E-xecutive: RBC is the major company on the Russian Internet market. What are the reasons for your leadership and what business model has brought you success?

Yury Rovensky: The reason for our leadership among the so-called “Internet companies” is a simple one: we are not an Internet company. We produce information and use the Internet for delivering it to consumers. We also have other channels to deliver information: until recently, there were printed bulletins, and now there is television. When we are compared to an Internet company, some contradiction arises, as it is commonly assumed that such Internet companies cannot exist. In fact, RBC has now turned into a large media holding company with a staff of over 1,500 people. Yes, we started with the Internet. However, the Internet has never been a specific business to us, and we never viewed ourselves as a part of the so-called “new economy,” which was commonly spoken about during the era of the so-called “Internet bubble” in the 1990s. We were perfectly aware that the “new economy” could not exist without a conventional economy.

Let us review what actually happened at the time our company appeared. Internet portals, earning money on trade or paid services, or Internet advertisements, appeared in the 1990s. This principle was not at all new: there are goods, there is money, there is demand, and there is supply. Therefore, it makes no sense to call RBC an “Internet company.” Internet is just a way of doing business for us. I reiterate: RBC was born and evolved as a news agency. We appeared before the Internet was created, in 1992. Yes, we were the first to enter the Internet. Generally, we are committed to the strategy of leadership. In fact, we try to be ahead of the market, so as to form trends and to be the first to occupy different niches. We were the first to conduct an IPO, the first to launch a business TV channel, the first to launch trading systems and terminals. Our popularity as an Internet company is largely due to the fact that during the crisis in 1998, we were the first to open free access to information. This move allowed us to achieve a high level of loyalty among clients that gave us an advantage for years ahead.

As a result, presently, we are an absolute leader of all information resources in Russia, and this position we have kept since 1998. Over 300,000 unique visitors a day review information from RBC now. The monthly audience of RBC and all our affiliated resources is nearly four million people. The affiliated resources are www.utro.ru, www.RBCdaily.ru, www.quote.ru, www.cnews.ru, etc. We deliberately separated all these segments from RBC in an attempt to prevent a situation in which RBC would turn into an “information dump,” accumulating information of all sorts.

In the past, during the era of flourishing Internet portals, the “all in one” model was promising. However, we were possibly the first to understand that excessive information was not better than a lack of it. Therefore, we started to sort out information for users, so as to make its consumption more convenient. Interestingly, the volume of information going via RBC’s electronic resources equals about 10,000 typewritten pages now. A comprehensive search system is available, and additionally, information is sorted by subject, issuer and keyword. Filters can sift out what is not interesting to you. RBC has not only newslines and analytics but also functional terminals. These terminals can be used for technical analysis and market monitoring; furthermore, one can set threshold values and receive notices (tickers) when these values are achieved.

Additionally, another advantage of ours is that our resources have always been ergonomic, and were initially customized. Presently, the idea of creating a service is suggested by analysts in industry. As a result, although we entered this business with an economic rather than an engineering background, we have opened an independent division, RBC-Soft. It comprises software, remote access systems and all supplementary services, such as domains and hosting. As we have operated on the Internet since 1995, we have formed a team of people who clearly understand the specific behavior of consumers on the Internet. Here is one peculiarity: strangely enough, the Internet is a place for lazy people. If you make your consumer work, he or she will go to someone else.

E-xecutive: What is your target audience like?

Yury Rovensky: Socially active, well-off people and active consumers. All characteristics that we receive from sociological surveys indicate that this is the most educated segment of the population. These are people who make decisions. However, you can ask why RBC has suddenly offered such resources as Weekend, Sport RBC, Auto RBC. It is because in addition to work, every person has a lunch break, some private life, a weekend, a vacation, some thoughts about education for himself or herself and his or her children. It is quite logical for a resource that this person has confidence in, to provide this person with information on all these components of a normal human life, hence the idea of creating some kind of a “solar system” of RBC. RBC is the center of this system, which has a lot of “satellites” around it, interrelated with the center, whose format and style are familiar to a user. It is a matter of common logic rather than common design. Sometimes we are asked: where is your design? I always answer: RBC is not a designer website. The most valuable thing is that the RBC website is functional and informative, while the absence of a design is only a plus, as any design makes a page heavier and creates some excessive traffic, which would otherwise be practically imposed on users.

