How We Did It…
The CEO of Ozon on Building
an e-Commerce Giant in a
Cash-Only Economy
by Maelle Gavet
t first I didn’t want to have any-
thing to do with Ozon. I was com-
ing up for partnership at the
Boston Consulting Group, and it was one
of the firm’s smallest clients. I couldn’t see
how it would help my chances for promo-
tion, but a senior partner insisted that I
lead the engagement.
A few months later I resigned from BCG
to become Ozon’s sales and marketing di-
rector—and a year and a half later, in 2011,
I became its CEO.
Why did I take such a risk? To begin
with, I had been an entrepreneur once be-
fore, and I missed the excitement. I also
quickly realized that Ozon could become
the Amazon of Russia. Not many e-com-
merce alternatives were around four years
ago, and I could tell that the market was set
to explode. Russians were going online at
an extraordinary rate, with internet pen-
etration rates increasing by 15% a year and
reaching 55% in 2013.
In traditional retail, you’re happy if you
grow by 5%, so this rate of expansion was
really exciting. I could make big changes
THE IDEA
Russia’s economy is cash based,
and its delivery networks
PHOTOGRAPHY: NICK WILSON/REDUX
are shaky. To drive growth
in e-commerce, Ozon had to
create a proprietary distribution
system, a new logistics and
customer service model, and a
highly engaged team.
38 Harvard Business Review July–August 2014
HBR.ORG
happen quickly. I loved working at BCG,
where my expertise was in retail and
Ozon Facts & spending a couple of days at the center lis-
tening to calls, I came back convinced that
logistics, but the opportunity to be part Financials rather than closing it, we should invest in
of a hypergrowth story was too good to Founded 1998 making it a 24/7 operation.
pass up. Perhaps most important, I would Headquarters Moscow To succeed in Russian e-commerce, we
get to lead a large team. Ozon already had Current number of employees 2,355 needed more than website functionality.
hundreds of employees at that point; at Our strategy hinged on logistics and cus-
BCG I would never be leading a team of REVENUE IN US$M 747 tomer support. We had to persuade people
more than 10 or 20. that they could get their purchases more
Why did they offer me the job? I was quickly and reliably by ordering them on-
only 32 and French. I didn’t really know line and having them delivered than by
about e-commerce (unless you count buy- 512 hoping to find them in stock at a shop. We
ing stuff from Amazon). But age and nation- needed a way to safely take and process
ality don’t matter much at tech start-ups, the cash they paid with. Finally, we had to
and I spoke good Russian. I also had some provide personal contact with customers
295
technology in my background. Ozon’s and harvest data about their purchases and
board understood that figuring out how to preferences. Put simply, we had to build an
166
deliver goods to consumers in Russia, with infrastructure from the ground up.
100
its shaky distribution systems, was the key
to unlocking the country’s e-commerce Creating Our Own FedEx
market. It was the opportunity of a lifetime, 2009 2010 2011 2012 2013 That sounded like a pretty daunting mis-
and I seized it with both hands. SOURCE OZON sion for what was still basically a tech
start-up. When I joined as sales and mar-
The Challenges of a New Market keting director, our delivery operation had
People often accuse Ozon of being an just 100 people in two business units. One
Amazon clone. That’s understandable. We to rely on the Russian postal system; there unit was focused on Moscow and Saint
started with books, expanded into mov- were no nationwide couriers. Petersburg, and the other on the rest of
ies and music, then moved into electronic Russia is also a cash market. People Russia. Each had its own IT platform for
items, and finally carried a full range of don’t pay until the parcel is delivered. That tracking orders. We also used the Russian
consumer goods—pretty much everything means if you don’t deliver, you don’t get post. The company was thinking about
except groceries. All told, we now offer paid—and you handle a lot of cash. In 2010 getting out of direct delivery by partnering
3.5 million products, most of which we sell about 82% of payments were made in cash; with DHL and regional Russian delivery
directly, though a growing number are sold 75% still are today. In a cash economy it’s companies. We would focus on managing
on our site by third-party merchants. Like also harder to track customers and moni- the interface with customers and tracking
Amazon, we offer website platform ser- tor fraud. People often think that Amazon purchasing behavior.
vices to independent retailers as well. We identifies them through a login name and After much debate the board and I
even have our version of Zappos: Sapato.ru, a password—but that’s not entirely true, made the decision to invest seriously in
an online shoe boutique. because you can register as often as you developing our own logistics capabilities.
