SWsoft's Moscow Edge

SWsoft's hosting automation secret is that the company is part of an Eastern conglomerate that sells software, Korean televisions, and consumer electronics through a variety of subsidiaries around the world.

by Max Smetannikov [June 20, 2003]

SWsoft's downtown Moscow R&D installation may be 5,000 miles away from the company's headquarters in Herndon, Va. but from an array of wide screen TVs to an industrial size kitchen, it is the real nerve center of the firm.

Leasing a spot on the 19th floor of one of few office towers standing tall over a city with few buildings taller than 10 storeys, SWsoft's Moscow office is a curious phenomenon—a company staffed and largely run by Russians and Russian expats moving at a pace rivaling that of New York. It would be wrong to label SWsoft a Russian company though—it is a U.S. corporation with a first rate R&D and customer support operation in Russia, and sales operations in Germany, the U.S., and Singapore. That said, elements of Russian business culture at SWsoft, especially in the Moscow office, are visible.

The firm is located in a building with an intimidating name Gidroproekt. The word, which literally means "hydro project", harkens back to tower's original use—being a Soviet research institute (Gidroproekt Institute) charged with U.S. Corps of Engineers-style projects which included building a channel linking Baltic and White seas and the High Aswan Dam in Egypt. Some of this grandeur seems to be rubbing off on SWsoft, which has curious perks like its own industrial size kitchen with a couple of line cooks whipping out sandwiches and hot tea for the troops. Other quirks include human guards checking building passes instead of a key card system.

At the cubical culture level, there is a research institute feel, with everybody sitting next to everybody else (very few closed doors). The feel of academia is especially strong around the computer scientists who power the company's R&D. SWsoft managed to attract some serious software development talent, including well known Linux kernel developers Alexey Kuznetsov and Andrey Savotchkin, and internationally recognized computer scientist Alexander Tormasov.

The chief executive, Serguei Beloussov, sits in an office with two more desks in it, occupied by his top lieutenants. Beloussov is, in his 30s, decisively casual in his appearance, and extremely detail oriented. He seems to have a Jeff Bezos style of management: he wants to be a part of every little thing happening inside the various companies that he manages, and has the same fascination with numbers, a tribute to an MIPT degree in physics and electronics engineering.

Beloussov moves SWsoft fast—New York minute fast. While preparing to talk to a reporter he made and received five phone calls in a minute and a half—while fixing a Wi-Fi wireless bridge, picking a design for an ad campaign, and getting tea and cookies so he could use the break in his routine for a snack.

SWsoft's business dealings and recent successes indicate this whirlwind of activity is not all for show. From being relatively unknown in the U.S. market for hosting automation, (which is dominated by Ensim, Sphera, and Plesk), SWsoft became a known entity virtually overnight in 2001. Acquisitions followed an aggressive sales buildup. In June, SWsoft bought Plesk and a smaller German competitor Yippi-Yeah! E-Business, claiming its spot as a major player hosting automation area. On the day of the acquisition, the company claimed its customers used its software on 30,000 hosting servers.

Although the IT industry is entering the third consecutive year of flat growth, an economic recession, and a venture financing drought, SWsoft's acquisition spree has raised eyebrows. What's even more surprising is that the money to fund the rollup comes from Moscow, from the 19th floor of the Gidroproekt building.

TV riches
As is typical of many European and Asian companies, SWsoft is a part of a holding company, a business construct channeling its founders' interests into profit-making operations that range from software to TV manufacturing.

"Technically speaking, we are now sitting in the office of S&W Group, a company engaged into manufacturing of consumer electronics and home appliances under its own and licensed brands, the business that is growing very fast," said Beloussov, speaking behind the desk of his SWsoft Moscow office.

SWsoft's launch and build up has been funded by S&W Group, the holding company. SWsoft's chief executive Beloussov is one of the two co-founders of S&W Group. He was originally in charge of overseeing holding's entire operation and is now in charge of just the computer monitor business, with his partner running the TV side of the house.Companies that make up S&W Group have been assembling and selling consumer electronics and appliances under Korean LG and Rolsen brands in the countries of the former Soviet Union for seven years. The operation brings in revenues of $300 million a year, with a billion dollar number being a real target in management's cross hairs in a few years' time, according to Beloussov.

The fact that software is not the only business of S& W Group is not lost on visitors to the Moscow office. Almost every open space on the floor is occupied by either a giant Rolsen TV set, or by boxes from various consumer electronics devices either manufactured in Moscow by S&W Group or sold through its partners.

Describing the company's manufacturing base is not meant to disparage its software acumen. While a lot of actual code is written in Moscow, the origins of S&W Group's software engagements can be found in Singapore, another hub of the company. In order to set up billing for the S&W Group's Singapore office, which the company needed to manage the licensing part of the business, and to get a massive discount on the billing software, Beloussov set up S&W Group's affiliate in that city as an exclusive franchising distributor of Solomon Software (which is now owned by Microsoft), a U.S.-based maker of ERP software, in 1997.

Aided by S&W Group's money, and the technical background of the founders, the venture soared, giving birth to Acronis, Infratel, and SWsoft, as well as to a massive software outsourcing business which has won over customers like Microsoft. In the late 1990s, S&W Group repatriated the bulk of the software business from Singapore to Moscow to save on rents and salaries ($12,000 a year is still a stellar mid-level professional salary in Russia) and to reinvest the money it saves into developing its presence in the U.S. and Western Europe. This seems to be the right decision, given that SWsoft's customers seem to see it as the value provider of hosting automation software.

International value chain
Sales on the home turf are but a pittance in SWsoft's overall revenue. The bulk of the company's income comes from Europe and from the U.S. Customers that end up going with the company point out that while SWsoft's products are priced more or less on par with its chief competitors—Ensim and Sphera—its sales come from its technical prowess. SWsoft's customer support is what keeps customers buying more.

Server4Free, a German webhosting powerhouse with a newly minted subsidiary in St. Louis, Mo. is a good example. The company first deployed SWsoft two years ago to support a German virtual private server rollout in parallel with Ensim. SWsoft won out as having more scalable and thus economically attractive platforms.

"Virtuozzo [SWsoft's virtualization software] is the only product that allows us to put 200 virtual private servers on a single hardware platform," said Jochen Berger, Server4free president and co-owner. "Plus, we needed a platform we could sell aggressively—for 10 euros a month—with a full root access."

Once SWsoft delivered on the technical side, it is those $12,000 a year highly qualified Russian bodies that made the difference between going elsewhere or buying more software from the vendor.

"We have our own team in Russia, dedicated to our customers, who look after our servers from SWsoft's office," said Berger. "These people are always on site."

That's the true value of an industrial kitchen and company-provided sandwiches—it is an infrastructure built to deliver better service because in Russia, you can put several bodies on one job for price you'd pay for one person in the U.S.

—End