Ozon Holdings, one of the most established players on the Russian e-commerce scene, announced today a $150 million funding deal with AFK Sistema, a Russian LSE-listed holding operating in a range of industries, and its subsidiary MTS, a leading mobile operator and retailer. [See Sistema's investor presentation of the deal.]

The transaction marks the most significant investment volume in the history of Russian e-commerce – a market that reached $16 billion last year (not including cross-border sales), according to a recent study by East-West Digital News.

E-commerce experience for mobile operator

AFK Sistema and MTS have each received a 10.8% stake in exchange for the capital injection. Both investors will be represented at the board of directors.

The funds will be used to develop and fine-tune Ozon’s delivery systems as well as for “potential acquisitions and global partnerships,” Ozon CEO Maëlle Gavet stated.

Gavet also announced synergies between “MTS’s telecom experience” and Ozon’s “fast growing e-commerce platform.”

Elaborating on this partnership, MTS President and CEO Andrey Dobovskov presented the deal as an “additional business direction complementing [the operator’s] core mobile and retail activities.” Ozon will provide MTS with “a new sales channel on an exclusive basis [as well as with] the logistical infrastructure, the delivery capacities and the industry expertise required to develop MTS’s own online sales,” he stated.

Dobovskov also sees in the deal “an important potential for economies of scale to commercialize smartphones, tablets and electornic appliances” as well as “to integrate marketing programs.”

Amazon’s Russian little brother

Founded in 1998, Ozon – often called, with some exaggeration, the Russian Amazon – enjoys the most recognizable e-commerce brand among online buyers in Russia. The company’s stated goal is to “offer everything that the user needs with Russia’s widest selection and to be the best in every category.”

Initially focused on the sale of books, CDs and DVDs, the site enlarged its positioning in the mid-2000s – following the example of its US model – with consumer electronics, cameras and mobile phones and later added children’s goods and travel products. Ozon.ru has arguably the largest online assortment on the Russian market with over 2.2 million unique products in 13 categories in 2013.

In 2009, Ozon launched Ozon Travel, which quickly asserted itself as a major player on the Russian online travel segment.

In early 2012, OZON acquired Sapato.ru, a major online retailer of shoes and accessories, which had been launched 18 months earlier by Moscow incubator Fastlane Ventures.

The number of registered users of the group’s properties neared 16 million in 2013.

Ozon has developed an in-house fulfillment and delivery network across Russia and Kazakhstan. Its delivery service, named O’Courier, serves more than 350 cities with 2,100 pick-up points. In the first half of 2013 it shipped 3.1 million orders for Ozon. ru and other online shops.

Ozon_fulfilment

From warehousing to delivery to pickup points, OZON has built a comprehensive, nationwide e-commerce logistics system. (Photo credit: Ozon)

Moreover, in early 2013, Ozon made its capacities available to third party players. The offer goes beyond fulfilment and deliverey services, with web development, call center, payment, and strategic consulting services provided to foreign brands considering expansion into the Russian market.

Giant funding does not guarantee market leadership

The company has had Western management since the early 2000s when French businessman Pascal Clément bought a controlling stake in the company, which he then sold in 2006. Clément appointed Swiss Bernard Lukey as CEO in 2005, and Lukey was replaced in 2011 by former BCG Principal Maëlle Gavet.

In September 2011, OZON raised $100 million from Ru-Net, a major Russian fund, Index Ventures, Alpha Associates and the Japanese e-commerce giant Rakuten, with early investor Baring Vostok Capital retaining its stake.

Taking into account all the group’s properties – from Ozon.ru and Sapato.ru, which trade physical goods, to Ozon Travel, to O’Courier – Ozon reported GMV of 23.8 billion rubles, or $747 million, in 2013. Year-on-year growth reached 51% vs. 78% (in rubles) in 2012.

Ozon does not disclose financial details on its properties taken individually. An East-West Digital News pool of experts has estimated the turnover of Ozon.ru and Sapato.ru combined at 9.3 billion rubles, or approximately $290 million, in 2013 (without VAT and excluding returns). The Ozon group would thus rank seventh among Russian online retailers as far as physical goods are concerned.

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