The Russians are coming — to Silicon Valley

By Chrystia Freeland
May 27, 2011

Chrystia Freeland is a Reuters columnist. The views expressed are her own.

The Russians are coming. So far, the invaders are both welcome and unexpected — these aren’t the Cold War comrades who aspired to geopolitical domination or the first wave of oligarchs with their treasure chest of natural resources. These Russians propose to conquer the world’s new frontier — the Internet — and they are every bit as cocky as their forebears.

Russia’s arrival as a would-be technology superpower was announced this week when Yandex, a Russian Internet search company, made its debut on the Nasdaq stock exchange in the biggest U.S. Internet listing since Google went public in 2004.

With characteristic Russian bravado, Ilya Segalovich, the company’s chief technology officer, told my colleagues Alina Selyukh and Megan Davies that Yandex was superior to the behemoth Google: “Google is a great company, but we are better.” Yandex is “very focused on what we are doing, and the focus is technology and search.”

If you think of Russia either as the land of KGB-style repression or that of yacht-owning, supermodel-dating oil-rich oligarchs, this claim to technological prowess will be surprising. But ever since imperial Russia’s scientific modernization campaign, Russians have prided themselves on their mathematical and engineering skills — remember Sputnik.

For Yandex’s chief executive, Arkady Volozh, that human capital gives Russia the potential to emerge as a technology superpower. “Russia is famous for its resources,” he said. “But Russia also has a lot of talent.” He added, “Russia deserves to have a technology company of a global level.”

Silicon Valley has understood Russia’s technological savvy for some time. Right now, the Valley’s hottest investor hails not from Sand Hill Road, the epicenter of the region’s famous venture capital community, but from Moscow. Yuri Milner was such an aggressive and pioneering supporter of companies like Facebook and Zynga that he earned his way onto the Forbes billionaire list this year and has an investing approach (lots of cash, no board seat) named after him. Soon, Mr. Milner will be a physical presence, too — last month, he paid a reported $100 million for an estate in Los Altos Hills in the Valley, though he and his family will continue to make Moscow their main home.

Another sign that the smart money in America thinks we could be at the crest of a Russian technology wave: Earlier this year, New York-based General Atlantic, a fund with extensive emerging market and technology expertise, invested $200 million in Kaspersky Lab, a producer of security and anti-virus software. That was one of the flashiest foreign direct investments in Russian technology to date and paves the way for another Russian technology offering in three to five years.

All of this is very good news for the Kremlin, particularly its chief, President Dmitri A. Medvedev, whose big campaign at the moment is an economic modernization drive. Its centerpiece is a plan to build a Russian version of Silicon Valley in a neighborhood on the outskirts of Moscow known as Skolkovo.

That effort tends to provoke skepticism among Russians, who have a cultural affinity for cynicism, particularly when it comes to their government. But even if you aren’t a world-weary Slav, there are good reasons to wonder whether Putin’s Russia can conquer the Internet.

After all, in the great debate about the social effects of digital technology, the Arab Spring has provided pretty powerful evidence that new media and old dictators don’t mix. If you are unconvinced, ask the Chinese comrades, whose fear of Tunisian contagion prompted them not merely to block online references to the Jasmine Revolution, but also to ban the sale of the flower itself.

Those repressive reflexes have prompted many of the digerati to question, at least in private, whether authoritarian regimes can ever permit the free-spirited, open-ended, often frankly rebellious style of thinking and working that innovating on the Internet requires. Dictatorships might be good at manufacturing iPads — but could they invent them?

In the case of Russia, we may be discovering that authoritarianism and invention can coexist more easily than liberal democrats might hope. That is largely because Prime Minister Vladimir V. Putin’s genius has been to devise a form of government you might call authoritarianism lite. State rule in Russia isn’t exactly soft — just ask Mikhail B. Khodorkovsky, whose conviction on embezzlement charges was upheld by a Moscow court this week — but it isn’t Big Brother either.

