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Russia's IT Industry

Rising Software Superpower


Just as Kaspersky is occupying the top perch in the anti-virus industry, Russian software seems to be taking over the world, with Taiwanese handset brands and OEM manufacturers counting among their major customers.



Rising Software Superpower

By Shu-ren Koo
From CommonWealth Magazine (vol. 426 )

After the Soviet Union collapsed in 1991, a group of graduates from top universities decided to take the risk of becoming entrepreneurs. Like green shoots rising from a pile of rubble, they occupied old car factories and dilapidated czarist-era villas, relentlessly writing computer programs – not unlike U.S. programmer legends Bill Gates and Steve Jobs, who founded their companies in a Harvard dormitory room and a garage, respectively.

Not only did they turn Russia into the third largest software-producing nation behind India and China, but they also represent the entrepreneurial spirit of innovative private companies that is driving the transformation of the Russian economy.

Russia's Software Moguls

Back in 1989, when the Soviet Union had not yet dissolved, David Yang, who is of mixed Russian and Chinese descent, was still a fourth-year student at the Moscow Institute of Physics and Technology. When taking a French language test, it hit him that he could save himself a lot of trouble if he had a translation software tool. Afterward, Yang and some of his schoolmates spent nine months writing software for translating documents from French into Russian.

At the time Soviet Union president Mikhail Gorbachev was pushing for market reforms and therefore allowed the private sector to found so-called cooperative enterprises. Yang and his university schoolmates decided to seize this opportunity and founded their first company called BIT, which was later to be renamed Abbyy.

"My job was to find money and sell our product. But there was no distribution channel in Russia at that time, so we used direct selling," Yang recalls in an interview in the garden of his dacha on the outskirts of Moscow.

In the first year they sold 15 software packages. Given that they were still university students, they felt the results were still passable. So they were truly surprised to hear that 15,000 pirated copies of their translation software were circulating in Russia, which proved that there was strong demand out there. In 1993 Yang and his partners merged translation software with OCR, which would become Abbyy's core product.

Yang's father Eugeniy Yang had come to Russia from China to study physics at Lomonosov Moscow State University. When Yang broached his idea of founding a business, his physicist father was quite positive. "Back in 1989," he says, "everything was in a state of chaos, but it was also a good opportunity, because no one was doing it, and there was a lot of room to expand."

Yang and his friends took advantage of Russia's vast yet untapped market to develop their business. Thanks to exponential growth, Abbyy quickly became the largest supplier of OCR and translation software in Russia. In 1997 the company started to expand overseas.

Today, Abbyy has a workforce of 900 employees, including 400 software engineers, spread across nine countries. Its software products come in 180 languages, and 80 percent of their total market is overseas. In Russia Abbyy is No. 1 in terms of software licenses sold.

In 1992, three years after Yang founded his company, Andrew Sviridenko graduated from the computer science department at Moscow University. Many of his more than 300 fellow graduates decided to take jobs in Silicon Valley, since domestic economic prospects were not good at the time. Sviridenko, however, decided to stay in Russia and, together with several schoolmates, founded the software company Spirit DSP. The company designs audio and video processing software.

"The economy was very bad at that time. Many people starting their own businesses in 1991 ended up drinking vodka," says Sviridenko. "Nobody taught us how to run a company, such as marketing, financing, and legal... We had to learn it by working with foreign companies," he recalls.

Spirit has already grown to more than 140 employees including over 60 full-time software engineers. Meanwhile, it has become one of the leading providers of embedded voice and video processing engines worldwide. Spirit sells its products to more than 80 countries around the globe, including Taiwan. And it counts among its customers many of the major information and communications enterprises from the U.S., Europe and Asia.

Thanks to their successful businesses, software pioneers Yang and Sviridenko have joined the ranks of Russia's newly rich. Both are in their forties and dress casually in blue jeans and leisure shirts. Most of their employees are young and vivacious, in sharp contrast to the stern looking Russians one encounters in Moscow's streets. Their offices radiate the atmosphere of an innovative enterprise in Silicon Valley.

The offices of Abbyy are located in a decommissioned car factory, while Spirit is crammed together with other startups into a deserted aristocratic villa from the czarist era. In that regard these Russian companies do not differ much from the many small- and medium-sized enterprises in Taiwan that are run out of apartments.

