Russian IT Industry & Education

Birger SteenGeneral ManagerMicrosoft RussiaApril 27, 2006

Богатство России обучением прирастать будет! - М.В. Ломоносов

Welcome to Academic Days 2006 Moscow!

• Fourth event of its kind (two events organized by Microsoft Research, last two events – by Microsoft Russia)• Nearly 300 lecturers and researchers participating this year:

–230 from Russia (75+ from Moscow, 26 from St. Petersburg, 14 from Novosbirsk, 12 from Tomsk, 7 from Nizhni Novgorod etc.)

–28 from Ukraine (Kiev, Kharkov, Lvov, Odessa, Donetsk etc.)–15 from Baltic states (Estonia, Latvia, Lithuania)–8 from Kazakhstan–2 from Armenia–1 from Finland ("Leningrad Region")

• Speakers from Microsoft USA, Microsoft Research, Microsoft Russia and two Russian universities

Agenda

• Overview of Russian IT Market

• Barriers for Growth of IT Market

• What Needs To Be Done

• Microsoft's Commitment to Education

5min

10min

10min

5min

11 time zones

*Income after taxSource:EIU; Goskomstat

Russia Is Attractive For Investments

Disposable income per capita*USD

Nominal GDPUSD Billion

987878

750581

432345307

2001 02 03 04 05 06 07

1,057

08

1,180

09

1,289

2010

+17%

07

4,269

08

4,759

09

5,180

2010

+18%

3,916

1,166

2001

1,384

02

1,816

03

2,301

04

2,909

05

3,451

06

• 6 times bigger than in India

• 3.8 times bigger than in China

"…our target is to double GDP within next 10 years…

V. Putin Russia's President

Ford already invested USD 150m+ in assembly facility

Ford already invested USD 150m+ in assembly facility

Toyota started to build its auto-assembly Greenfield: first wave investment – USD 143m

Toyota started to build its auto-assembly Greenfield: first wave investment – USD 143m

Siemens invested USD 125m+ to production capacity

Siemens invested USD 125m+ to production capacity

Overall, IKEA made more than USD 1bn investment, and is planning to invest the same amount within next 2 years

Overall, IKEA made more than USD 1bn investment, and is planning to invest the same amount within next 2 years

Positive outlook

• Large market – Population 143.4 million– Labor force 74.2 million– 54 million households – GDP per capita: USD 10,750 at PPP– 104 million mobile subscriptions sold

• Inward direct investments USD 17bn in 2005

• Russia’s high level of foreign currency reserves (USD 120bn)

• Low level of external debt

• Strong consensus among political leadership team

• Vital reforms initiated

• Support for international cooperation

• High quality and low cost of human resources

IT Spending In Russia Is Projected To Double Over The Next 5 Years

Source: IDC Blackbook; Euromonitor

11.83

18.70

3.73

2.65

5.80

08

13.59

06

1.83

0.61

1.16

3.17

4.93

2002

0.74

1.38

3.64

5.76

03

1.071.87

6.34

9.28

04

1.27

2.36

7.72

11.36

05

1.53

2.97

10.51

CAGR25%

CAGR20%

Packaged software13.38

+37%

+18%

2009

9.09

CAGR 15%

Services

Hardware

16.07

07

2.20

4.66

21.84

USD Billion

Forecast

The potential:

Unique Market: Educated Population with low salaries and high growth of IT

Education:- 1,097 universities, 364k professors, 6.8M students- 6,200 prof schools, 137k teachers, 4.1M students- 64,000 schools, 1.6M teachers, 16.6M pupils- 99.4% literacy among 15+ population- 16% of total population and 23% of working population with higher education

Literacy among 15+ population

Russia 99.4%

China 90.9%

Brazil 88.4%

India 61.0%

Science and IT:- 125k software developers- 492k researchers- 200k technical graduates with higher education each year

Average Salaries in IT:- 4 kUSD for researchers and 9 kUSD for software developers in Russia vs. 65-80 kUSD in US and Western Europe

# of Researchers

US 1 317 238

China 819 651

Russia 492 040

Germany 265 538

India 125 946

Brazil 62 042

Share of GDP from SW production

Russia 0.15%

UK 2%

US 3%

India 8%

Developers & IT-pros•Two pipelines:

