Who is transforming the Belarussian IT model right now? And why?

At the beginning of 2017, Belarusian President Alexander Lukashenko emphasised the importance of Belarusian IT business being taken to the next level. Following the decision, Vsevolod Yanchevsky became the newly appointed Head of the Belarusian Hi-Tech Park. This major transformation is based upon the previous culture of the Belarusian IT model as an outsourcing industry. This was the foundation behind the creation of a new ‘product era’. The changes are certainly promising, and they are positive enough to earn Belarus a reputation as a global IT leader.

“I recently caught up with our ‘IT ninjas’. Mark my words: one day there will be an IT explosion! The industry is booming right now. We’ve passed the early stage, when we were designing and developing software pieces for somebody overseas. Today the challenge has gotten bigger: we are creating software from scratch and shaping a solid product,” Alexander Lukashenko said during one of his most recent business trips around Belarus. 

“We set an ambitious task. We set out to make Belarus an IT country. In the near future, we’ll tweak legislation to make the changes possible and real,” said the President at the Belarus-Russia regional forum. 

Valery Tsepkalo, the former Head of the Hi-Tech Park and one of its founding fathers, has been shaping and nurturing an outsourcing IT model for more than ten years. And he has pulled it off! Belarus has become one of the global leaders in developing custom software for tech giants around the world. The pace global informatisation took, back in 2010, was so frenetic that Belarus had to adapt to keep up. As a result, ‘outsourcers’ like Dobkin, Levteev and Bakhirev, drivers behind the IT sector, will have to give way to ‘product makers’ like Kislyi, Prokopenya and Melnichek. The latter have already shown, and continue to show, fledgling businessmen and distinguished investors alike how effectively the national IT industry can develop and change.

 

The turning point

Most people believe that the release of World of Tanks accelerated the tech revolution in Belarus. The impact was really intense. During the first years after its launch, ‘Tanks’ was generating fantastic profits. Wargaming’s market capitalisation reached $3 billion and Kislyi wealth was worth over $1 billion. Even so, after a few years of booming success, World of Tanks stopped bringing such huge amounts of money. Initially, the game targeted the Post-Soviet region, and as soon as the crisis hit hard, the customers’ purchasing power dropped dramatically. 

Experts have another turning point in mind for the tech revolution in Belarus. That turning point is 2012. That year two major events occurred. These events were destined to alter the Belarusian IT industry hugely. 

One event was much discussed by global media. Indeed, it was a historic moment for the Belarusian business realm. A Belarusian company went public on the New York Stock Exchange! 

On February 8 Arkadiy Dobkin, EPAM CEO, rang the opening bell and marked the beginning of a new era for his company. For the first time in the history of the NYSE, its entrance was decorated with the Belarusian flag. 

However, the global economic crisis was the main obstacle behind the company failing to fulfil all its plans. Low demand and weak interest from investors forced EPAM to change its IPO details on short notice. In February, the company’s market cap was $600 million. 

At the same time Minsk became the centre of another big deal valued at $100 million. The size of the transaction was tremendous for the Belarusian market. Nevertheless, unlike the EPAM IPO, the news didn’t receive as much attention by the media. 

Viktor Prokopenya, who wasn’t widely known of back then, sold his company, Viaden Media, to Israeli billionaire Teddy Sagi. Just to compare: Arkadiy Dobkin made $5.34 million on the initial public offering; his portfolio (12.5% of shares) is valued at more than $60 million. In the following years, Dobkin sold part of his rising shares and multiplied his capital. It took 20 years for Arkadiy Dobkin to become a multimillionaire at the age of 52. 

Viktor Prokopenya set up Viaden Media in 2001. In the beginning, it was just an outsourcing company. Dramatic changes took place in 2006 when Viktor decided to switch to in-house product development. Primarily Viaden was focused on software development for the entertainment industry. Later, it started to design and market fitness apps and mobile games. In total, Viaden’s portfolio features over 100 apps including All-in Fitness, Smart Alarm Clock, Yoga.com. In 2009, Yury Gursky became the Head of the Mobile Department at Viaden Media. 

The sale of Viaden Media caused a revolution in the Belarusian IT industry, a new marker in its history. The fact itself served a major incentive for the fast evolution of startups and attracted top-ranked investors. 

In 2012, two Israeli investors, Talmon Marco and Igor Magazinnik, had been improving the Viber app in their development centres and eventually created ViberOut. Later, the product was sold to the Japanese media giant Rakuten for $900 million. At the start of 2017, the online taxi service Gett bought new startup Juno for $200 million. 

In 2014, Piotr Skoromniy and Matvey Timoshenko, two young and ambitious developers, sold their startup to the American company InterActiveCorp. Back then, Apalon was known as one of the world leaders in the mobile app development. 

That same year Yuri Melnichek monetised his debut project. He sold his service, Maps.me, which produces offline maps, to the Mail.Ru Group. Later on, in 2016 he created startup AIMATTER focused on computer vision and neural network development. In less than a year Google bought the startup. 

Having launched MSQRD in 2015, Eugene Nevgen, Sergey Gonchar and Eugene Zatepyakin moved to Facebook headquarters in March 2016. 

Viktor Prokopenya, who had set a great example and started the IT trend in Belarus, then pioneered another niche — venture investments. He invested the money gained from the Viaden Media sale into his investment fund VP Capital. 

(exp)capital became the first company to receive financial backing from VP Capital. One of the company’s departments develops and sells algorithms for high-frequency trading, while another department is engaged in developing trading apps. 

At the end of 2016 Prokopenya broadened his investment horizons. Along with Larnabel Ventures he revealed his plans to invest $100 million in AR projects. 

“Today AR technologies have all it takes to change the world, like what happened with smartphones and the internet. Over the past years, I have been engaged in IT projects powered by machine learning technologies. I am sure we are on the right track,” Viktor Prokopenya said. 

Further investment plans include: Banuba Development, which is involved in AR app development; American company Astro Digital, which creates space satellite systems; German project Dronefence, developer of drone tracking and security systems; and fintech startup Capital.com, which designs trading apps using AR technologies. 

Alexander Lukashenko visited the (exp)capital and Banuba Development offices. The words he spoke of the company were destined to become nothing short of proverbial. 

Viktor Prokopenya commented, “The government has provided extensive perks to the IT industry. This backing has made the rapid industry growth, which we have seen over the past 10 years, possible. To get to the next level and ensure a higher income, we need to evolve the product model in the IT sphere. But, these changes are not possible without amendments to Belarusian legislation. The fact that the President is ready to provide his support to the IT niche is extremely inspiring. $33,000 a year is the average revenue for one HTP employee. Is it a lot or not enough? Well, at Apple or Google approximately $1.86 and $1.15 million is the revenue generated per employee, respectively. This demonstrates a wide gap between the outsourcing and product IT models. Apple and Google are the benchmarks we should aspire to reach. Today, it’s crucial for us to go to the next level and master the process of creating high-quality IT products generated within the country”.