In the world of ideas, Mr. Putin has understood the state doesn’t need to rule everything — only the mass, opinion-forming media, which in Russia is broadcast TV. On the radio, in elite newspapers and on the Internet, the intelligentsia can say pretty much what it chooses. This isn’t entirely new for Russia — both tsars and commissars allowed the intelligentsia some latitude, on the theory the chattering class didn’t really count. But Mr Putin has taken this much further than the apparatchiks did, allowing, for instance, extensive foreign travel.

As the Russian journalist Valery Panyushkin wrote in a New York Times op-ed article, “In Russia today, journalists are murdered like Anna Politkovskaya, beaten like Oleg Kashin and intimidated like me, but — as terrible as this will sound — that is not the real problem. The real problem is that journalists are ignored.”

The Kremlin has done a similar deal with its oligarchs. They can be rich — as long as they don’t seek to influence how their country is ruled, which in Mr. Putin’s eyes was Mr. Khodorkovsky’s true crime.

These two bargains — freedom and political impotence for the intelligentsia; wealth and political impotence for the oligarchs — are Mr. Putin’s version of the social contract. For Russia’s rising technology elite, that fragile combination of personal liberty and a lot of money may be good enough.

6 comments

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While working in Russia, I was impressed with the work ethic and knowledge of nearly all the professionals with whom I was involved. Likewise, the craftsmen and laborers worked as hard as any I’ve ever seen. I also feel safe in saying that the general population is as good-hearted as any group one could reasonably imagine.

Despite these favorable impressions, it was also obvious that Russia has some work to do to modernize its industies, to fully understand the workings of free markets, and to embrace the notion of customer service. It is also obvious that the country has not shaken its bureacratic past and must find ways to eliminate red tape and improve productivity. (It’s certainly interesting that as Russia works to improves itself, we find the US going the other direction with ever more bureacrats and regulations, while its productive work force is diminishing.)

In any event, I hope that the internet foray described in the article proves successful for all concerned.

Posted by John-B | Report as abusive

Wise to leave Russia to develop herself. She isn’t a threat to anyone. Even if she is slightly more authoritarian, there is really nothing wrong with that. No everyone needs to be synonymous to US if one understands what diversity is. It is not like Russia is out to destroy the West or Western culture. Far from it infact. The way one looks Russia knows she will thrive whether she is more authoritarian or more liberal if Europe and Asia thrives, so what is the incentive for her to destroy either? Russia is the only country that straddles two continents. If on her West wing she brings more Euro blood and on her East wing she brings in more Sino blood and mix both with a bit of Slav blood here and there, she will also have the diversity to match the US albeit in different terms on creativity and dynamicism. Three distinct advantages Russians enjoys over the US indefinitely are her one single large homogenous domestic market, her has a vast land straddling two continents enabling her ligitimate rights to close participation in the politics of two major regions as well as the enjoyment of natural resources wealth and her people whom have proved time and again since their founding to be great survivor and of high intelligence. Russia is nothing short of magnanimity in terms of ability and resources.

Posted by vision966 | Report as abusive

I have been using the Yandex search engine on and off for years. There was a time, not so long ago, when it did better for Russian language searches than Google did.

Posted by Syllogizer | Report as abusive

@ John-B

(It’s certainly interesting that as Russia works to improves itself, we find the US going the other direction with ever more bureacrats and regulations, while its productive work force is diminishing.)

It’s also true for other developing nations besides Russia. On the other hand, the average American worker is totally disillusioned because they are deceived by political rhetoric. Politicians are working overtime just to enhance their careers with fat pay checks. The only remedies are at best patch-work versions which only exacerbate the situation.

Posted by doctorjay317 | Report as abusive

Just used Yandex- Not impressed at all.

Posted by lingo009 | Report as abusive

“All of this is very good news for the Kremlin…”

The arrival of Russian technical business in the Valley is also good news for the electronics industry and, by extension, for the U.S. in general. Only a robust and successful technological future can tame our many environmental and social problems. As long as Silicon Valley continues as an international center for high-tech development, our country’s long-term economic prospects remain positive.

Posted by Ralphooo | Report as abusive