Yet our similarity to Amazon isn’t why want. The one thing you cannot do is use This would be a source of competitive ad-
we’ve succeeded. To understand that, you the same credit card for two accounts, so vantage that could not easily be replicated;
have to look at the challenges of Russia’s your credit card number is your unique ID. why give up control of such a key link in the
retail environment, which is very differ- Russian consumers also have a strong value chain? If we went with an indepen-
ent from America’s or Western Europe’s. need for personal contact; online customer dent courier, that might prevent customers
When I joined Ozon, Russia lacked a reli- service doesn’t cut it. Even today, 5% to 10% from making the personal connection with
able, flexible, and speedy national delivery of orders come in by phone, because some a retailer that is so important for generat-
infrastructure, and no amount of web func- people use the website as a catalog rather ing brand loyalty; they’d be trusting DHL
tionality can make up for a parcel’s arriving than as a store. When I joined Ozon, we had rather than Ozon. Besides, we had to solve
late or not at all. When we started offering a call center that was open weekdays from the national delivery problem quickly, and
third-party products through Ozon.ru, the 9 am to 6 pm Moscow time. I thought we we would waste time by negotiating with
merchants on our site were failing to make should probably close it, because custom- small regional delivery companies. Finally,
delivery 50% of the time because they had ers could migrate to the website. But after we believed that we should control the
July–August 2014 Harvard Business Review 39
HOW WE DID IT
handling of cash directly; it would certainly volume as we then had if we were to make the entire system. It’s testimony to the
be cheaper and would most likely be safer. delivery quick and reliable enough to gain members of our IT team that they enabled
Our first step was to combine the two customers’ trust. If you’re sending a plane us to launch O-courier, a third-party de-
logistics business units to create an inte- every day (or two or three times a day), the livery service, in September 2013. Their
grated national hub-and-spoke network, customer won’t notice if you miss one plane. achievement also highlights the fact that
targeting 2,000 pickup points. (See the But if you deliver once a week, a missed the Ozon story has really been a team ef-
exhibit “Ozon’s Growing Footprint.”) For plane means a week’s delay in the order’s fort: Credit for the success of the company
the most part, we arranged franchiselike arrival. We quickly realized that to get suffi- over these past three years belongs to our
deals with shopkeepers who had well- cient volume to run the network efficiently, employees and our shareholders, because
located properties. In return for a cut of we would have to deliver for third parties. everyone has gone the extra mile to make
the sales, they took delivery of packages That would also solve our problem with the our strategy work.
and exchanged them for customers’ cash merchants that sold through Ozon.ru. If we
payments, which we collected at frequent could improve their delivery rates as well, Communicating the Strategy
intervals. We contracted with air-freight we would attract more retailers, more cus- The most tangible consequence of our
companies for long-haul transportation to tomers for them, and more volume for us. strategy was that we very quickly built up
hub airports and managed local transpor- But this posed a really big technical chal- a large workforce. We now have almost
tation ourselves. This involved hiring and lenge. We couldn’t just merge and adapt 2,400 people on the payroll (up from about
training staff and leasing vehicles. our existing tracking software if we were 900 when I joined). That doesn’t include
But 2,000 points is a pretty big network going to handle other sellers’ packages as the thousands of independent contractors,
to serve. We’d need five times as much well as our own. We would have to rebuild such as people who manage the pickup
Ozon’s Growing Footprint
Ozon developed this network of pickup points in the space of a few years. From January 2010 to
April 2014 it opened nearly 2,000—more than half of them in 2013 alone. Naturally, most points
are concentrated in heavily populated areas, such as Moscow and Saint Petersburg.
THE DARKER THE DOTS, THE
MORE POINTS IN THAT AREA.
