Key points by ABBYY CEO Sergey Andreev from an interview with Vedomosti

    Sergey Andreev, CEO of the Russian company ABBYY, gave a voluminous interview to Vedomosti.

    A person with deep experience and expertise in a highly competitive market, where ABBYY is represented with its products, spoke about the degradation of the Russian IT market, the current and future state of affairs, and competition from its position.

    "Megamind" leads the main points made in the interview.

    About the crisis of the international market

    The crisis that began in 2014 did not succeed in harming those Russian IT companies that were able to establish international business. For the most part, these are software developers with foreign exchange earnings and ruble costs. What to do with the resulting difference - each company decides for itself, and Sergey Andreev’s ABBYY hopes to revolutionize the data search and analysis market using his Compreno product. As planned, ABBYY Compreno will be able to find the necessary information not only using the words of the search query, but also with the help of the links and context embedded between them. It is more correct to search for information not with the help of words, but through the meaning embedded in them, Andreev is sure.

    According to Andreev, the usual keyword search is outdated, if only because of the growing volume of unstructured information, and it should be replaced by a semantic search, which Andreev intends to accustom the corporate segment.

    About import substitution

    It is impossible to ignore. When you see that large international companies are forced to inform customers that they will not supply any products and provide technical support, there is a reaction from the government: “We need to do something.” When key companies are in jeopardy, governments try to stop these problems, and various initiatives appear.

    Now, import substitution is being discussed in the context of security. Until 2014, talk about this was conducted only in the context of the economy: if a local producer has a large market share, there is more money left in the economy, more jobs are created. Now they are more worried about import dependence. For example, there is a production cycle for the production of components for the rig, there are designers, but it turns out that they work on imported software. As a result, the drilling rig depends on imported software. Nobody wants to live in such a risk now. In such conditions, if an analog appears, they will buy it, even if it works worse.

    - Why in all discussions about import substitution, consumers are usually not heard?
    - Good question. Apparently, the discussion organizers have never seen consumers. Well, or maybe they didn’t think well before they proposed the initiative. It seems to me that you can think about import substitution when the consumer says: "Yes, it is necessary."

    About competition

    Simply dealing with a very large and very strong competitor is more difficult than with a smaller competitor. For all major segments - operating systems, databases - Russian companies were not the first to work in the world, although there were some successes. For example, the Lexicon editor at one time dominated, he did not have an office suite - spreadsheets, power point, etc., and when there was competition with foreign vendors, they lost ground.

    There is competition, it really is the engine of the market, but any system can be hacked. The free market system is cracked by monopolies. As soon as the dominant players appear, competition does not work the way the market would like. Free competition between large and small companies always does not work in favor of the latter.

    The US market has a very interesting situation with patents for software and hardware. It is the only country in the world that handles patents this way. In fact, you can patent an idea, not an implementation. Patents of a very general form are obtained, which can later be interpreted as the invention of the Internet, for example. I well remember the case of Kaspersky Lab, which sued because of a patent for user interaction with the program - feedback from the program.

    Therefore, the new IT company is looking for segments that have not yet been mastered by giants. When looking for a niche it is important to work all over the world. If you have a niche only in the local market, this brings little money. A competitor who works all over the world will certainly come to your country, and you will not withstand competition. This means that the USA is a very important market and you certainly need to be present there. And if you license your technology to other companies, then you need to guarantee them that it is clean from the point of view of patent law and you will protect them. As a result, the patent system protecting the US market protects companies with more patents. And who has a lot of patents? Those who have long held a market share. Therefore, talking about free competition in the software market can only be applied to a thin layer of beginners. This is where everything is really active and vibrant.
    Therefore, the answer to the question why we do not have major players is simple: it is very difficult to compete with global companies sitting in the local market. Someone succeeded, for example, 1C, but this is more an exception than a rule.

    About the national operating system

    An attempt to create an OS from scratch by most experts will be perceived as utopia: this requires a lot of people and time. Approximately 5,000 people who will work for at least three years. If the work of one person is estimated at $ 100,000 per year, the annual work of the team will cost $ 500 million per year, in the end it will take $ 1.5 billion in three years. And this is only an operating system. And another question, will it succeed or not.
    You can go the other way - take as a basis something existing and make your own version. Then about 500 people are needed to keep track of all the changes. But this is not from scratch.