– CS/SE students graduate from universities– Non-software engineers learn how to program

• 35 % of Russian developers are working in export segment of Russian software development industry (mostly software outsourcing)

• There are also 330 K IT-Pros in Russia

Universities / Students• Total number of students in Russia is ~6,000 K• Total number of technical students in Russia is ~1,500 K• There are 2,400+ state and private universities (with branches)• Approximately 650 universities are teaching software developers

RegionDevelo

persDev

Students

Central Region (includes Moscow)

28 % 33 %

North-West Region

(includes St. Petersburg)

14 % 14 %

Volga Region 20 % 20 %

Ural Region 13 % 6 %

Siberia Region 13 % 12 %

South Region 10 % 18 %

Far East Region 5 % 4 %

Total 125 K 60 K

Source: Microsoft; CMU, UNESCO

Russian R&D Pool• 950 K top-level scientists and researchers with leading edge domain

knowledge and/or fundamental science skills• About 50 % of them could easily learn how to program in a few

weeks/months

Agenda

• Overview of Russian IT Market

• Barriers for Growth of IT Market

• What Needs To Be Done

• Microsoft's Commitment to Education

5min

10min

10min

5min

Russia Is Utilizing Only 10% of Its Software Development Potential!

• Only 40,000 programmers are involved in products development, while ~100,000 are doing either outsourcing or in-house software development• This could be partially attributed to piracy (but this is going down) and to lack of management and entrepreneurial skills• Russia is competing in the wrong component of IT market – its biggest potential is not in services (India), not in hardware (China), but in software products development • We forecast fast growth of software product development in Russia in the next few years

69%

20%

11%

HardwareSoftwareServices

39%41%

20%

HardwareSoftwareServices

IT Market – Russia

IT Market – World

Source: IDC, 2004

Counterfeiting today is a huge issue for our country. Russia will never become an intellectual property producer if situation

remains the same.

Mr. Gref, Minster of Economy and Trade RF

The involvement of intellectual property in the national economy is vital to ensure technological and economic safety

Mr. Fradkov, Prime Minister of Russian Federation

Our primary goal is to create favorable environment for the growth of Russian business using IP …protected intellectual property should form a cornerstone of the new Russian economy. Mr. Fursenko, Minister of Science and Education

…. Folks, I encourage you to use legitimate software. Be it Microsoft, or not… But let it be genuine one! …

Quote from Internet community influential, who is MS skeptic, runs OS/2 and Linux but admires Word and claims it to be the best ever word processor that really “knows the Russian language”

Piracy

Lack of Management Skills

• "Traditional" challenge since Soviet times• Russian Education system is mostly technical-oriented and geared toward fundamental sciences• Lack of middle managers in IT industry is mentioned as one of "institutional problems" in "Conception of developing IT market in Russia" published by Ministry of IT and Telecommunications in 2005• Until recently, there were no formal education programs for training IT managers, and even now this kind of degrees is a rarity

Agenda

• Overview of Russian IT Market

• Barriers for Growth of IT Market

• What Needs To Be Done

• Microsoft's Commitment to Education

5min

10min

10min

5min

Beating Piracy

• Institutional problem in all emerging markets• However, growth of Russian middle class drives the piracy down – from virtually 100% to estimated 85% this year• There are some successes in fighting piracy in Russia:

–Changes in sales to Russian corporations (it is no longer about selling Windows only)

–Two years ago more than 70% of all computers were sold with unlicensed OS, now this figure is less than 50%

–Russia is 3rd worldwide in sales of Windows Media Center (after USA and Japan)• Legislation and enforcement support in fighting piracy from the government• Still a lot to be done – starting with mindset on intellectual property

–If we cannot teach our students to pay for software, then how do we make them pay for education?

