Nine Great Innovations, Opportunities and Challenges for 2012 - Slide 4

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The Russian Internet audience is now the largest in Europe with 51m users since September 2011 and one of the fastest developing in the world (Internet penetration only at 36 percent). It is also among the most socially engaged globally with the longest average time spent on social networks per user (almost 10 hours per month), proven monetization models (particularly in the gaming sphere), multiple social networking platforms (Facebook in competition with vKontakte, Odnoklassniki and a number of other platforms) and strong integration with other online sectors (e.g. e-commerce).

The last two years have witnessed strong investment activity on the back of the Mail.ru and Yandex IPOs, primarily in “copy-cat” models (e.g. Ozon, Avito, Wikimart in general e-commerce, KupiVIP in private sales, Ostrovok, OktoGo and Travelmenu in travel). With international investors increasingly comfortable with Runet, GP Bullhound anticipates a second wave of investments in new, innovative, Runet-born social start-ups, which will expand internationally. An early example of this is the social networking site Badoo, which was launched in 2006 by the founder of Russian dating site Mamba, and is now one of the largest in the world.

There are plenty of exciting start-ups to track, one example being Ecwid, an e-commerce provider within social networks as well as individual websites. Since launch in 2009, the business has become the second largest e-commerce provider for Facebook with strong international presence (less than 15 percent of revenue base from Russian clients). Zvooq, online music service from Dream Industries, combines Spotify with aTurntable-like community element. Other examples include online photo sharing communities (Pinme, Picorange), recommendation engines (Surfingbird), and brand comparison sites (The Battle of Brands).

Companies to Watch: Ecwid, Pinme, Picorange, Surfingbird, The Battle of the Brands, Zvooq

As technology analysts and advisors, GP Bullhound expects a volatile 2012 with pockets of great innovation, opportunity and new successes, but also continued challenges as commoditization will wreak havoc to some industries, and hype will remain in others creating near-term opportunity and in some cases long-term issues.

We are entering the new year under rather unusual circumstances. The macroeconomic outlook remains cloudier than ever due to unprecedented uncertainty around a number of major global economic and political situations including the fate of the Euro and the European economies, the status of the U.S. recovery and the role of the U.S. dollar, nervousness in recently outperforming emerging markets, like Brazil, and the global impact of a slowdown in China just to mention a few.

Some things do remain the same however such as the continued global Internet trend, the rapid mobilization of users and applications and the inevitable trend of increased online social interaction.

In 2012, GP Bullhound expects Internet to continue its inevitable shift from being an information and content channel to a trusted platform for socializing, sharing, communicating and most importantly for 2012, consuming. Furthermore, they expect a lot of opportunity to come out of the rapid adoption of mobile online activities, particularly in emerging markets. They also expect to see some much needed innovation in the enterprise software arena, which is now well behind the consumer technology curve.

The macroeconomic outlook however remains cloudier with unprecedented levels of uncertainty on a global scale. In an ever-more connected and competitive global technology world, there will be little room to hide without differentiated products or services. The value of IP will continue to rise, while commoditization will punish the me-too players. As a consequence, they are seeing investors and acquirers becoming increasingly willing to travel far to find best-of-breed companies, supporting an anticipated rise in cross-border acquisitions and investment activities. All in all, they look forward to an interesting 2012.

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