    About the state and IT

    Speaking about the magical power of the market, we must remember that it is often needed and useful, but it can be hacked. And most often the market is hacked by cartel conspiracies, monopolies, and then it stops working. In terms of software, the situation is both market and non-market. There is competition between large companies, one way or another they collide with each other, and there is a market there, and the same competition exists between small companies. But there is no competition at the transition of a small company to a big one. For the time being, this state of affairs suited everyone, and soft measures could help to ensure that domestic companies develop faster than international ones.
    In Russia, the situation is different due to several public refusals of large foreign companies to supply software to some Russian companies. Therefore, the state should think about its function of providing business. Drilling platforms must be produced. Naturally, the state at such a moment will talk about any measures that will ensure the maintenance of work. Can these measures be called market-based? Of course not. Is it possible to call market measures when they refuse to supply you and break existing agreements, because some sanctions have been put on you? Also no. Here the market does not smell on one side or the other.

    About user personal data

    Other countries have the same laws. In the USA, for example, it is forbidden to store American data outside the country. When the American court wanted to get the Europeans' data, Microsoft refused. Europe also prohibits the storage of data of its citizens outside Europe. They also see this as a risk.

    Our judicial system is not perfect. But having become acquainted with the American judicial system, I can say: what Microsoft did is phenomenal, since the company went against the judicial system. Imagine: you are a defendant. The plaintiff says: I want to get all the data that is inside the respondent company that is related to the case we are considering, I want to get it to prove my theory that you are to blame. And the respondent company must provide its data from the servers and paper data to the plaintiff's lawyers so that they can read them and select the fragments that most conveniently confirm their theses. In fact, the company must testify against itself. There is an amendment to the constitution: a person should not testify against himself, but this does not apply to companies. Failure is tantamount to a lost process. Incomplete disclosure, if they prove that this is not a mistake, but a deliberate action, also a defeat. The decision of the judge must be implemented in any case. Microsoft's failure is fantastic. But the precedent with Microsoft is very bad, because here one country demanded to disclose data that is hosted on a cloud resource in another country. If before everything was moving towards globalization, now, on the contrary, the walls are reappearing. Therefore, there is nothing surprising in what is happening in our Duma: this is a global trend. If before everything was moving towards globalization, now, on the contrary, the walls are reappearing. Therefore, there is nothing surprising in what is happening in our Duma: this is a global trend. If before everything was moving towards globalization, now, on the contrary, the walls are reappearing. Therefore, there is nothing surprising in what is happening in our Duma: this is a global trend.

    About income

    Even in IT, it’s impossible to plan for five years, and when it comes to political trends, it’s impossible to predict at all. When the dollar is growing, it is good for a company like ours, because we are exporters: foreign markets provide about 80% of revenue. But due to the large volume of sales abroad, the costs associated with these sales are quite large. The very presence of foreign currency earnings is favorable for Russian units.

    Both factors act because the Russian IT market as a whole degraded last year, and it seems to me that in absolute terms in rubles it is noticeably less than it was in 2013. As it will be in 2015, it’s hard to say, because by the year are uneven: indicators in the IV quarter are always higher on average, usually about 40% of annual revenue. This is an element of seasonality: many large organizations close their budgets in the IV quarter, and projects are approaching the implementation phase. In general, in the corporate sector, the sales cycle is quite long: if six months is already good, usually closer to eight: as a rule, what you start in January ends by the end of the year. Large organizations save at the beginning of the year, some budgets are not unfrozen or have other organizational problems, and the race begins by the end of the year, which is why a lot depends on the IV quarter.
    Last year, the IV quarter was not very favorable: revenue in IT companies in Russia as a whole dipped, but everything turned out not to be as bad as we were afraid of. In each quarter, we did not get about 20% of revenue in rubles compared to last year, but December turned out to be good: an increase of 9% year on year, it was even unexpected.

    Not only the course besieged the business, the quality of the market is also sagging, this year the trend will manifest itself more strongly. People buy less. In general, IT projects are always associated with investments: companies invest in software products to do something better, more efficiently, faster. And when the economic situation is such that you don’t have enough money for the turnaround - for the purchase of materials for production, for the payment of salaries, then it is not up to investments. Therefore, in a crisis, the IT market shrinks one of the first - when companies audit budgets.
    This year the situation is very conservative. The financial market is inaccessible, it is difficult to use credit resources for development - maybe someone succeeds, but the financial offer has degraded. Investments are greatly reduced, this affects IT budgets radically.

