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Sergey Konovalov, Mobio: "Free money is harmful to a healthy entrepreneur"

The pandemic has complicated the lives of many people, including the sphere of digital advertising. However, crisis situations often allow us to re-evaluate priorities and make a lot of improvements. Sergey Konovalov, CEO of Mobio Agency, describes the current situation in the Russian mobile marketing entry, mergers with a foreign company, and overcoming crisis situations.

— How would you describe the market today? Is mobile app promotion still a profitable business?

— Mobile apps are definitely still a strong trend. And the pandemic has once again shown that if you don't have a mobile app, you lose out to your competitors. If you don't have an online business, you may already be dying. Even those who previously did not pay much attention to online, ran to make online stores-although this is already a lagging echelon. So Yes, without any doubt, mobile apps are relevant, and so is their promotion.

For a couple of years, there has been talk that customers are about to take everything in-house and agencies won’t have nothing left. However, I believe that events are developing positively for independent specialized agencies. Brands first take all the budgets from network agencies and build something for themselves. Then they realize that digital is too big and it’s very long and expensive to build in-house verticals. They divide tasks into specializations, organize tenders for mobile, influence, and web, and as a result, these tenders lead to us.

— Who are the key players now?

— The market is consolidating, and there are more and more differences between agencies that work on "gray" schemes, and those who are focused on brands and long-term development. I can name the top 5 agencies: Mobio, Rocket 10, Go Mobile, Zen Mobile, iProspect. These are the most powerful and active agencies nowadays.

— What did you mean by "gray" schemes?

— "Gray" schemes are when advertising platforms (Facebook or Google) don’t allow the promotion of certain products on their sites, and companies circumvent these prohibitions in one way or another. For example, in the retail sector there are slimming products, dietary Supplements, and some cheap goods from China and, of course, a casino.

— What advertising tools are the most effective for mobile promotion today?

— The main work goes through the so-called super-platforms. These are Facebook, Google, in Russia myTarget and "Yandex" are also added. These platforms provide access to a significant part of the audience.

To successfully compete for a user, you also need to monitor the interests of the audience and pick up certain trends. For example, TikTok is trending among young people and even children. Yandex Zen and Apple Search Ads are new tools, they appeared in Russia only in 2020. And if you don't pick them up quickly, you start to lose your appeal to the client and narrow your reach.

— Can you name any trends beyond that? And can something completely new appear in Russia in 2021?

 New features appear from year to year. For example, advertising identifiers in iOS will gradually go out of use, which will make it more difficult to target and evaluate the effectiveness of ads, or other types of services will be required. Perhaps players who represent analytical services will create some new services.

It is likely that Facebook and Apple will offer their solutions. This will mean an additional strengthening of consolidation, and it will become even more difficult to go beyond the ecosystem. All these super platforms put a lot of effort into not letting the user go. I think this consolidation will increase next year.

— Does consolidation make life more difficult for those who are engaged in mobile marketing?

— Yes, it complicates their life. It makes end-to-end analytics more difficult, so cross-platform and cross-channel measurements become more difficult. The requirements for expertise for working with data and expenses are increased. You basically can't do anything without specialized services, and these services are paid. Ultimately, the budgets are passed on to the customer.

— The pandemic has significantly affected businesses around the world, except some industries that have grown significantly. What is the situation in mobile marketing?

The pandemic has become a serious challenge for us, primarily because of the uncertainty and the General negative information background. Psychologically and physically, it was difficult for employees to be in self-isolation.
In March and April, many brands froze their budgets. And even those who became super popular during the pandemic. For example, grocery delivery services or online movie theaters were full of new users, and there was no point in spending money on advertising.
Developing companies and new players have become the main source of marketing money. Those who needed to show consumers that there are more than just leaders in the market. Now the number of new applications for the delivery of goods is growing, including from large networks. By the end of the year, they will be promoted particularly actively.

— How did the lockdown affect Mobio?

