The sleeping mammoth of Russia’s e-business market is emerging after years of post-USSR political and economic permafrost. The number of Russians online is still small, but growing quickly: There were 1.2 million Internet users in Russia at the beginning of 1998, and usage jumped to 5.4 million in January of 2000. Among those online, e-commerce activity is minimal – a July, 1999 survey by Russian research firm COMCON reveals only 8% of users have purchased online – but Russia’s entrepreneurial spark, fueled by a Soviet-era legacy of I.T. knowledge, is thawing glacial obstacles to a Russian online marketplace.

Low discretionary consumer income and limited Internet access are two of the biggest barriers. Inflation soars over 80%, and a 33.6K Moscow dialup account can cost $270 US – so Internet access remains a privilege for an elite few. COMCON’s 1999 survey reveals more than 80% of current Russian Internet users are male, well-educated, white-collar professionals.

Silicon Alley-based ICANN Chairman Esther Dyson has been active in the region since 1989, and remains optimistic about its potential. "Internet in Russia is real, it’s exciting, but people don’t quite understand the context yet. The biggest shortage isn’t capital, it’s business expertise." Dyson, who speaks fluent Russian, adds, "To do business in Russia you need to know Russia. Both sides have to be humble and willing to learn -- that’s difficult."

Low credit card penetration and the lack of an e-commerce shipping infrastructure are additional barriers. Russia’s predominantly unenforceable tax system adds to the difficulties. "Tax in Russia is all about negotiation," said one Moscow source under anonymity, adding that corporate tax evasion is so widespread, the government retaliates by slapping businesses with even more taxes. Fully compliant business could wind up paying 85% to 130% of gross income.

Transfer of power from Boris Yeltsin to former KGB spy Vladimir Putin inspired relief among investors, reflected by an immediate surge in Russia’s stock market. "This was great for us," says co-founder of Moscow Internet Exchange Danny Cruz. "It eliminated uncertainty on the presidential election." Putin, who has historically supported shareholder and investor rights in Russia, is popular among investors.

"I’m not sure the recent political developments will cause opportunities to flourish," observes Novikov, "They could bring economic stability. But we’re seeing a clear intent by the State to control the Internet." A week before Yeltsin's resignation, Putin spoke to a group of Russian Internet industry representatives -- "a positive event," notes Novikov, "for the first time the government was recognizing the national Internet’s existence." But the following day, "a draft of a new national directive on usage of Russian Internet domain names emerged, calling for heavy state control of the .ru domain." The directive would require many companies and organizations to possess an official .ru web site by year-end, if implemented. "The first reaction in the Internet community was shock. Then, many of us started laughing – so unrealistic and pro-Soviet stinky was the document!"

Novikov also reports increased alarm within Russia’s Internet community regarding the Kremlin’s S.O.R.M. initiative, which would enable the FSB (formerly the KGB) to monitor Internet traffic without court approval. So far, he says, the industry seems unwilling to just say niet. The government might respond to protest by revoking licenses, "and the ISP’s are scared."

Esther Dyson observes, "Part of what the Internet brings are the concepts of price transparency and openness in business-- all of that is new for Russia." But just as e-commerce is introducing a digital form of glasnost, or openness, to Russia’s marketplace, its citizens are being confronted by a resurgence of Soviet-style state media control many believed melted down with the Cold War. Capital needs to flow freely into the market of Internet Russia. It is imperative globally that Russian entrepreneurs be allowed to transform these investments into sustainable businesses. If, despite all odds, Russia’s online marketplace is able to emerge like a talik, an arctic oasis of unfrozen territory in the midst of the region’s frigid political landscape, then there is hope for free Internet trade throughout the former Soviet Union.