    Lack of money in the economy is the most significant factor that inhibits many development projects and ideas. The crisis is not yet so powerful as to freeze everything, many companies and organizations are focusing, choosing directions that are vital to preserve, and will continue to invest in and develop in it. And around these areas there are business opportunities, including in the field of IT. But the situation is unfavorable for the business as a whole.

    About products and their development

    Europe is growing well here, but this is not the most profitable business. If we compare the regions, Europe is the most problematic in terms of profitability. And revenue is growing there. The reason for the imbalance between revenue and profit is the multinationality of Europe. To sell a product there, you need to have local representatives in each country, you need to localize products in different languages ​​and provide their support. Otherwise, it’s hard to sell. All these conditions greatly complicate the design of the business, it is necessary to build up the infrastructure and hire more people per unit of sales. As a result, Europe is becoming less profitable.
    The best profitable country is the USA. In general, historically, the USA and Russia have always competed in profitability. But the imbalance is smoothed out.

    Historically, in Russia, 50% of revenue went to financing development. A similar figure in America. In Europe, it is closer to 35%. And this year, I suspect, the share of Russia may fall to 35% - to the European level, but this is still not clear. Unfortunately, forecasting for 2015 is quite difficult: the beginning of the year was difficult, but whether the end of the year will be bad is unclear. Last year, too, began hard, but gradually the projects began to unfreeze, people looked around, realized how the sanctions work, which projects survive, which do not. And after that, those projects that survive have gone. This year may be the same.

    About borrowed funds

    - Do you attract loans?
    - Yes, primarily as working capital. With our dimensions, you need to have certain reserves in the accounts in order to ensure the timely movement of money. Although the main expenses are associated only with the payment of salaries, in a large company such payments cause significant fluctuations in cash with uneven revenue. At the beginning of the year, revenue decreases, at the end of the year it increases, for large contracts, revenues also go stepwise. Reports on major licensing contracts quarterly. It turns out that the first two months of the quarter are rather meager, the last one is rich. Therefore, we need working capital in the accounts, and for this we attract loans. There is an opportunity to increase loans and use them for investments instead of investment funds, but now it seems risky, therefore we do not. Theoretically, this is a more interesting tool for the development of the company than investment funds that invest money and impose significant restrictions on the work of the organization. The fund’s work logic is very simple - you need to maximize the return on investments: they are aimed at a profitability of 35% per year, and they structure the deal on the principle of “give and not sin”. If the company did not grow by 35% per year, you will have to sell more shares, but provide income. This is the logic of the actions of all venture capital funds. will have to sell more shares, but provide income. This is the logic of the actions of all venture capital funds. will have to sell more shares, but provide income. This is the logic of the actions of all venture capital funds.

    - Where do you lend?
    - These are mainly foreign and non-state banks. Among Russian banks, those that know how to give money to companies like ours, only a dozen, there are much more of them abroad. Sberbank tried to go into this niche, but it will take a long time to go: a large, complex organization, and the size is not the same. They can finance some unit for the Sayano-Shushenskaya hydroelectric power station. And how much do we need? Several tens of millions of dollars. Is it really a scale for Sberbank? Although they tried to move towards IT.

    About diversification

    - How sound do you think the idea of ​​dividing a company’s business into regions? EMEA?
    - You can share in different ways. There are pros and cons to any method. To make long-term and large-scale projects, a local presence is required. In many situations, people do not buy a product, but competency. When they see that on the other end of the wire a specialist is speaking to you who is very well versed in the matter, they have confidence and they buy it. Therefore, it is necessary to appear there and be sure to figure out what is happening with the client: how he lives, what is important and not important for him, which can improve his life. Local presence is the key to everything. Not even a knowledge of the language, because to some extent people are willing to communicate in some unfamiliar languages: they just need local support. In Japan, for example, there are a small number of people who speak English. If you build normal work with Japanese companies, it is necessary to open an office in which Japanese-speaking engineers will work. A critical factor is trust between organizations, otherwise there will be no business.