E-xecutive: What is the difference between the economic model of your business and those of other major Internet companies, such as Rambler or Yandex? Where do you derive your main income from?

Yury Rovensky: After we entered the stock exchange, the answer to the question of the structure of our revenues cannot be a secret in any event. A public company should be transparent, and you can find all information about the amount and sources of our incomes on our website. The structure of our business is simple. We have separate legal entities, of which each has complete financial independence as a center for the formation of profits. We have no unprofitable or subsidized projects, and there is no cross-financing either. Our television is an investment project, financed by the parent company, and in no way can it affect the profitability of other projects.

As for sources of revenues, we have two main business segments: media and IT. In the media business, advertisements on the Internet and on television are the main source of revenue. Generally, our method of delivering information to a consumer can be called multi-channel delivery. We have the Internet, until recently we had printed bulletins, and information is also delivered to Palm computers, through WAP, etc. The Internet is the largest cluster here, but not the only one. Recently, we have offered television as another delivery channel. Obviously, the Internet cannot be viewed as a reflection of the TV, and vice versa. Television is a self-sufficient product that receives information from the agency but is not limited to it. The aim of the creation of our television was not just to get another channel to convey our opinion. We wanted the market to have a place for different market participants to exchange their views. Television is the most democratic way to deliver information - furthermore, a TV picture produces an effect quite different from that of a text on the Internet. In fact, television has turned into an instrument of stimulating the market for us. The television audience has approached 40 million people now, taking into account the fact that the core audience, consisting of people who watch the television at least once a week, is 3.2 million people, according to a COMCON estimate, in Russia, Belarus, Ukraine, all the Baltic countries and Kazakhstan. In Russia, our programs are rebroadcast by local operators in over 60 regions, including Moscow and St. Petersburg. In St. Petersburg, we rely on local operators, and in Moscow, we have terrestrial broadcasting in the southeastern district, and residents in other districts can receive us via Kosmos-TV, NTV-Plus, Comcor and alternative cable networks in elite neighborhoods. MegaFon has recently started to provide a “TV via mobile phone” service, and our television can be watched on a telephone screen.

As for our business model, one can say that RBC is primarily a profit-oriented company. We had always been a private company before we conducted an IPO to raise funds for the development of television. By the way, in addition to share capital, we invested operating profit and bonds in the development of television then, and also used other sources of financing.

E-xecutive: In your opinion, when will RBC TV achieve profitability?

Yury Rovensky: We have a clear business plan that provides for the television to achieve profitability in two-and-a-half years. In accordance with this plan, this should happen next year. We are fulfilling this schedule, and our forecasts for costs and revenues show positive trends. I reckon the television will reach profitability even ahead of schedule.

E-xecutive: Many are surprised at the amount of your revenues from Internet advertisements. How can you explain their huge amount and what is the market share that you control?

Yury Rovensky: There are different estimates for the volume of the Internet advertising market, ranging from $8m-$10m to $20m and higher. I can give only the sum of our revenues. There is only one explanation for this high level of revenues: a place for advertisements on RBC costs 10-15 times more than that on any other resource. It is our target audience that attracts advertisers. If one is interested in just the number of clicks, one should not go to us but should visit a porno site, where this number is higher. Our advertisers target primarily the wealthy strata of society, and their offerings include real estate, financial institutions and branding elements. The cost/efficiency ratio for advertisements on the Internet is the highest now, exceeding that on radio or television. It should be noted that presently, RBC has practically no vacant places for advertisements left until April 2005, as these places have been sold. Over 85 percent of our advertisers repeatedly use our services. Additionally, our website has the highest popularity of all news resources, and only search engines and postal sites are ahead of it. At the same time, we practically do not compete with these sites, as our advertisers belong to completely different categories. Our advertisers are focused on corporate perception, exclusive resources and goods, while the audience and the psychology of visitors to search engines would rather envisage consumer products.