Role of Education in Supporting Growth

• Education is a Business!• It is possible to significantly increase the number of people studying for IT degrees by capitalizing on existing market opportunities:

– Launch Bachelor and Master programs in "Software Engineering", "Information Systems" and "IT Management" (already in progress at the leading universities, such as Moscow State University and Higher School of Economics)

– Increase the number of offerings in IT re-orientation and 2nd higher education programs, such as "Software Development for Technical Engineers"

– Restore system of mass professional education (basic IT skills)– Offer distance learning courses, which are especially important for Russia with its

huge geography• Topics that will be "burning hot" in the coming years include: Software as a

Business, Software Entrepreneurship, Software Marketing, Software Project Management, Technical English

Increasing Importance of IT in Public Sector

Priorities for developing IT Market till 2010 as stated by Ministry of IT and Telecommunications:• Increase fixed phone lines per capita (from 0.28 to 0.43)• Increase PC per capita ratio (from 0.1 to 0.43)• Increase Internet penetration in Russia (from 13% to 45%)• Increase the share of IT in Russian GDP (from 5% to 10%)• Increase share of ICT products and services in Russian export (from 1 to 4%)• Increase the percentage of people employed in IT industry (from 1.8 to 5%)

Other important things to do: • Improve Legislation (including Laws and Regulations on Intellectual Property Rights and Electronic Signatures)• Invest in IT usage and IT skills in Government bodies

Agenda

• Overview of Russian IT Market

• Barriers for Growth of IT Market

• What Needs To Be Done

• Microsoft's Commitment to Education

5min

10min

10min

5min

Microsoft Is Committed To Solving Problems Together with Education

• …by fighting with software and intellectual property piracy• …by creating technologies for university infrastructure (Windows, Office, Class Server, Learning Gateway)• …by developing methodologies for teaching IT in high school and non-IT university specialties (e.g. "Microsoft Office for teachers" series)• …by supporting curricula for IT specialties in universities (see MSDN AA Curricula Repository)• …by sponsoring scientific and education conferences in Russia (Academic Days, Summer schools, IT Education in Russia)• …by advancing scientific research at universities through Microsoft Research

Developing Management Skills and Entrepreneurships

• Development of education environment:

– Starting to teach IT early and supporting transition from high school to university ("Partners in Learning" courses)

– New business models for education (Microsoft IT Academy)

– Supporting new specialties in higher education (Software Engineering, Business Informatics etc.)

• Promoting IT entrepreneurship by competitions such as Russian Innovation Fair or Imagine Cup

Imagine Cup 2005 Champions – Russian team

Microsoft Amazing Potential Award

• Announcing Microsoft "Amazing Potential" award for students• Award is designed to recognize the best IT students of Russia• Requirements for applying for this award:

– Student of Russian university– Recommendation of Professor or Assistant Professor of Russian

university– CV of candidate in English (1 or 2 pages)– Proven IT skills and knowledge

• An award will be made either as cash stipend of $1,000 or as a Travel grant for the same amount

EDUCATION FOR THE 21ST CENTURY

Strategic initiatives

• Re-train PS employees to ensure MS-based IT skills are in place. Accelerate usage of LRG Solutions.– Introduce curriculum and provide on-the-job and

vocational training for ALL public servants. IW / LRG.– Cover ALL state-run training institutions for roll-out– Ensure state funding to support MS Initiative

• Build content development process to support broad adoption of MLG Solutions and LSE Initiative– Invest at initial stage (3 years) to create demand – Partner with Government to facilitate development of 3 rd

party business model to expand further• Build Centers of Excellence in all Federal Districts to

demonstrate best-in-class MS Solutions (MLG)– 14 Centers in 7 Districts. Cover rural and municipal

centers in each District.– Invest in TTT and post graduates to adopt Solutions

• Run GAPP to create demand for best-in-class Education / Solutions available – Partner with Government and Industry – Focus on Student and Teachers, continue with Public

Servants and Security/Military– MS to provide SW, discounts, enhanced business

models (ex., Powerline)

Impact, metrics and investments

• Impact in 3rd year– PS Servants training on MS

Technology: 800k– LRG Solutions penetration in

Federal PS: 80%

• Metrics to monitor

• Investments (cumulative) – 110 mln rubles!

• # of PS servants• # of IT courses• # of Centers• # of MGL projects

KPIs/ years FY07 FY08 FY09

Invest in IT skills to improve ICT use by PS and Education

Drive demand to increase effectivenessof Russian Education

100k 250k 450k20k 80k 160k

4 5 54 5 15

© 2006 Microsoft Corporation. All rights reserved.This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.