— Lockdown was the reason to give up the big office and move to a new office format - the co-working space where employees come out of necessity. It turned out to be convenient and effective. In general, we set a course for further building processes for remote work: we had this in our DNA from the very beginning, but now we are paying more attention to this story.

— Has the crisis hit Mobio?

— There weren’t any directly deep crisis phenomena in connection with the lockdown. As for the business itself, in general, the company was in a management crisis in 2019. In the whole, it’s a common story when a co-founder becomes closely associated with one company. A couple of years ago, we - me and Alexey Pisarevsky, who created Mobio in 2013 - thought that all this was not about us. But the crisis arose and by 2019 it escalated so much that it began to strongly affect the management of the company.

— Is this related to your departure from the CEO position in 2019?

— Yes, that's right. In fact, at the end of 2019, I faced a difficult choice: either stand my ground, but risk the destruction of the company, or entrust management to the current team. I decided to "let go" the situation.

Our shareholders on the board helped me a lot. They acted as wise intermediaries and allowed us to reach agreements in conflict situations.

After leaving the role of a hired Manager, I became just a shareholder. This helped me to better understand what I really want to do. I tried myself in small projects as a strategic adviser, looked at startups and realized that I was still interested in the field of AdTech and mobile marketing. That I need ambitious goals and that I want to work in a global market.

We lost part of the team by April 2020 as a result of the crisis and the outbreak of the pandemic; financial indicators also fell, and against this background, Alexey expressed a desire to leave the position of CEO. The Board of Directors decided to return me as CEO. Then we were able to agree to buy out Alexey's share in Mobio, a decision that satisfied all parties. We have moved on to the next stages of development.

— A merger with a British company was the next round, right? What is the goal?

— We entered these negotiations without much expectation. But in the process of getting to know the investor's team, I realized that this is what I want to do for the next 5-10 years.
The goal is to build an international company in the field of AdTech and reach the level of global leaders. Actually, what should be done to make it work? Operate on a global market, be in a transparent jurisdiction and have access to finance. As part of this partnership, one of the interim goals is to launch an IPO on the London Stock Exchange or NASDAQ by 2022 and raise funding with an international market multiplier. The proposed strategy appealed to us. As a result, we signed a deal in October of this year. A press release with details of the deal will be released soon.

— What is the interest for the British? Are Russian companies that are engaged in mobile marketing needed in the West?

— Purely Russian companies are rather not needed. To solve business problems, for example, in German or French, or even in European e-commerce, you need to be in the context, know their consumers, but they are very different from each other. Also you need to be on the same page with the client - to understand their needs, thinking, and KPI. On the other hand, you need to have advantages over global and local competitors. A Russian company trying to enter Europe immediately faces companies of the ironSource or Glispa level and smaller players that are locally successful. Why did the British company need us? She was interested in our talents, that is, highly qualified specialists, especially in the field of IT and advertising.

— How effective is this scenario for Russian business in principle? What are its pros and cons?

— The only disadvantage is that you need to get out of your comfort zone and start doing things that you haven't done before. Also you need to aim higher, and this increases the risk of making a mistake. On the other hand, only those who do nothing do not make mistakes.
As for the advantages, the British company received a strong team, a brand with a built-up operating activity and with a track record of annual revenue growth. It is possible to build a group based on Mobio to launch an IPO. The group also includes a number of other companies, mostly they are minority shares. For the initial public offering (IPO) there should be an operational business around which everything else is already consolidated.

— How can a Russian company enter the international structures and start working with them?

— It is both easy and difficult to enter an international company. I’ll try to explain. It is quite easy to start cooperation with an international company from Europe or America. We have concluded quite a lot of agreements for the provision or receipt of services during our work,. But it is very difficult to conclude a strategic partnership and conduct an M&A deal. It is necessary to launch joint projects: then there is a mutual verification of each side in the work. If it becomes clear that there is a common vision of the business, then you need to go, meet, communicate, share information. This requires a lot of effort and time.

