Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Boom or Bust for Siberian Software Makers

VedomostiNovosibirsk is betting on the success of local software companies to make the city a center for cutting-edge technologies.
NOVOSIBIRSK -- 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 Akademgorodok (Academic Town), a university and scientific research center 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 center for cutting-edge technology.

Like many who started careers as researchers in Akademgorodok 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 a U.S. partner. In its heyday in the late 1990s, Novosoft was ranked as one of the country's top five software houses.

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

A short drive away CFT, which stands for the Center for Financial Technologies, has thrived by sticking to Russia -- selling software programs 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 modernized 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 that 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," Vashenko said 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 realize quickly enough that the tide was turning against it before disaster struck.

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

It is also selling inexpensive "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 Akademgorodok campus, is brimming with confidence.

"Our market is growing very fast and so are we," said Alexander Pagydin, CFT's managing director, adding that 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 cellphone 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," Pagydin said.

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, 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," Komarov said.

"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 west as St. Petersburg, on Europe's doorstep, and as far east as Vladivostok.