The domestic market of IT products is at the stage of active development, especially after the departure of foreign vendors from Russia in 2022. The past year has shown that the key trend and development strategy is not only import substitution, but also integration with developers and other companies. It is expected that by 2030, it is possible to achieve the share of domestic manufacturers of IT solutions in the country at the level of 90%. However, this requires solving a number of problems in the industry.
Development of the domestic IT market
Since 2014, the Russian information technology market has been gradually growing, however, against the background of geopolitical affairs and changes in Russia's relations with a number of countries, the domestic IT market faced significant changes back in 2022. And as a result, it also affected the way Russian players acted in 2023.
Fig. 1. Dynamics of the volume of the Russian IT market, 2017-2022, billion $
Source: Ministry of Digital Development, RUSSOFT
According to Yale CEL estimates, over the past two years, 1,028 foreign companies have stopped working in Russia, of which 200 companies were engaged in information technology. It is obvious that in the first year after the departure of foreign companies, the volume of the Russian IT market decreased. According to Russoft, in 2022, the domestic market decreased by 3% (from $ 41.3 billion to $40 billion). The TAdviser analytical center calculates the market volume in rubles (excluding the turnover of user electronics, communication services and specialized retail chains): in 2021 the volume amounted to 2.2 trillion rubles, in 2022 - 2.1 trillion rubles. The drop rate was 4.5%. In 2023, the market showed an increase of 10%.
At the same time, the IDC analytical company in the second quarter of 2022 predicted a decline in the Russian information technology market by almost 40% by the end of the year — to $ 19.1 billion. In fact, the departure of foreign vendors has not become a factor for the Russian IT sector that can cause such a drop.
However, the full recovery of the market will occur only when domestic developers will be able to provide Russian analogues of IT solutions of the departed companies, and Russian users will be ready to switch to domestic products. First of all, this is due to meeting the increased demand for mass-produced domestic software, custom development, and cloud services.
It is noted that in 2023, the turnover of companies that work on government orders increased — in the range from 5 to 10% compared to 2022. In total, the Russian information technology market could grow by 10% in 2023. The key drivers for the restoration and further development of the Russian IT sector are the course towards import substitution, as well as the development of the information security field itself. This is a promising segment for which Russian companies have increased their budgeting by an average of 30-40% over the past year.
Of course, the development of such segments of the IT market as the production of software and cloud services continues. By the end of 2023, the cloud solutions market, according to the assessment ITGLOBAL.COM , grew by 40%, maintaining the pace of development of the previous year. But in order to reach a stable level of production of such solutions, it may take several more years. It is expected that with the assistance and support of the government, Russian vendors will be able to occupy 90% of the domestic market by 2030. The market itself may double by that time. This forecast is also confirmed by the global trend in the field of information technology towards a constant increase in spending on the IT sector. For example, Gartner predicts that the financing of the industry in the world in 2024 will increase by 6.8% — from $ 4,679 trillion in 2023 to $ 4,998 trillion.
As for the Russian market, industry experts suggest that even before reaching the level of domestic developments in 90% of the country, Russian players will be able to arrange the supply of their IT solutions for export starting from 2025. This forecast is explained by the increase in the number of Russian vendors within the domestic market, the development of their products to the required level. As a result, competition increases and players in the domestic market become cramped. In particular, access to Asian and African markets is possible. As noted in the study by Russoft and ARPP "Domestic Software", the most promising markets are Kazakhstan, the United Arab Emirates, India, Uzbekistan, Brazil, Saudi Arabia, and China.
Fig. 2. Promising countries for the export of Russian software, %
Source: RUSSOFT and ARPP "Domestic Software" survey, "RG"
Development and implementation of Russian software: Linux, PLM and office software
As of February 2024, the Russian Software Registry includes 19,136 items. In 2023, according to the Registry, the list was expanded by 4,724 thousand software, but 795 solutions were also excluded from it. Both indicators are higher than in 2022: 3,725 thousand were contributed then, 250 were excluded. In total, the volume of the Registry of domestic software is growing, but this does not fully reflect the situation in the domestic IT market. Finding a solution in the Registry is not a guarantee that a particular software is being implemented in production in domestic companies.
Not all solutions currently have a full-fledged Russian counterpart. One of these categories of IT solutions is PLM systems (product lifecycle management) in the engineering sector. Russian vendors are developing their own systems.
At the same time, as stated in the reports of the Government's strategic session on PLM, held in November 2023, in 2021, foreign companies occupied 67% of the PLM solutions market. After the market declined (by about 1/3), in 2022 its volume was 16 billion rubles, and the share of Russian companies was 69% (11.1 billion rubles). Of course, that year the increase in the share of Russian vendors was associated, in particular, with a general decline in the market. However, in 2023, as predicted by the Ministry of Digital Development, the market volume was partially increased to 18.6 billion rubles. — without signing contracts with foreign developers. By the end of 2024, the Ministry expects a market value of 23.6 billion rubles. The PLM market can indeed show significant growth for the reason that it is developing almost from scratch.
Fig. 3. The volume of the PLM solutions market, 2022-2024* (* forecast), billion rubles.
Source: Ministry of Digital Development
Also, according to the roadmap "New Industrial Software", by 2030, domestic vendors will have to develop 2,300 CAD and PLM systems. Therefore, in the next couple of years, the share of costs for the purchase of Russian industrial software will increase to 70% in order to meet deadlines for abandoning the use of foreign technologies at critical information infrastructure facilities by 2025.