As for possible mistakes, one of the most common is to give up sales or business development in another country. When the founders and management stay in Russia and do not immerse themselves in the processes. The second mistake is to expect that after entering into a partnership with an international company, the efficiency of the Russian part of the business will change by itself. It doesn’t work like this.

— Is there any radical difference between how mobile marketing is implemented in Russia and abroad?

— The Russian market is more consolidated. This applies not only to mobile marketing. New companies appear fewer and fewer. Russia needs an ecosystem, but it can't be done if you mindlessly pour money into individual areas, as our state does. Easy money replaces goal-setting: your task is not to make a successful business, but to justify trust. To my mind, free money is harmful for a healthy entrepreneur. He needs financial tools and working laws, when you understand that if you are successful, the business will not be squeezed out just like that. And, of course, an adequate education is needed.

In my opinion, none of this is implemented. I mean, there is something, of course - but only in Moscow and in St. Petersburg. In other places it is less or nothing at all. If we look at the statistics of M&A transactions and the size of these transactions, we can see that in Russia, compared to Europe, everything is deplorable. Even individual small European countries outperform Russia in these indicators. We have a very narrow circle of companies investing in Mobile — Yandex, Mail.ru, "SBER" and some telecoms. And they often say in their public speeches something like "guys, we are ready to invest, but we have nowhere to do it". This is the right message, but what happens next? A startup that has achieved at least some success immediately gets on the radars of these large companies. As a result, it is aggressively bought out by one of the major players. The company has to be sold on the terms of the buyer, otherwise a large holding company will then make such a service itself and crush it.

If Mail.ru, "Yandex" or "SBER " annually bought a dozen companies with an estimate of tens of millions of dollars, can you imagine how much money would come to the market? The founders of these companies would reinvest the money they received in smaller companies. As a result, the flywheel would turn much faster. When holdings spin billions of dollars but don't invest them anywhere, the market — mobile in this case — remains small.

— How to enter the Russian stock exchange?

— An IPO is not an end in itself. In addition, it is expensive, difficult, and doing it "just to be" is not worth it. An IPO is just a market tool for evaluating your performance and a way to raise funds for development. But to do this, you need to reach a new level and a different market, still on a different scale.

You will need to show annual revenue and EBITDA growth. You need to attract the attention of investors, and it won’t happen if you don’t have large clients and if the turnover itself is too low. In addition, you need to be in a transparent jurisdiction — not in Russian one. This refers to the fact that the parent company shouldn’t be located in Russia, because foreign investors won’t invest in Russian company.

— What can the reason for this?

— Political and economic instability, lack of transparency of laws. And, of course, sanctions. Negative background, off-scale risks. All of this deters investors.

— How much does the Mobil brand cost now?

— Until recently, I thought we were too small to talk about brand value. But this year, with the deal and the lockdown, I've rethought a lot. Now I see that customer awareness and the HR brand have a high value. In fact these are the key components of the business. If we attracted the first round of investments in 2015 under our own names, then in 2020, the Mobio brand is definitely included in the asset.

— There are more and more signs of an impending re-lockdown. Does Mobio have an emergency plan in place in case it happens?

— Yes, we have a plan. It is connected not so much with the second wave, but with a change in the world. The attitude of doing business has changed. Our plan is to build business processes in the company that are not tied to offline. Earn enough to keep the team going even during long periods of budget cuts and don’t depend on one market, work in Europe, the United States, Asia; while there is a lockdown in one region, you focus forces in others.

— What advice would you give to the market in case of a second wave?

— Take a closer look at the condition of employees. Help the team to survive these knockdowns, create conditions to reduce negative pressure. If you have not yet switched to remote — go, if it is necessary - help to organize the workplace. And in general, not to escalate the situation, but to somehow add stability within the team. The main thing is that everyone is healthy, the rest will be added.

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