As for specific figures, the company’s revenue from media business (without television) amounted to $16.4m over the first six months of 2004, and the corresponding figure for IT business was $10.3m. Revenue from the TV project totaled $7m over the first six months of the year. We expect to receive a total revenue of $71m this year.

E-xecutive: Do these figures include barter deals and offsets?

Yury Rovensky: First of all, I would like to underscore that all these figures are audited, and KPMG has been our auditor for many years. Yes, we record material barter deals (involving, for example, computer and other office equipment) at their balance sheet value. It is convenient to us, as in any event, we are a big consumer of different kinds of office equipment. At the same time, we simply cannot consume some goods that are broadly advertised on our site, such as expensive furniture. Therefore, the potential for barter deals is rather limited. Non-material barter deals, such as exchange of advertising space or information sponsorship, are not included in our financial data.

E-xecutive: Can I ask you a question from a quite different field? You are the director of a major mass media firm, which deals with business issues. In your view, what constitutes “business content,” and what are the principles of selecting information to be published on your resources?

Yury Rovensky: Let us analyze a situation: Is a fashion week in Moscow a business event or not? From the point of view of an oil trader, probably it is not. But from the point of view of a person in show business or the textile industry, it obviously is. Of course, there is information that under no circumstances can be considered business information. However, one should not forget that a modern business person is not at all a “dried-up man,” interested only in tickers on the exchange. As this person’s well-being grows, and his or her social status improves, as Maslow discovered, he or she becomes increasingly interested in culture, arts and theater. Information from the cultural sector may not be necessary for business but it is desirable and claimed as “extra-curricula” information. That is why we understand business content rather broadly, and we include in it not just traditional elements of business life but also everything that is of serious interest to our audience.

As for the format of our content, I would not say that we are referring to some classic western periodicals, such as Fortune or Forbes. Over the 12 years of our work, we have formed our own content format. As business life in general, it is based on two things: analytics and news. News can deal with economy, stocks, politics, but as long as it is news it has some influence on the business world. For example, the President’s remark in Kazakhstan that YUKOS will not go bankrupt boosted the price of YUKOS shares so much that the trade had to be ceased. Another element of the content is analytics, as any activity on the market is based either on news or on analytics. All other genres at our news agency are, in fact, just specific examples of these two formats. We view a commentary as a small piece of analytics. Other journalistic genres are also acceptable but not at the news agency. There are publishing houses that can allow an author’s personal opinion, a journalistic investigation or a forecast. However, it is not acceptable to RBC, as any news agency has an obligation to report facts rather than give its opinion on them.

In this connection, we are happy to have RBC Daily, where journalists can “have their writing out” at least once in a quarter, as psychologically, it is quite difficult for a professional to work on the newsline all the time. Journalists accumulate a lot of different information, which is likely to be logically integrated, and they want to share this knowledge with everybody. Cooperation between reporters at the news agency and journalists at our newspapers and television allows them to make better use of their abilities, making their work more interesting, and when a person works more, obviously, he or she earns more. By the way, this is RBC’s main principle: there is no limit on an employee’s compensation, and the more one works, or to be more exact, the more one earns, the more one derives.

E-xecutive: Does this also apply to journalists?

Yury Rovensky: Of course, journalists do not make money directly but their “earnings” are exclusive materials. If a journalist brings some piece of exclusive material every day, this will not go unnoticed, especially when there is another reporter who reports even standard news announced at a news conference after it is released by other news agencies. It should be noted that we have a working mode that is quite different from that of printed media. Each issue there is closed once a day, and a rush begins in the afternoon, while we count literally every second during the day. Reporters at our agency have developed a specific mentality, and they have a different attitude to being late, promptness and other issues.

