The Skype Killers of Belarus
Living in a dictatorship has its advantages. You don’t need to stay up all night to find out who won the election. It’s easy to be positive, since officially there are no problems. You hardly need to wind your watch, for the times never change. As your humor grows blacker, so do the jokes.
Such is life in Belarus. For the last 18 years, President Aleksandr Lukashenko has ruled the country’s 9.5 million people with cudgel and knout. The country’s political culture is one of intimidation, censorship, and marked ballots; the police recently imprisoned a man for publishing a photo of a teddy bear holding a sign supporting free speech.
Yet upon arrival in Minsk, the capital of the Belarusian state, foreign visitors might find themselves surprised. The streets aren’t cluttered with food wrappers or prostitutes. A charming modesty permeates the population. The place has an efficiency so infrequently seen in this part of the world that it feels liberating. What’s most unexpected is that Belarus has become a promising place to do business and the home of one of the hottest apps in the world.
Talmon Marco and Igor Magazinik co-founded Viber just under two years ago. They run the business from Israel but have developed the Viber app in Belarus. “When was the last time I hired a developer in California?” Marco asks rhetorically, walking along Independence Prospekt, Minsk’s wide central avenue. He has dark hair and olive skin and always wears a tight T-shirt. Magazinik, Marco’s business partner, jumps in. “In Silicon Valley, they may be up on the latest techniques, the latest approaches,” he says, “but they’re too rigid, too by the book.”
More to the point, developers in the U.S. and countries like it are expensive. Marco calculates what he would have to pay in Tel Aviv, mumbling the figures in shekels, then converting to dollars. “For a talented developer, it would be $130,000 a year.” For this amount, Marco, 39, and Magazinik, 37, can pay seven Belarusian developers—and that’s just what they’re doing. One hundred million people have registered as users on Viber, an application that enables people to talk and text via mobile phone without paying a fee. Viber has emerged as a rival to the leading provider of phone service over the Internet, Skype, by capitalizing on Skype’s struggle to develop a reliable app for mobile phones. Howard Hartenbaum, an original investor in Skype, points out that 2011 marked the first time global smartphone sales outnumbered those of computers. “I don’t think Viber is going to put Skype out of business,” he says. “But they could pass Skype from the mobile perspective. Skype should consider buying them.”
What makes Viber’s growth all the more remarkable is the location of its most valuable employees. Despite Belarus’s reputation as a phantom country self-exiled in the heart of Europe—Lukashenko expelled the U.S. ambassador in 2008—the country has turned itself into a high-tech hothouse. Six years ago a free-economic zone opened in Minsk, providing tax breaks to resident firms and employees. Since then, Belarusian software exports have grown by more than 2,000 percent, to $270 million last year. U.S. companies buy half of the country’s software products and IT services. International clients include Coke (KO), Google (GOOG), Halliburton (HAL), Chevron (CVX), Citigroup (C), Sears (SHLD), Colgate-Palmolive (CL), Thomson Reuters (TRI), and Viacom (VIA), as well as Siemens (SI), Mercedes-Benz (DAI), Bosch, Philips (PHG), Samsung, Barclays (BCS), and the London Stock Exchange.
More than any other company, Viber has profited from the engineering know-how that Belarus offers. It’s a success story full of ironies: The Israeli startup operates in a country whose Jewish population is less than 1 percent; its app grants consumers the ability to communicate freely, but is based in a place where it is often challenging to freely communicate. When Marco and Magazinik, army buddies from Tel Aviv, released Viber on Nov. 9, 2010, they restricted the launch to the Israeli iPhone app store. They told a few friends, then held their breath as Viber went out into the world. On its first day, Viber had 18 new users. By the 16th day, it had added 1,400 more. The following day, nearly 3,700 people signed up. In three weeks, Viber had roughly 31,000 total users, and Marco and Magazinik were so encouraged that they decided to release their application globally. Less than a month after its debut, Viber had 1.8 million users in all. Viber now carries 2 billion text messages per month, along with 1.5 billion voice minutes.
Marco and Magazinik came up with the idea for Viber after their first company, iMesh, a music file-sharing application launched in 1999, fell victim to the legal disputes that plagued such platforms. (After settling with major record labels in 2004, iMesh began offering a watered-down version of its service in 2005.) “I always wanted to do voice over IP,” says Marco. “But we never had an idea that was good enough.”
Marco was traveling frequently at the time, using Skype to stay in touch with friends and colleagues. But his contacts had to be in front of the computer or have Skype initiated on their smartphones in order to be reached. Frustrated that he had to make an appointment before he could have a conversation, Marco began thinking of a way to improve on Skype’s architecture while retaining the attraction of its gratis service. He conceived Viber, which operates in sync with a smartphone, making users available at all times, placing and accepting calls “over the top” of telcos, and avoiding their exorbitant fees. “We were confident we had something,” Marco says. “There was no competition in this space.”
