renting infrastructure from them.
Consequently, we first witnessed the creation of US$1bn+ in market capitalization of commercial data centers, and later saw the rise of cloud providers, whose combined value is nearly an order of magnitude greater.
Russia is transforming with the rest of the world. Nearly every major company today relies on the so-called hybrid infrastructure: an integrated combination of on-premise and multi- cloud solutions. At the same time, businesses do not like committing to a single cloud vendor.
Managing increasingly complex infrastructures requires substantial expertise, which can be expensive to replicate on a single-client scale. This creates opportunities for professional players in our market.
I don’t see any fundamental threats to these trends.
– Are there any other trends that exhibit a positive influence?
Certainly. We see that even less technologically advanced companies and state institutions are opening up to the efficiency offered by the latest-generation cloud products. Russian clients are just as concerned with the time it takes to bring their product to market, as well as the costs of owning their IT infrastructure and the flexibility and security thereof.
Another trend observed in many countries, including Russia, China and Germany, revolves around data sovereignty concerns – governments globally seek to protect the rights and personal data of their citizens and institutes.
Good examples of this phenomenon include Russian personal data protection laws 152 and 242, disastrous setbacks faced by Amazon Web Services (AWS) in China, and the slow progress of the latter in Germany following Edward Snowden’s revelations about the routine wiretapping of Angela Merkel. The media also reported that millions of AWS IP addresses became unavailable in Russia following Roskomnadzor’s (the Russian communications and media watchdog) enforcement of a local court ruling. Every country has its rules, and it is much easier for local players to follow them.
– How tough is the competition in this segment?
A large opportunity invites competition. For simplicity, let us classify the business of Selectel into as-a- service infrastructure solutions and traditional data center services.
Our hosting clients have access to the same services that are available in the US and elsewhere. Global leaders are already active in this market. I expect that top-ten Chinese and American companies will win a large share of the public cloud market in the long run. Global leaders like Microsoft, Google, VMware, and Intel have been dear to Russian business and consumers for decades, and Alibaba has already become the largest online retailer in our country. We are looking to become long-term partners for these companies. At the same time, some Western players will face considerable difficulties in this market – they lack brand recognition and do not understand local market specifics.
According to iKS Consulting, Selectel is a top-5 colocation player in Russia. Our colocation clients will typically choose a data center based on location within a specific neighborhood. We are the largest player in St. Petersburg, where we own five modern data centers. We have almost no credible competition in the region.
The Moscow colocation market is much more competitive and in the next few years, we will offer colocation services in our Moscow data center only to existing clients and certain strategic partners.
There are several data centers in Moscow comparable to our Berzarina 36 facility in terms of quality of engineering and management, and they have international certificates to prove it. We will soon announce a partnership with the leader in this segment and offer our clients a new cloud location and rack capacity in Moscow.
We plan on developing our Moscow data center as a highly reliable hosting platform for our own cloud services; Russian players will have a hard time competing with us in this segment.
– What niches or business segments do you consider the most promising?
Historically, we built a leader in the IT infrastructure solution segment for small and medium businesses, developers, and startups. These are people and companies operating in a new economy; they are not that different from us. Today, we see growing demand for our services from larger and more conservative organizations, which is why we are adding corporate-grade solutions to our product line. For example, just last week we launched the Selectel VMware Cloud. Earlier this year, we announced a partnership with Alibaba Cloud in Russia. In addition to that, we offer Google and Microsoft cloud products in the Russian market.
We are actively growing our Selectel Business Services unit, which provides consulting services in the context of migrating IT infrastructures to the cloud, as well as infrastructure management services. We hired a manager from one of Europe’s leading companies to lead the cloud integration team; he will join us this year.
We are also continuing to strengthen our corporate sales division, which was headed by Igor Sysoev last year. Igor brought over a hundred years of technology and sales experience to Selectel (laughs). In all seriousness, prior to joining us, he spent 17 years selling sophisticated Intel solutions in Russia and before that, over 10 years in business development functions for DEC and Compaq Computers.
Last year, we added several Security-as- a-Service products, including comprehensive DDoS protection and infrastructure redundancy solutions. Business Continuity services have a lot of potential, and we will continue to develop our offering. Earlier in 2018, Selectel was awarded key state licenses that allow us to create highly secure certified solutions.
Finally, we see a lot of potential for partnerships and will soon make several announcements regarding products offered in partnership with leading international companies.
– Some industry experts think that many major Russian companies and state institutions care so much about control over their data that they will never move to the cloud. What is your stance?
This is quickly changing both globally and in Russia. The CIA, JPMorgan, and Netflix already use cloud infrastructure. We recently ran a poll with iKS-Consulting (which is available to the public on our website) and saw that 4 out of 5 Russian companies already use cloud solutions, and almost all others have plans to implement them. The market is gradually opening up to the fact that cloud and hybrid solutions do not call for compromises in reliability.
– Public cloud has been rapidly gaining share of IT budgets, but competition in this segment includes major local players like Yandex and Mail.ru. How prepared are you for such competition?
We already noted that this is a highly attractive segment and competition is going to be fierce. I can see that our public cloud products are growing faster than others, thanks in part to our engineering leadership and the deep integration of Selectel cloud products with other services where we are the leader (for example, in the bare-metal dedicated server segment). At the same time, we try to offer our clients a choice between our own cloud products and those offered by the partners I mentioned earlier.
It would be difficult for the aforementioned Russian IT companies to provide such advanced and flexible solutions on their own, but we are very happy to cooperate with all market players – I believe that large partnerships and companies will come out on top.
Selectel turned ten this year. We have successfully competed with Russian and international companies this entire time. A major factor of our continued success is the emphasis we place on quality of service and support. Customers value this; for example, our Net Promoter Score is a few points above that of Amazon. We have embraced the carrier neutrality principle in our data centers since the early days of our company, and we are following a similar vendor-agnostic cloud strategy; clients get to choose solutions from a wide range of product leaders.
Once acquired, clients stay with us for 5-10 years. Their IT needs change almost daily, and we strive to become their long-term partner, covering as many use cases as possible.
– Can you comment on Selectel’s HR strategy in the context of your ambitions?
We have a very young staff; the average age of our employees is under 30. Some of our top managers have been building this business from its foundation, but in the last year alone we hired over one hundred people and are planning to hire another fifty senior and mid-level personnel by the end of 2018.
Hence we are still paying a lot of attention to our HR functions: Selectel has built the largest internship program in St. Petersburg. In a relatively short period of time, we implemented a modern personnel evaluation system, motivation program, and gamification of our work. We try to help every employee adapt and grow. Generally speaking, our goal is to make company life dynamic, active, and intellectually challenging. Regular meet-up events in our conference hall in St. Petersburg rarely see less than 100 attendees.
– You joined the company not as CEO but as Chief Strategy Officer. Were you hired to change Selectel’s strategy?
I was invited to evaluate the strategy and suggest new growth points. I did not offer anything revolutionary; we are still developing in our traditionally strong areas and tagging on additional services, which we do not always develop ourselves. We are happy to cooperate with global product and hardware leaders that trust us as their local partner.
– How did the business perform financially in 2017?
We grew. If you look at our hosting business, we nearly doubled revenue every year for the past five years, and this is in the context of a challenging macroeconomic environment. In 2018, we plan on growing three times faster than last year. The first quarter has shown that we are on target.
– Are you afraid of, say, Amazon attempting to take over the Russian market?
Russian, American, and Chinese leaders have already established their presence in this market. Amazon does not sell through partnerships well and they do not understand the nuances of our market. I will continue to put all of my energy into their next international upset; we will easily beat Amazon in Russia.