Not going postal

Why Amazon’s new Russian business will only sell e-books for now

April 19, 2013
Obsession
The Cloud
April 19, 2013

Amazon just opened an office in Russia and hired a man to run it, according to TechCrunch, which cites Forbes Russia. Amazon has applied for several patents at Russia’s patent office, among them for the mechanisms it uses to package and deliver physical goods. But it will almost certainly restrict its business to Kindle.

That’s because Russia, in common with other markets like China and India, is a dreadful place for deliveries. These countries share not only membership in the BRIC club and daunting geographies but also rubbish postal systems. Any decent e-commerce business therefore needs either to work with expensive courier companies or set up its own delivery network.

Ozon.ru, Russia’s incumbent Amazon, has its own logistics operation. So does KupiVIP, a fashion retailer set up by Oskar Hartmann. Speaking at a session about e-commerce at the DLD Moscow conference last year, he complained that in Russia “you pay three guys from a consultancy €10 million and you get 30%” delivery rates, compared to 98% in Germany. Smaller e-commerce companies tend to sign up with the bigger ones for deliveries.

If Amazon wants to make deliveries, it will have to go down the same route. It can either invest money in setting up its own distribution network or share resources with an established e-commerce firm. The latter seems unlikely.

There are other problems too. Russians don’t like using credit cards on the internet. Some 80% of Ozon’s transactions are settled through cash on delivery. Nor are customers always happy with what they receive—returns are common.

It would be foolish for Amazon to wade into this morass, at least initially. Focusing on Kindle therefore makes a lot more sense. Little surprise then that the man heading up the Russian office, Arkady Vitrouk, comes from a publishing background.

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