Skype was designed as a desktop program, and it’s never fully made itself smartphone-friendly. To be available for a call on Skype, you must sign into the program and keep it running. If you are signed off from Skype, no one can reach you.
Viber is constructed with the smartphone in mind. When you make a Viber call, your request is routed to a central Viber server. The server checks to see if the recipient of the call currently has Viber running in the background on his phone. If so, the phone starts ringing; if not, the recipient’s phone receives a push notification that essentially turns Viber on automatically, causing the phone to ring. Once your friend answers the call, audio is routed to the closest Viber server, ensuring the connection. Viber then attempts to create a direct Internet connection between you and your friend’s phone, rather than using the local Viber server. If you initiate the call through a Wi-Fi network and then move beyond the range of this network—say, walking from your office to your car—Viber will shift your call onto your mobile 3G network. All of this happens without the user noticing it. Viber says it uses high-definition audio, just like MP3, providing better audio quality than is available through GSM or a land line.
Unlike Skype, which makes you ask permission from contacts before adding them to your phone book, with Viber you grant access to the existing phone book on your device when you sign up. This access is central to Viber’s ability to integrate with your phone and operate seamlessly. Viber stores its users’ phone books on company servers, accessible only by the company’s security specialists: “Even I don’t have access to them,” says Marco. “And neither does Igor.”
The company entered a market where Skype had more than 1,000 employees and a decade head start. Viber had only 10 employees, spent less than $1 million on development, and had no marketing budget. When Viber’s popularity soared in its first month of existence, the company found itself unprepared to support the growing number of users, who had signed up with the expectation of immediate, seamless service. Marco and Magazinik frantically rented space on servers located around the world (in Japan, Brazil, Ireland, Singapore, Australia, and elsewhere) and developed the technology to use them. It didn’t help when Viber encountered difficulties dealing with some mobile-phone networks, which, not surprisingly, balked at the idea of working with an app that made an end run around cellular service. Interruptions and blockages came from IR-MCI in Iran and MTN in Syria and Yemen. Viber says that Vodafone (VOD) in the U.K. also tried to limit the amount of bandwidth available to Viber calls, though Vodafone consistently denied taking such actions.
Despite its popularity as a free-telephone service for desktop computers, Skype has failed to conquer the smartphone. Management and ownership changes at Skype, which Microsoft (MSFT) purchased in 2011, may have hampered its ability to compete in the mobile market. The company debuted an Android version of its mobile product in October 2010, a full two years after the operating system’s release. Still, Skype is nearing 1 billion registered users, making it 10 times bigger than Viber. (Skype’s executives declined requests for comment.) Marco and Magazinik say Viber can overcome that gap. And they believe they have discovered the place from which to do it. During their time with iMesh, Marco and Magazinik worked with a Minsk-born developer via an outsourcing firm in Kiev, Ukraine. When it came time to assemble a group of programmers to write the code for Viber, they remembered the talented developer, who had since left Ukraine for home in Belarus. A new generation of hungry, skilled, affordable engineers was graduating from universities there, looking for a modern and lucrative profession.
Marco and Magazinik found their way to Brest, the sixth-largest city in Belarus. Located on the Polish border, Brest absorbed the first phase of Operation Barbarossa, the Nazi invasion of Russia, in June 1941. Marco and Magazinik realized that—in concert with their Belarusian colleague, who had started a company of his own—they could take advantage of the local talent graduating from the Brest State Technical University. “When we started here, there was only one hotel in town,” Magazinik says. “And the elevator buttons popped out when you got to your floor.”
Viber’s Brest operation is located beside a new Lukoil (LUKOY) station in the shadow of run-down apartment buildings. The offices are clean, modern, and well-lit, and enthusiastic young people fill the many desks in its interlocking rooms. Viber has about 40 employees in Belarus, out of roughly 100 in all, and they are all billionaires already—in Belarusian rubles. (Inflation in Belarus was 39 percent in 2011; the ruble-to-dollar exchange rate is more than 8,000 to 1.)
“The only jobs I could find were in old Soviet factories—manufacturing or railroad machinery,” says Slava Eremov, 26, who graduated from Brest State Tech in 2007 and now works on improving Viber’s iPhone code. A Velvet Underground T-shirt hangs on his thin frame. “When I found this job, I couldn’t believe that there were such companies in Brest. I didn’t have to move to another city or another country. I had a challenging career opportunity here, so it meant a lot for me.”