E-xecutive: You mentioned that your company was the first to conduct an IPO. Now you have some followers, for example news about an IPO by Rambler has been reported recently, and other companies are likely to follow it. What is your opinion about this trend? Does it mean an investment boom in your industry?

Yury Rovensky: All these facts indicate that the market has achieved a certain degree of maturity and stability. Some time was needed for the creation of infrastructure and effective demand. All that has been created now, and it is actively used. Furthermore, funds are obtained not only from the Russian market, as you mentioned an IPO that is being prepared in London (Rambler), and there are examples of ADR issues of Russian Internet companies that are being prepared abroad. All this is primarily due to the economic situation in Russia and worldwide.

When we were preparing an IPO, we chose Moscow because the market situation for shares of our category in Russia was better than that in the West. There was no real economic growth then either in Europe or in the USA. Additionally, RBC as a company that is not striving for a significant share of the world market would have to bear serious expenditures just to explain to western investors what we are. At the same time, there is hardly anyone in Russia’s business community who would know nothing about our company. We estimate that the cost of conducting an IPO in the USA or England simply makes it economically inexpedient for a company with a capital of $250m-$300m.

E-xecutive: In your opinion, what kind of money is invested in the Internet industry now? Is it “foolish” money or “smart”?

“Long” or “short”? Is there a threat of repeating the “bubble” similar to that at the end of the 1990s?

Yury Rovensky: Obviously, there was a strong trend towards some artificial boosting of the market in the past. For example, one can refer to the Y2K problem (Editor’s Note: rumors about a massive failure of computer networks on January 1, 2000, as computers were allegedly unprepared to work with dates after December 31, 1999). I will never believe that this “problem,” which was absolutely empty, was a result of spontaneous mass madness. This is an example of an ingenious PR campaign. I do not know who was behind it but it is clear that some people made huge money on this equivocal “problem.” If one looks around, one can see that a non-existing “problem” is rather often boosted at the initial stage, and then money is raised to “resolve” it. This was the situation with chicken flu and SARS. So, Internet pyramids had a similar mechanism: people invested money in them just because the word “Internet” was mentioned there. By the way, this word began with a capital letter not long ago.

Nevertheless, the collapse of the “bubble” had some effect on both Internet companies and investors. Therefore, it can hardly be repeated now. First, people dealing with the Internet have traditionally been the most informed people. Second, the reason for the collapse of the “bubble” in Russia largely was that mostly people with degrees in engineering and a technical background but without any knowledge of the basics of business came to the Russian Internet in 2000. They created a product not because consumers needed it but because it simply “worked.” A technical peculiarity was an end in itself, and then an attempt was made to sell this product to somebody. Almost all Internet projects in Russia had no business model behind them. People who created them were enthusiasts who invested their money and time without any clear idea of the final result. In contrast to that period, Internet business has matured now and has engaged consultants that simply will not allow a new “bubble” to emerge.

One can say that currently, investments in Internet business are mostly medium-term. I would mention several reasons for the present inflow of money to our industry. First, the infrastructure has improved significantly; second, the number of Internet users has grown; and third, the sales volume in the industry has increased, too. It should be noted that there are practically no investments in startups now. It is almost always a matter of an established company with a reliable business model. Internet companies are now viewed as real enterprises that bring profits.

Interestingly, just a year ago financial and industrial groups were showing no interest in RBC at all. To them, we were just a small company, although making an interesting product, but anyway, there was no reason for them to invest money in us, as they could acquire, for example, another oil well or real estate. Presently, on the one hand, the number of attractive investment projects in “traditional” industries has decreased, and on the other hand, profitability in industries previously considered unattractive has grown. Different companies looking for investment opportunities have begun to make investments in hi-tech industries, including the Internet.