Current trends in the development of ecosystems and the forecast of their development in Russia for 2023 and the midterm

The geopolitical realities of 2022, the phenomena associated with them and the actions of Russian and foreign regulators, contractors and representatives of the competitive environment had a significant impact on the landscape of Russian digital ecosystems.

• Withdrawal of or significant reduction of operations in Russia by foreign companies provoked, in particular, a reduction in demand for a number of digital services (advertising, communications, data processing services, etc.). However, the vacant niches are quickly filled by local players, and demand is gradually recovering. At the same time, the departure of foreign digital services reduces the overall level of competition in this market and opens a window of opportunity for Russian companies.
• A sharp reduction in access to foreign capital markets, in particular the suspension of trading in shares and other financial instruments of Russian companies on foreign platforms, required immediate and active actions to restructure debt obligations. Due to difficulties in raising capital, some companies began to limit investments in secondary areas and projects until they were suspended, focusing on key elements of the business.
• The intensification of local competition for investments has also affected smaller companies and projects for which the search for an investor has become a question of the possibility of further existence. This is especially true for digital startups, for which a negative financial result with rising costs is a natural development model.
• The situation was aggravated by sanctions pressure, including personal sanctions against business owners and management. This triggered a wave of change of ownership of a number of companies and individual areas, and also entailed significant changes in their leadership.
• The process of staff outflow or relocation, including outside Russia, had a negative impact on the implementation of some projects and required additional management efforts and funding for the organization of remote workplaces and office spaces.
• In an effort to mitigate country risks, a number of cross-border companies, including digital players, are planning to divide businesses and projects into Russian and foreign parts.
• It is important to note the strengthening of the role and participation of the state in a number of companies, as well as the emergence of new requests from the state and the launch of new projects designed to compensate for the outflow of foreign technologies and solutions, including in the field of technological infrastructure and digital services.

In connection with the above phenomena and factors in the short and mid term in the field of digital ecosystems, we expect the following key trends to come to life. At the first stage (and this was observed during 2022), companies reconfigure their business with a focus on the most sustainable areas in which they have high competencies.

Secondary and experimental areas are sold, transferred to foreign assets, put on pause or closed. Therefore, the primary stabilization of the state occurs. Further on, reliance on key business areas, some adjustments to the business model, as well as updates to product offerings are likely. We can expect a greater focus of product offers on customer requests and broadcasting to them the maximum benefit, including financial (which the consumer seeks during periods of uncertainty). Then, having a strong business core as a base that consistently generates revenue, companies are likely to seek to invest — to search for promising projects and areas for consolidation, acquisitions or partnerships.

We see the following combination of the main factors that will contribute to the further active investment position of digital ecosystems.

• The situation on the capital market is gradually normalizing, access to it for stable reliable borrowers is becoming easier.
• General economic uncertainty and sharply increased risks have led to a general deep drop in business valuations, that is, the price that an investor has to pay has significantly decreased.
• Many owners have become more inclined to sell businesses or partner with strong stable players.
• Ecosystems have not yet achieved their long-term strategic goals, they are still forming and developing, which means that it is advisable for them to continue strengthening the product portfolio in order to form a more attractive ecosystem offer.

Thereby, we believe that the sphere of digital ecosystems, which experienced a primary shock in 2022, like the entire economy, is already confidently showing signs of recovery and recovery and has high chances not only to maintain its key business areas, but also to make profitable investments and expand the product portfolio by acquiring new businesses or implementation of partner programs, making their offers more attractive and profitable for customers

Key vectors of development: technological and business trends

Regarding the substantive trends in various fields and business areas relevant to digital ecosystem companies in the world, we would like to note the following points.

In the telecom field:

deployment of 5G networks by mobile operators around the world continues;

• at the same time, the main share of 5G subscribers is still concentrated in several countries — China, the USA, South Korea, and Japan. The same countries are characterized by their highest penetration into the common base — exceeding several times the global average. Thereby, despite the massive launch around the world, 5G networks have not yet entered mass use;
• relatively modest popularity of 5G in the world can be explained by the lack of new (regarding LTE) significant scenarios for the use of such networks — both in B2C and B2B segments. Obviously, the search for cases and relevant experiments will continue — and probably not only by the operators themselves, but also by third-party companies, in cooperation with telecom or independently;
• a qualitative leap is observed in the field of satellite communications. In addition to the ongoing deployment of low-orbit groupings, 2022 was marked by a number of significant events related to providing the possibility of direct satellite-smartphone communication, based on both existing satellite systems and promising ones;
• a guarantee of this kind of availability of communication “everywhere” (albeit in the form of SMS/messengers) on a standard smartphone, as well as cheaper and more compact broadband terminals of low-orbit systems can potentially lead to the emergence of new services in completely different areas — for example, in fintech (access to a digital wallet / digital money), in control of unmanned vehicles (remote control, if necessary), etc.

In our opinion, the following trends are significant in the field of media.

• “Smart” TVs are a significant (and against the background of the pandemic, having greatly increased their share, even the main) channel of video content consumption, which intensifies the struggle of digital ecosystems for control over this channel (through the appropriate operating systems) — both at the global level (Samsung, Amazon, Google) and at the selected local markets, including Russia.
• On the other hand, in the video content sales segment, 2022 showed that independent online players — even powerful ones like Netflix — can hit the growth ceiling, which calls into question the sustainability of their business model. On the contrary, diversified companies, as well as digital ecosystems that have other products besides the online cinema, are likely to be more sustainable in the long run.

The prospects of cloud technologies are determined by the role they play and will continue to play in the emergence of new products and services.

• The expansion of artificial intelligence and machine learning applications and the growth in the quality of products based on such technologies require increasingly powerful (and specialized) computing resources, often available — even for large companies — only in the form of cloud solutions from external providers.
• Another area — “edge” computing based on a geographically distributed network of data centers — is an example (along with 5G) of a technology for which the search for practical tasks is still in its initial stage, but which already promises a great future.
• At the same time, cybersecurity issues are becoming increasingly critical, require increased attention from both cloud providers themselves and their customers — and create a growing long-term demand for products and services in this area.

In general, it is worth noting that the current development of many technologies (including AR, VR, digital money, NFT — saying nothing about those listed above) has already reached a certain maturity, but at the same time there are relatively few mass cases of their application. Therefore, we believe that “groping” and testing such cases, checking their business models in the midterm will be no less important process than technological development itself and the generation of innovations. At the same time, taking into account the geopolitical realities of the current moment, product development based on these trends in different parts of the world may go differently.