In addition to PLM solutions, the office software segment is developing. The trend outlined in 2022 continued in 2023. One of the main domestic players in this segment, MoyOfis, took a 16% share of the office software market in Russia in 2023 (5% in 2022). Last year, the company launched the Squadus digital workspace, an analogue of MS Teams. The number of the company's customers is steadily increasing: the total volume of licenses sold has exceeded 1 million units. The company notes that its software is used in the State Duma and at 300 companies of the nuclear industry.
And as for operating systems for personal computers, in the summer of 2023, Linux reached 3% usage in the world for the first time, despite the fact that the OS has existed for about three decades. As of January 2024, the use of this OS in Russia is limited to 2%. Windows and OS X occupy the leading positions — 86.8% and 5.54%, respectively.
Fig. 4. The share of various operating systems installed on PCs in Russia, % (as of January 2024)
Source: statcounter
In general, there is a shortage of embedded OS (operating systems), RTOS (real-time OS) on the Russian market that would be specialized for aviation, the automotive industry, and medical devices. There is also a lack of technologies for digital twins of companies, systems for managing the development and storage of distributions, and automation of the assembly process.
At the same time, software development in Russia has been developing rapidly over the past two years. Obviously, 2022 showed a reduction in the share of foreign software in the domestic market — from 34% to 20%. And the share of sales of domestic solutions increased by 14.5% to 57%. According to RUSSOFT, in 2023, sales of Russian software within the country could increase by 36%.
The market of IT specialists
As a result of the waves of emigration from Russia in 2022 and the parallel development of the domestic information technology sector, a significant personnel shortage has formed in the industry. In the summer of 2023, the Ministry of Digital Development estimated the shortage of specialists at 500-700 thousand employees. Filling this shortage would allow to maintain the necessary pace of development of the information technology industry.
As of August 2023, 740 thousand employees worked in the domestic IT market, which is 13% more than a year earlier. Already in the autumn of 2023, Deputy Prime Minister Dmitry Chernyshenko estimated the number of employees at 820 thousand people employed. It is assumed that in the next decade, the Russian labor market may face an overabundance of IT specialists. There are several reasons for this forecast. Firstly, the policy of maintaining the demand for admission to technical universities for IT training programs is now being actively implemented. So, since 2020, the number of places at universities paid from the budget has been doubled — to 117 thousand (from 62 thousand). In addition, there are many online classes for obtaining IT specialist competencies.
Secondly, the introduction of artificial intelligence can also contribute to an oversupply of labor in the market. For example, in 2023, Rostelecom announced that in the next three years it would develop the use of AI in software development, data analytics and testing to compensate for the shortage of personnel — the Lukomorye project. According to various estimates, more than 1.5 billion rubles may be spent on the project already at the initial stage. Representatives of Rostelecom assure that if the project is successfully implemented, they do not intend to dismiss existing employees.
However, at the moment, the demand for IT workers remains high, and some specialties even continue to grow. Thus, in 2023, the demand for information security specialists increased (almost twice as compared to 2022) and for technical support (also almost twice). It is noted that the demand for employees in the field of information security is increasing primarily in companies outside the IT sector. IT companies are mainly interested in project managers and product management specialists.
In general, software development remains the most in-demand specialty. And AI specialists may turn out to be a promising specialty, which is associated with the development and application of generative AI. According to a HeadHunter study conducted in the fall of 2023, in October 2023, the number of vacancies in the field of AI and neural networks increased by 80% compared to October 2022. Over the same period of time, the number of vacancies in the field of machine learning increased by 21%. AI workers are in demand not only in IT companies, but also in system aggregators, telecommunications and financial companies. The most in—demand jobs are machine learning engineer, digital project architect, and data markup specialist.
The problem in the IT specialist market has become the accelerated growth of salary expectations of highly qualified specialists, overtaking the growth opportunities of wage offers. Due to the shortage of personnel in the market, large companies attract highly qualified specialists with salaries that can be twice as high as the average market salary in their specialty.
According to the research of the portal "Rabota.ru", the IT labor market has been filled by junior employees - novice specialists who have recently started studying for a specialty and do not have all the necessary qualifications that may be required, for example, at work in large companies. Companies do not want to hire them, which is why there is a surplus of juniors in the market. The greatest demand is for middle—level specialists - 52%. Their salaries have tripled over the past year.
The year 2023 showed that the departure of foreign vendors certainly allows Russian developers to occupy a free niche in the market, albeit gradually. At the same time, the market continues to be competitive, which encourages manufacturers to improve their technologies. Developers are releasing updates to their services, and companies are gradually switching to import-substituted IT solutions. However, there remain industries in which the transition to the use of Russian developments has been slowed down (for example, agriculture). This is partly due to the narrow specialization of IT solutions needed in such production, and the lack of new developers in this industry. Also, private users are in no hurry to switch to Russian operating systems, but still the number of users, for example, of Linux systems, Aurora is growing.
In addition to the trend towards import substitution, both Russian developers are integrating with each other (for example, the development of packages by Fplus, MoyOfis, Bazis, Kaspersky Lab, NPPKT and Getmobit) and developers with customers (for example, cooperation between T1 and MR Group).
IT areas such as product management are developing (work is underway to create Russian PLM solutions), information security and work with AI; demand for custom software development is increasing. In the next few years, Russian developers are also expected to export, which is explained by the natural development of the IT market and an increase in the number of competing players.
