Boom or bust for Siberian software companies

By Andrew Hurst, Reuters
NOVOSIBIRSK, Russia — This is a tale of two Siberian software companies and how one got rich and the other lost its way.
Both firms — Novosoft and CFT — were set up by former academics, starting life in the "Akadem Gorodok" (Academic Town), a university and scientific research centre on a leafy campus outside Novosibirsk.

One rose and fell with the U.S.-driven Internet boom at the turn of the millennium. The other is going from strength to strength doing business in Russia and keeping alive this city's dreams of becoming a centre for cutting-edge technology.

Novosibirsk, Russia's third largest city with more than one million inhabitants, lies in the heart of West Siberia and is a thriving transport and service centre for a vast region renowned for harsh winters and mosquito-infested summers.

Like many who started careers as researchers in the Akadem Gorodok in the twilight of the Soviet era, the bottom fell out of their world when the planned economy crumbled in the early 1990s and state funds were abruptly cut off.

"I was working in the Mathematics Institute. When the Soviet Union collapsed we had no money to support our lives," said Vladimir Vashenko, who founded Novosoft with an American partner. In its heyday in the late 1990s, Novosoft was ranked as one of Russia's top five software houses.

Novosoft prospered during the Internet boom working almost exclusively for top United States companies like IBM and Microsoft. But the company came unstuck as the U.S. Internet bubble burst in 2001, although it managed to survive.

Sticking to Russia

A short drive away CFT, which stands for the Centre for Financial Technologies, has thrived by sticking to Russia — selling software programmes and payment systems to fast-growing banks across the country.

The contrast in corporate styles between the two could hardly be greater.

Novosoft's offices are housed in rented accommodation in a modernised wing of the Mathematics Institute.

After walking through the Institute's long dusty passages, their walls peeling, visitors to Novosoft are ushered through a security door and into a waiting room which would not look out of place in California.

A Zen garden takes up a corner of the room, which is lined with low sofas. Spot lamps stud a blue ceiling like stars in a night sky and pictures inspired by Spanish surrealist painter Salvador Dali adorn the walls.

One painting depicts a large rock hovering motionless above the clouds, a fitting symbol of the Internet industry's efforts to defy the laws of financial gravity.

Humbled by his company's roller-coaster ride, Vashenko says Novosoft is trying to find a new niche after demand from the United States for its services as an "offshore programmer" vanished almost overnight.

"We have had to downsize. We understand we have to find a new business model. Before we were developing software for our clients and we are now thinking of developing our own software," said Vashenko ruefully.

Many of Novosoft's best staff left to set up their own businesses. "It was a very impressive company in its day and everyone wanted to work for them," said Ivan Komarov, who left just as the crisis hit and works as a lecturer and consultant.

He said Novosoft failed to realise quickly enough that the tide was turning against it before disaster struck.

Brimming with confidence

Novosoft, which employs just 50 people, down from 500 at its peak, is now starting to do work for Russia biggest companies, like metals producer Norilsk Nickel and oil major Lukoil.

It is also selling shareware over the Internet, charging $30 for programs which allow users to protect computer data against loss and to store different passwords.

By contrast the mood at CFT, housed in a former nursery school on the outskirts of the Akadem Gorodok campus, is brimming with confidence.

"Our market is growing very fast and so are we," said Alexander Pagydin, CFT's managing director, adding he expects to employ 700 people by the end of the year. Annual sales have doubled in two years to $15 million.

One of CFT's biggest money spinners is a credit card payment system, operated by some 200 banks, with two million users across Russia. It also has developed a program allowing mobile phone users to access bank accounts and manage their money.

The company has opened offices in Russia's biggest cities but has no plans to work abroad. "It does not make sense for us to go to the west. We feel very happy operating in the Russian market," said Pagydin.

He said he can attract talented people by offering them fast promotion and giving them challenging projects to work on.

For Komarov, who has worked for CFT as well as Novosoft, says the success of CFT is down to the company's stronger and more focused management.

He also believes it is proof positive that high-tech companies can flourish even in Siberia — four hours flight from Moscow. "It really takes a lot of managerial talent to do what they achieved. CFT shows you can build a successful business here," said Komarov.

"We do not feel we are a Siberian company. We feel we are a Russian company," said Viktor Loik, chief operating officer of CFT which has offices as far east as St. Petersburg, on Europe's doorstep, and as far east as Vladivostok, on the Pacific coast.

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