    Businesses that target the mass consumer work differently: from one point through communication tools like the Internet. But it has become more difficult to work in the mass market with the advent of the successful business model of an Internet search engine that works like a black hole. Search engines began to include an increasing number of mass services, replacing mass products with free services. It is impossible to compete with free services.

    About the phenomena

    Search engines have not always been successful businesses. They were interesting projects for a long time, but for ten years they could not make money. And at some point, the model with the sale of keywords worked, which led to a significant distortion - they became super-profitable. And they were able not only to pay off by searching, but also to develop free services that they add to the main functionality. They earn on what they earned, and did not come up with anything new in the field of revenue generation.
    The black hole factor, which draws in a host of segments, leads to the fact that an attempt to do something interesting in the mass market ultimately leads to competition with free services, which is frightening from the point of view of business logic.
    If you understand how you can make money by deploying a free service, this is good, but there are few successful examples.

    There are mass services produced not by search engines, but this is more like an exception than a rule. The Google Translate service appeared a long time ago, and on iPhone - the technology of WorldLens, which they bought: you point the mobile phone at a piece of text, and it gives you a translation. They bought the company and now provide its services for free. While WorldLens was an independent company, it did not look commercially successful, but fell into the stream - and provides a good free result.
    Creating a mass service is a challenge. And to buy such a service is a double challenge, this is the next level of skill, and with all due respect to Google and other operators in this market, I do not see such masters yet. Their services are good, but they do not pay for them.
    I see so far that search engines have one way to earn money - free services that catch up on traffic and ultimately sell keywords. And this black hole strongly incinerates the landscape of mass products. And therefore, I am witnessing a shift of companies from the mass sector towards b2b. Because there is not enough mass free service there, customization is required there: there is a different model, and search engines cannot go this way.

    And about competition with search engines

    When Google released the free translator, we were forced to change the direction of Compreno, which developed as a new generation of machine translation technology. But even if you make it better than the existing one, but free, then the business is not visible there. That is, some kind of business is possible, but too small.
    Therefore, Compreno drifts in the direction of data analysis, to process the flow of unstructured data, to pull events and facts, to smart search technologies. This is again the corporate market. And the translator had to be pushed into the background.
    Elements of the development of translation technologies and translation services that are formed in ABBYY Language Services and aimed at the corporate client are preserved. They have a short translation service, which can be qualified as more massive, but I think it's still b2b. And this is definitely not a key priority.

    - What could ultimately threaten search engines? Can something turn their business around?
    - Theoretically, it can. If the people who own the information that the search engine provides access to (the search engine does not have the information, the search engine is a pipeline, and the gas is in the people who made the content). You come to the search engine, you need content. And the intermediary between you and this content starts making crazy money. In theory, if the content owners agree that they do not allow the search engine to use the content for their work, index it, if it does not share with them the revenue from advertising that they receive from the sale of words leading to this content, then there is a balance . Superprofits go to search engines, and then they begin to think about profit, and not just about how to make the world a better place. And at this moment the world is changing.

    About planning and investment

    It is advisable to build prototypes of programs: so that they appear once every six months or a year. It is necessary to evaluate how interesting such a product is - if there is demand, you need to finish it quickly, in about six months, and release it. Cycles are shorter, planning can take only a few weeks. Redid, checked, if something is wrong, brought to mind and offered to customers. The key is customer interaction. So iterating closer and closer to happiness.
    A project cycle of 5–7 years is an exception; it makes sense to make it when there is a steady trend. For the sake of this, you can get involved in a fight, but more often people still prefer a short time.

    With fantastic speed, the amount of information that people store in computers and storages is growing. Previously, the task was simply to put information on a computer, and now they have placed so much into it that using such an array of data becomes a serious challenge that requires new approaches to working with information. Сompreno is designed to combat today's triumph of unstructured information, which is very difficult to process. For example, you know exactly what you need in this piece of iron, but modern tools do not allow this information to be pulled. Trying to find this way and that, using different types of queries, combinations, it still doesn’t work. We brought the computer to work not with words, but with the meaning behind the words, to a combination of meanings. We think in categories, images, and then convert them into words. In the market today there are systems based on rules and statistics. The basis of our technology is artificial intelligence, semantic-syntactic analysis. This gives a different quality result. Such technologies are needed by the market.