Every year, nearly 4,000 IT-related specialists graduate from Belarusian universities. These programmers are also schooled in math, physics, and other sciences. Now the country hopes to harness that brainpower through the opening of the Belarus Hi-Tech Park in Minsk. Valery Tsepkalo, the park’s director, once served as the Belarusian ambassador to the U.S. After giving a speech in Monterey, Calif., a few years ago, Tsepkalo met several Belarusians who worked as IT developers in Silicon Valley. “If these guys are successful in Silicon Valley,” he says, “why couldn’t they have similar success in the country of their origin?”
When Tsepkalo returned to Minsk, he lobbied his state contacts for 15 months. Eventually, he convinced them to allocate funding and grant zoning privileges to create an environment that would foster the development and retention of domestic tech talent. Companies that set up shop in Belarus pay no corporate taxes, and their employees pay income tax at a rate 25 percent to 70 percent lower than that of workers elsewhere in Belarus. It feels like the rare seeded “tech city” that works. There are 106 companies in the park, employing roughly 12,500 developers. “We are the largest cluster in Central and Eastern Europe,” Tsepkalo says. “We understand that the perception of Belarus is sometimes not the best. And some investors are reluctant to invest here. But the risks are minimal, and the benefits are real.”
A day after the visit to their Brest office, Marco and Magazinik drive a half hour out of town, pulling up to a lakeside retreat where many of their employees are several drinks into the weekend. Some of them have towels cinched around their wastes, fresh from a swim in the lake or a sweat in the sauna. An Uzbek handyman cooks plov, a rice and lamb pilaf, in a large cast-iron pot, smoke from the wood fire beneath it billowing into the falling sunlight. As everyone relaxes and the lips loosen, several Viber employees gather near the fire and express their displeasure with the country’s political system. But the venting is brief, as they realize it’s best to find a safer subject.
Asked about the dangers of doing business in a country where the courts don’t always protect private property, Marco looks as though he has never contemplated the possible consequences of falling out of favor with Belarus’s autocratic regime. Instead of discussing what he may lose, he prefers to discuss how much he saves. “The cost to run Viber is tens of thousands of dollars a month,” he says. “We are one of the largest carriers by volume, and our cost is next to nothing. Under $1 million a year.”
A breeze kicks up, stirring the smoke from the fire that is bringing the plov to a greasy bubble. Lost momentarily in this screen, Marco’s thoughts turn to the competition. He takes a shot of vodka with horseradish and then one infused with honey. “Being as good as Skype isn’t good enough,” Marco says. “We need to be better than Skype—substantially better.”
The National Library of Belarus is one of the few modern buildings in Minsk. It looks like a dreidel. Inside, an auditorium is filling up with representatives of companies operating in Minsk and the eager developers who would like to work for them. The symposium is called Mobile Monday. Young journalists from state-run TV and radio stations conduct interviews with the foreigners in attendance. That a gathering like this commands national media attention shows how important the high-tech sector is in Belarus, or perhaps how removed the country is from the rest of the world.
After several dull presentations, it’s time for Viber. From the crowd’s enthusiastic reception, it’s clear which company is headlining the show. Marco steps onto the stage. His T-shirt reads, “Imagine Someone Who Never Stops Talking.” The lights in the auditorium go down. Flashes go off. Marco begins his presentation with a slide of a first-generation telephone, directing the attention of his audience all the way back to the beginning.
For a young company, Viber has a sizable customer base, but its 100 million users represent only about 1.7 percent of the estimated 6 billion mobile-phone users in the world. That means Viber has vast potential for growth, and it’s adding 10 million users per month. The company’s largest source of growth is the U.S.: Nearly 1 million Americans sign up for the service every month.
The cheap cost of operating out of Belarus has allowed Marco and Magazinik to fund their company’s expansion with no outside investment. The company’s main financial partner, an Israeli whose name they refuse to disclose, also invests in advertising, African gold, real estate, detonators, and Belizean trees. It’s difficult to say how much Viber may be worth, since the company currently provides its services for free. But Microsoft did pay $8.5 billion for Skype last year. And Viber has outlined plans to institute premium pay services, as well as a desktop version, both of which are designed to expand the user base and generate revenue. “You don’t see many services that get to these types of numbers,” Skype investor Hartenbaum says. “Growth is in the mobile arena. I like companies where it’s very easy to imagine how big the company is going to get.”
Marco’s Mobile Monday presentation draws to a close as he rounds out Viber’s current position. “We are getting 230,000 new users a day. We are connecting more than 100,000 concurrent calls. Viber is like a little telco. Oh, I shouldn’t say that.” Laughter skitters around the hall.
“I don’t know if you know this,” Marco says, coyly, “but Viber is made in Belarus.” The crowd applauds. Several people whistle. When the commotion dies down, Marco has one final message for all the faces out there in the darkness: “We are hiring.”