The Software Whizzes behind HTC

Abbyy and Spirit were also able to grow into globally relevant companies because Taiwanese high-tech firms played a crucial role as major customers and cooperative partners.

A decade ago, a state-run Taiwanese enterprise found Spirit through an agent and purchased software from it. Pointing to a confidentiality agreement, Sviridenko declines to reveal the company's name.

But he frankly acknowledges, "Asia is a very important market for us." Numerous OEM and ODM manufacturers in the information and communications industries are based in Asia, and they have a very strong demand for audio and video software.

In 2005 companies from Taiwan and other Asian countries began to make a play for the 3G and smartphone markets. As a result, Spirit also began to develop software for smartphones.

Taiwanese smartphone maker HTC became their first customer. Other Taiwanese companies such as handset and IP telephony contract manufacturers Compal Electronics, Quanta Computer, and Importek all use Spirit software to improve sound and image quality.

"The 3G mobile phone development in Taiwan is faster than in US and Europe, so it is a very important market for us," explains Sviridenko. In the future Sviridenko is planning to target the market for laptop-based satellite navigation.

In 2007 Abbyy began to cooperate with Taiwan's Avision, a major manufacturer of scanners and multifunction peripherals, which integrated Abbyy's OCR software into its products. The collaborative relationship with Avision has allowed Abbyy to expand the application range of its products, and to get a foot into the important Chinese market.

"As China integrates into the rest of the world and talks to the world more often, the demand for translation will be increasing. That is our opportunity," Yang believes.

Russian software is good quality at a fair price. That's the main reason why Taiwanese contract manufacturers use Russian software and why Russian software has a competitive edge even in the global market.

World's Third Biggest Software Industry

From 2005 to 2007, the total output of the Russian software industry as well as exports of Russian software and information services have grown at a rate of 50 percent, according to statistics by industry association Russoft. Currently, Russia boasts the world's third largest software industry, behind India and China. In terms of exports of information services, Russia is No. 2, trailing only India.

But Russia differs from India and China, which mainly provide information services to outsourcers with a large, cheap workforce as their competitive edge. Instead, Russia targets niche markets by providing software products and solutions.

"Like the US, the Russian software industry should go towards product development," suggests Sviridenko, arguing that it is not feasible to compete with India or China on their terms. "IT service outsourcing is a number game. It is a waste of time to compete with India and China in terms of number of people," he concludes.

Sviridenko believes that Indian and Chinese software is not able to compete with Russia's when it comes to quality. On the other hand, Russian software is cheaper than products from the U.S. or Europe.

"The US is our competitor," Sviridenka says with confidence.

Russian software is of such high quality because the country boasts a world-class science education and a large pool of scientists.

"The Germans have a strong ability to concretize thoughts. The left and right sides of their brains work well with each other. The Russians have an extraordinary ability for abstract thinking. Their performance is particularly striking in the fields of physics and mathematics," observes Liang-han Hsieh, who heads the Moscow Office of Taiwan's Industrial Technology Research Institute (ITRI).

Yang's father Eugeniy taught at Tamkang University in Taipei for 15 years. During his Taiwan stint he observed that Taiwanese education demands standardized answers, whereas Russian education values independent thinking. About 90 percent of Russian university exams are held orally, which is excellent training for students' logical thinking abilities. A strong capacity for logic is indispensable for writing software programs.

Therefore, a popular saying in software circles: Give the urgent projects to the Americans, big projects to the Indians, and the impossible ones to the Russians.

The walls in the corridors of the Abbyy offices are decorated with legions of prizes and awards from multinational software giants such as Microsoft. At the Spirit offices a world map hangs on the wall densely covered with red thumbtacks, which represent customers around the globe. Russian software designers have not only completed numerous impossible missions for customers all over the world, they have also proven to the world that Russia has other resources to offer than just oil and natural gas.

Translated from the Chinese by Susanne Ganz

Abbyy Company Profile

Founded: 1989

Founder and chairman: David Yang

Number of employees: 880, including 400 software engineers

Major products: Optical character recognition and translation software

Spirit DSP Company Profile

Founded: 1992

Founder and chairman: Andrew Sviridenko

Number of employees: 140, including 60 fulltime software engineers

Major products: Embedded audio and video software engines

Chinese Version: 俄版比爾蓋茲 第一客戶宏達電