    About semantic search

    Compreno is a core technology that can be used to create many completely different solutions. Some areas are not yet, and it is necessary to form demand, change business processes. Some areas for us are understandable and defined by the market. We will talk about these areas of development in the near future. By the way, exactly a year ago we presented the first solutions based on technology - solutions in the field of intelligent corporate search.

    Not everyone needs magic. Sometimes you can solve the problem in simple ways - and an attempt to remake on the basis of magic does not meet with understanding. They do not seek good from good. But there are many situations where it is not possible to solve in a simple way. Let's say you remember that you met six months ago with guys who talked about environmental products. You are trying to remember when it was and where, in order to find correspondence, you hammer the keywords - “meeting”, “ecology”, “Petersburg” - you cannot find it. But it doesn’t work, because in other words it was written. Not ecology, but green technologies, not Petersburg, but Vyborg. Searching for the word “technology” is generally wrong - it is in every fourth sentence. It’s hard to find the right information with keywords. A person remembers everything approximately - and often in the wrong words. Often the question is not in a specific synonym, but in a combination of words, then the search generally falls apart. The main trick is that we see not only facts, but the connection between them. When we parse a text, do its full analysis - parse a sentence syntactically, we understand how concepts are related and why a word is used in one sense or another. In this way ambiguities are removed. Nobody pulled out these connections besides us. That is why we feel confident.

    Our smart search improves corporate search engines. Сompreno can search by meaning, that is, find information that can be expressed in other words.
    We focus on b2b solutions. People were taught that you need to search for information by keywords. And they learned to do it. And all business processes are built on the basis of such a model.

    We stand on two pillars that provide our bright future: computer vision and computer linguistics, all these are elements of artificial intelligence. You can move in these directions, you can add something, but for now, we plan to focus on these two elements.
    The main business - recognition - is quite profitable, but everything that we earn, we spend on computer linguistics. There are incomes, but so far small. When we manage to bring this segment onto the trajectory of beautiful growth and we will make good money on it, then we will begin to look further. While we go deep.

    About geographic and product niches

    - Are there geographic niches where you haven’t entered and are not planning? African countries, for example.
    - The countries of the third world - Asia, South America, Africa - have good potential: they are growing faster than in Europe. You can improve the work with languages: we have Chinese, Korean, but you can improve, you can work with Arabic. There are financial resources in these countries, and now they are investing in computerization. China is an interesting place with good potential, but it’s hard to understand how everything works there, and so far, unfortunately, it’s not possible to find explosive growth routes.

    - And by sectors of the economy?
    - Historically, we have loved to make universal products that can be customized. Now there is a need for additional adjustments for health, financial sector, oil and gas, legal sector, retail and, possibly, transport. On this path we see good potential.
    You can customize the products to the specifics of certain documents - at the technological and interface level. As, for example, with PassportReader: pressing one button allows you to quickly perform some action, surprisingly reduces the time spent on the function. And here's another example - in Spain, the energy market was demonopolized, and networks were obliged to accept applications from any electricity supplier.
    An agent comes to you with a phone, knocks on the door, asks if you want to pay less, you agree, he asks to take a photo of the invoice, sends it to a server that analyzes the consumption profile and offers a more efficient tariff. A simple story. People are willing to pay for the implementation of such projects
    When it comes to the struggle for the client, companies are willing to spend money on it.
    And in niche projects there is one trick - there is more profitability, although the volume of the order is small. So we are likely to be actively developing vertical niche solutions.

    About the fight

    - Is it difficult to grow without competitors, as in the 90s?
    - In the 90s. the war was just going on. We had a battle with one Russian company. Now they exist, but have moved to another niche. Everything was loud and fun, the audience's demand was off-scale. And we fought so hard for the market that in the end we made a good product. When we looked at foreign countries, we found that in the heat of local competition, we created a product that turned out to be a cut above all foreign analogues. Then we began to look for foreign customers. But the story began here - because of fierce competition.

    - Chinese software products can cause you problems?
    - Any competition creates a problem for suppliers and benefits for consumers. Here is the question of where the border between the use of market and non-market methods will go. Competitors from China will come, we will deal with them.

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