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Analysis & Opinion
02.11.10 Micromanaging Skolkovo
By Tai Adelaja

Microsoft CEO Steve Ballmer upped the ante for his company's hi-tech rivals in Russia on Monday by spearheading a raft of initiatives designed to further entrench the software giant's foothold in the country. During his one-day stopover in Moscow Ballmer signed a memorandum of understanding with the Skolkovo Fund to establish a research and development center at Skolkovo, which would help shore up President Dmitry Medvedev’s pet project and give a fillip to Russian technology start-ups. Ballmer’s tight schedule also included high-level talks with Russian officials aimed at bolstering Microsoft’s competitive position in the Russian IT market.

Under the agreement signed between Ballmer and Viktor Vekselberg, the oil and mining tycoon who heads the Skolkovo Fund, Microsoft will spend “tens of millions of dollars” annually to develop a state-of-the-art r&d center in Skolkovo, which will create software solutions for large-scale scientific and engineering data analysis and simulation. Russian software developing companies may be involved as subcontractors for some of the projects, the agreement postulates. "We are pleased to welcome such an important IT player as Microsoft as a member of the Skolkovo project," Vekselberg stated. "The huge experience of this corporation, both in the creation of cutting-edge IT products and solutions and in the organization and support of research, and its expertise and ability to create an innovative ecosystem, will be very useful for developing Skolkovo."

Ballmer said that solutions created at the planned r&d center will be used not only in Russia, but all over the world, a move analysts say could give the much needed global exposure to the fabled Russian programmers. "We are establishing a software development r&d center in Skolkovo and it will be the local point for managing the development of Microsoft's global products," Ballmer said. Monday’s agreement will also significantly extend Microsoft’s innovative start-up assistance program, which provides IT and financial support to Russian technology start-ups “at early stages of their development” while engaging market players in project investments and providing technological review for such projects.

While Russian computer programmers have been well known for their sophisticated mathematical skills, as well as for their strong computer science and engineering backgrounds, the country has been lagging in the practical implementation of r&d products. Ballmer offered to help bridge the gap by providing financial support for implementation of the most promising ideas at their early stages and deploying an expert committee consisting of the heads of the Microsoft office in Russia and representatives of Russian Seed Investment Funds to help select candidates. The Redmond-based company also promised to beef up its BizSpark program, a global initiative designed to help accelerate the success of early stage start-ups by providing various resources, including fast and easy access to current full-featured Microsoft development tools, platform technologies and licenses for server products.

Speaking at the 3rd International Nanotechnology Forum, Microsoft’s CEO said the company plans to establish a new technology center in Skolkovo “to give companies working in Skolkovo a unique opportunity to test and adapt their solutions on corporate-scale IT infrastructure.” The company opened its first Microsoft Technology Center (MTC) – the first in Central and Eastern Europe – in Moscow last year. Microsoft is also touting a collaborative initiative that would allow Russians to conduct research in collaboration with Russian and foreign universities and scientific institutions. Under the plan, Microsoft will work to provide technology education to Russian students and professors. Students will be taught about high technology at specialized Microsoft schools and will be able to do internships in the company’s centers, including Microsoft Research in Cambridge and Redmond.

Ballmer also heaped praise on efforts by the Russian state-run corporation Rosnano to develop the country’s high-tech sector, and pledged to contribute to the implementation of the Skolkovo high-tech project in Russia. "Microsoft is committed to continuing investments that foster the local IT industry development and expand growth opportunities in Russia," Ballmer said. "We are proud to be participating in the Skolkovo project, which represents an important step toward increasing technology innovation and modernizing Russia's economy."

Ballmer, who will be visiting Saudi Arabia and Ukraine later this week to discuss his company’s innovation in technology and drum up support for the adoption of the company’s “cloud computing,” said Russia is a market of great strategic importance to his company. Microsoft said it plans to establish favorable terms for accessing its cloud services for certain software start-up companies residing at Skolkovo through its BizSpark program, which has already provided more than 1,500 start-ups with a technology platform and tools. Microsoft's Russia Chief Nikolai Pryanishnikov said the U.S. software giant was ready to support 100 start-up companies, with investment in each likely to range between $50,000 and $500,000, Reuters reported.

However, Ballmer's visit could not have come at a less auspicious time. The Russian government is planning to revamp its computer services with a Windows rival to reduce its dependence on Microsoft and better monitor computer security. The government recently earmarked two billion rubles ($64 million) to create infrastructure for the e-government program through the end of 2010, with state-run Rostelecom acting as the lead contractor. Russian Deputy Lawmaker Ilya Ponomarev said last week that Moscow will earmark $4.9 million to develop a national software system based on the Linux operating system, AFP reported. Ponomarev, a computer expert, said details of the project would be hashed out during a December meeting to be chaired by Deputy Prime Minister Sergei Ivanov, with whom Ballmer met on Monday. In July, Microsoft agreed to share the source codes for its entire Windows and Office platforms with Russia's intelligence services, as the company strives to increase market share in the public sector, the Vedomosti business daily reported.

A series of agreements signed earlier with vendors to supply software licenses for school computers will expire in January next year, and new contracts are yet to be signed. Many schools, meanwhile, are testing a Linux-based operating system as a replacement for proprietary software like Microsoft’s, a move which could make business in Russia less palatable for the Redmond-based software giant. And with the government’s recent announcement of competition for the creation of a national software platform, it is just a matter of time before government ministries and departments move to the open source system. The government has allocated 161 million rubles ($5.3 million) to finance a possible move next year, and an additional 490 million rubles ($16.3 million) to expand the system between 2011 and 2013, Vedomosti reported on Monday.

Ballmer’s meeting with the deputy premier was perhaps the testiest for the CEO. After their meeting both announced the publication of base prices for Microsoft products on a dedicated Internet portal developed by Russia's Ministry of Communications using Microsoft Silverlight technology. Making the price database widely available online would encourage official dealers to streamline their prices with those set by the company, while government agencies can buy Microsoft software at below market prices, analysts say. Pryanishnikov said that access to such information would also afford state agencies the opportunity to select the optimal software licensing program that suits them and will enable them to procure Microsoft software at 20 percent below market prices.

Analysts expect Ballmer’s efforts to pay off even as his company’s potential customers nationwide have to switch to software based on the free operational system Linux by next year. State contracts presently bring Microsoft about ten percent of its Russian revenue, Pryanishnikov said, but analysts from IDC put Microsoft's annual earnings in Russia at $1 billion. "There would be no noticeable influence on Microsoft's sales results,” Victor Tsygankov, a senior research analyst at IDC Russia, said. “The Russian market still has enough capacity for both proprietary and open source software vendors." Tsygankov said Microsoft is pursuing the right strategy by working closely with governmental institutions, as the government is a large customer by itself. “This meeting was not the first high-level talk between Microsoft and the Russian government, and we have already been witnessing Microsoft's large-scale initiatives in our country,” he said.
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