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RUSSOFT’s Analysts about the real fall of the Russian IT market in 2015

Source: RUSSOFT
May 27, 2016
In the spring of 2016 the RUSSOFT experts conducted their traditional analysis of various sources’ data characterizing the Russian IT market. They presented their vision of the Russian IT market changes occurred in 2015. The conclusions of leading international analysts about significant drop in the volume of IT market measured in dollars were generally confirmed by the RUSSOFT experts. They came to the conclusion that the main drop in sales came from foreign vendors, while the domestic software industry and the Russian software market in general slightly increased.

The leading foreign analytical companies reported that the volume of IT market (and software market) in Russia declined. This fall was found in any methods of measurement - in rubles, or in dollars, adjusted for inflation, or neglecting it. However, according to the experts of RUSSOFT’s, one of the largest associations of software developers in Russia, the drop in the IT / software development market can be viewed from different perspectives.

For example, the total revenue of Russian software companies by sales in the domestic market in rubles increased by 28% according to preliminary findings of the RUSSOFT Annual Survey (2016). Adjusted for inflation, the increase was 13%. The market did not decreased for domestic software companies, and even increased, if the foreign-owned companies were not taken into account. The sales of domestic software companies grew in 2015, partially as a result of the natural substitution of foreign software, caused primarily by increase price of import, as well as the risks of using foreign software in Russia in connection with anti-Russian sanctions in place.

According to RUSSOFT the cumulative sales for domestic software companies in the domestic market (including software sales, development services, and support) in 2015 sum to approx. $ 5 billion. At least another $ 1.5-2 billion in sales comes from the foreign vendors.

"There are three points of views on the IT market. - Says the RUSSOFT analyst Dmitry Zhelvitsky - Global companies trust to IDC and Gartner research, proclaiming the volume of Russian IT market in 2015 to reduce by 39% and 44%. For domestic software companies market should be measured in local currency and adjusted for inflation, therefore, as a rule, they are guided by the data from the Ministry of Economic Development. And the final users are not interested in which currency the market volume was measured. It is more important for them, what the market can offer in terms of variety and price of IT services and software. Therefore, we have applied our own methodology to assess the real state of the IT market in Russia."

According to IDC and Gartner, in 2015 the Russian IT-market collapsed with the reduction of about 40% (39% according to IDC, and 44% according to Gartner). The main reason is the same one as for the ruble devaluation. Based on these figures, many experts and media concluded that that the IT market fell back to the level it was 10 years ago.

Such significant market decrease in dollars is the serious problem, but mainly it affects the global companies operating in Russia. When we talk about global companies, we include the large foreign corporations as well as Russian companies operating globally, or plan to work this way. For them, the reduction in revenue in dollars means that it became more difficult to form a marketing budget to promote their solutions and services abroad. However, they increased their efforts to enter the market of the countries where national currencies have also devalued. Also, these companies’ dollar expenses decreased.

According to the Ministry of Economic Development of Russia, the size of the IT market in 2015 was 740 billion rubles, which is 9% less than the previous year, assuming comparable prices. If you count the IDC data in rubles and take into account the official inflation rate (12.9%), it falls to 14%. 9% or 14% - a big drop, but it is not 40%! Especially taking into account that domestic companies could grow due to a declining share of foreign companies in the whole IT market.

What are the annual results for Russian IT users? If we count them in dollars we will not get the correct answer. It is important to understand what we measure. To measure the IT market volume in rubles, with a significant part of the equipment being imported, is also incorrect. In the absence of an adequate assessment of such a mixed market, RUSSOFT developed the Dual Currency index. The market is divided into imported and domestic products and solutions, and each segment is measured with accordance of increase or decrease of the relevant currency. The total calculation is conducted in consideration of the each segment’s weight.

With this Dual Currency approach we still do not take into account three important factors. First, the prices in dollars and rubles are likely has declined by a few percent for the buyers. Second, the mass transition of corporate customers to freeware requires the purchase of the similar functional software without payment or the license - a buyer’s costs will consist of payment for software support services. A similar effect is produced by the transition to the Cloud technologies, which also has the significant part in Russian IT market.

So, the 25% fall must also be adjusted downwards.

Three views on Russian IT market change in 2015
 ChangeNotes
From the standpoint of global companies ($)-39%IDC version
From the standpoint of domestic companies (in rubles, taking into account inflation)-9%Ministry of Economic Development version
-14%Calculated by RUSSOFT according to IDC, taking into account the official inflation rate of 12.9%
Dual-currency RUSSOFT index (from IT consumers position)-25%The fall without taking into account a number of factors, the effect of which is difficult to measure now.
-10-15%By experts, with consideration of transition to Open Source software, increased use of Cloud technologies and to reduced prices in dollars and rubles

Three views on Russian software market change in 2015
 ChangeNotes
From the standpoint of global companies ($)-43,1%IDC version
From the standpoint of domestic companies (in rubles, taking into account inflation)-19%Based on IDC calculated taking into account the official inflation rate of 12.9%
Dual-currency RUSSOFT index (from IT consumers position)-7% (-3%)Only commercial software solutions (considering the transition to Open Source software and SaaS)
+2% (up to +10%)Together with outsourcing services (considering the transition to Open Source software and SaaS)
Domestic sales of Russian software companies+28% (+13%)The nominal income in rubles (taking into account the official inflation)

It can be concluded that the positive impact of IT on the economy and society in 2015 decreased in comparison with 2014, but the development of the IT market with a change in its structure continues, even with this reduction.

Moreover, some Russian ICT market segments in 2015 grew: the audience of Runet increased by 4-5%; the domestic e-commerce market rose by 16% in Rubles (which is more than inflation); cross-border sales in the e-commerce market grew by 55%; the number of fixed broadband users increased by 2%; the number of eGovernment services users has reached 23.4 million people, growing every month by a million users; 50% more users have purchased online legal content; the Russian market of digitizing grew by 60%; commercial data centers market added 16% (in Ruble equivalent).

"In general, we cannot say that the IT market fell to the distant past - says Valentin Makarov, President of RUSSOFT Association. - In 2005, the market was very different in structure of sales, supplies, and solutions. You can only talk about the fact that some foreign vendors sales measured in dollars, returned to 2005 level."