2010 5 PICKUP POINTS OPENED
2011 298
2012 392
2013 1,120
2014 91 (AS OF APRIL 9)
RUSSIA
POLAND
UKRAINE
KAZAKHSTAN
40 Harvard Business Review July–August 2014
HBR.ORG
points or make deliveries from the hubs to meetings at which I personally get together who buy the fashionable shoes for sale at
the pickup points. All these people repre- with new recruits and invite them to ask Sapato would probably never buy them at
sent the Ozon brand, and how well they do whatever they choose. But the big event is Ozon. But Sapato creates many synergies in
so will determine whether we can stay on a quarterly meeting with all our employees. purchasing and delivery for Ozon.
top of Russian e-commerce. Everyone comes to a hotel in Moscow, and Getting into adjacent industries will be a
Leading people often seems to be an the other executives and I get up on a stage major avenue for growth. We already have
afterthought in the tech world. But even to explain our strategy, what we’ve been do- Ozon.travel—our version of Expedia—and
Facebook and Google are at least as much ing to implement it, how it’s been changing, bigger opportunities exist. When people
about their people as about their cool tech- and so on. We have a one-hour Q&A session, are shopping with you and you’re already
nology. You won’t win in a competitive mar- during which people can and do ask hard handling their cash, consumer credit is
ketplace unless you have people who love questions: Why did we undershoot this or a natural extension. It would give us a
their jobs and want to give their very best.
Sometimes that means getting up at three
in the morning or working over the week-
end to fix a problem. Although this kind of
Russia still has a long way to grow.
firefighting is critically important, perhaps Out of 140 million people, only about
20 million use the internet to shop.
more important is that we make every con-
tact with a customer a positive one. If cus-
tomers have alternatives, companies don’t.
I spend probably 40% of my time on cre-
ating a highly engaged workforce. Making that target? Why couldn’t we open more lot more information about our custom-
sure people are excited about the company pickup points in such and such a city? The ers, and the future of e-commerce is very
they work for is extremely important—but questions are submitted in advance, and much about understanding customer data.
we seldom talk about that in the internet they’re anonymous. Sometimes we have to One of our shareholders, the Japanese
world, and I don’t understand why. admit that we screwed up, which isn’t great e‑commerce company Rakuten, actually
A big challenge we face is managing for the ego but does send a positive mes- has a bank and is well placed to help us de-
expectations around advancement and sage about accountability, a key element of velop a strategy in this direction. But that’s
career development. Ozon has grown very the culture we want to create. something for the future.
rapidly, and we are able to attract great tal- I can’t yet say that we are where we ul-
ent because people want to grow with the timately want to be in creating our culture WHEN I first joined Ozon, I saw the chal-
company. They’ll get experience, more re- and engaging the team. But I can say that lenge as primarily one of retail and logistics.
sponsibility, and, of course, more money. we consider this to be a top priority and are But the longer I’ve been here, the more
But not everyone can grow as fast as the 100% committed to doing what it takes. I’ve understood the critical importance
company, and someone who was perfect of our team and our technology. It’s smart
for her job a year ago may not be perfect Planning for Future Growth technology that creates tracking systems
for it anymore. You may have to promote Even as we expand, we’ll stay geographi- to reliably get the product to the customer
someone behind her to be her supervisor. cally focused. Russia still has a long way on time. It’s technology that allows us to
That’s a hard message to deliver. to grow. Out of 140 million people, some capture, store, and retrieve data about our
You’re also asking people to be very 60 million to 70 million are online, but only customers. And going through the experi-
comfortable with uncertainty, and a big about 20 million use the internet to shop. ence of building the capabilities that con-
part of management’s job is to help people We’re opening up in Latvia and Kazakhstan, nect everything we do made me realize that
through that. With so much going on in the but basically we’ll stick to the home region. I really like IT. It reminds me of what I used
market, people may feel that you’re con- We’ll be looking for e-commerce cus- to do at BCG: Our clients already had the
stantly doing different things. You might tomer acquisition opportunities that lever- answers; what they wanted was some kind
be focusing more on the top line one year age our platforms. Sapato is a good exam- of structure to make those answers work.
and on costs the next. In the C-suite we can ple of how we’ll do this. It might seem odd That’s the Ozon story: creating a business
see how it all fits together, but that under- to take on a stand-alone brand. Why not model and a team that can adapt and grow
standing has to be communicated, which is sell shoes directly through Ozon.ru (which with the huge opportunities we have.
one of the most important parts of our job. in fact we do)? The reason lies primarily in HBR Reprint R1407A
We do that in several ways. To be- the fact that people in the online world still
gin with, we have monthly onboarding have expectations about branding. Those Maelle Gavet is the CEO of Ozon.
July–August 2014 Harvard Business Review 41
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