US tech giants don’t have much money on the line as they split from Russia

By | March 4, 2022

That’s not to say that it would be a simple decision for them to leave Russia entirely. Many of the tech companies face complex ethical and reputational questions about free expression as they deliberate pulling powerful communication platforms that are used as much by dissidents and news outlets as by the Russian state. While many of the companies have cut off Russian state media and advertising, so far Apple is the only one to shut down major operations in Russia.

Still, the financial dynamics provide a rare opportunity for the American tech companies to appease policymakers around the world, including in the US and Europe, without seriously hurting their bottom lines.

Google, Facebook, Apple and Amazon are all facing intensive bipartisan backlash in Washington as lawmakers scrutinize their market dominance and role in spreading disinformation worldwide. Taking action on Russia could help them to gin up some goodwill with the policymakers who have said them.

“There are political points to be won for the tech companies if they demonstrate that they take their human rights obligations seriously,” said Steven Feldstein, a senior fellow focused on democracy and technology at the Carnegie Endowment for International Peace. “Standing firm against Russia and being public about their pushback is important to them and outweighs whatever small revenue they derive from the Russian market.”

“The world is watching what the tech companies are doing and whether they are living up to the promises that they’re making,” said Connecticut Democratic Sen. Richard Blumenthal (D-Conn.), one of Silicon Valley’s most outspoken critics on Capitol Hill. “It’s a unique opportunity because they have an extraordinary obligation. They’ve made a start, but there’s a lot more to do.”

The big tech companies have long kept only a “toe in the water” when it comes to the Russian market, said Dan Ives, a tech industry analyst with investment firm Wedbush Securities. Ives calculated the percentage of revenue the companies would lose if they left Russia.

“For these tech companies, Russia is like breadcrumbs at the table, relative to the overall pie,” he said. Ives predicted that the tech companies will eventually back out of the market entirely as Russian violence in Ukraine escalates. “Investors would welcome with open arms cutting off Russia across the board.”

Other industries stand to feel a lot more pain. The list of global stocks with heavy exposure to Russia includes oil company BP — which announced plans to leave Russia this week — and investment banking company Citigroup, which this week said it has a $10 billion exposure to Russia as it leaves the country. Mastercard, which is pulling back from Russia in response to US sanctions against Russian banks, on Wednesday disclosed that it received about 4 percent of its revenue from Russia last year. Russia’s titanium producer VSMPO-AVISMA provides Boeing with 35 percent of its titanium.

Of the tech giants, Apple so far has taken the most far-reaching action against Russia, halting all sales in the region and removing Kremlin-controlled media outlets RT and Sputnik from its app store. Ukrainian officials have pressured Apple and Google to also block access to their app stores in Russia entirely. (Apple’s Russia revenue in 2020 reached about $2.5 billion, representing less than 1 percent of Apple’s total sales that year.) Apple did not respond to a request for comment.

Others have taken some steps to distance themselves from Russia. Google announced it would bar RT and other pro-Russia channels from YouTube and removed RT and Sputnik apps from its app store. Facebook has taken similar steps to remove Russian propaganda from its platforms. Amazon in a blog post expressed “horror and concern” about the situation in Ukraine and pledged to donate $5 million to organizations helping on the ground, but did not address its presence in the region.

The tech industry is facing far more difficult financial and ethical calculations in other authoritarian countries. For instance, the tech industry’s supply chains are tightly tied to China, making it nearly impossible for the companies — particularly Apple — to sever ties with Beijing despite calls to do so because of violence against Uyghurs in the country. And there would be serious consequences for the industry, for instance, if China invaded Taiwan. More than 90 percent of the world’s leading-edge microchips come from Taiwan, which China claims as its own territory. Terry Daly, a senior fellow at the Fletcher School’s Council on Emerging Market Enterprises, told POLITICO earlier this week that “it would be devastating” for the tech industry if Taiwan was cut off and “the entire guts of the network infrastructure for communications” would suffer

Amazon has a particularly small presence in Russia — limited to a small number of users who use Amazon’s cloud services for backup purposes, said Karen Kazaryan, general director and founder of the Russia-based analysis firm Internet Research Institute. Amazon does not have a Russia-specific e-commerce site; Russians use e-commerce platforms including Ozon and Yandex. Amazon did not respond to a request for comment.

Even so, some of the tech companies are making hundreds of millions of dollars a year in Russia. Google has the largest presence, with offices in Moscow and more than 100 employees in the country. Its YouTube video service is the leading social media platform in Russia, outpacing Meta-owned WhatsApp and Instagram and the Russian social media platform VK.

“From Google’s perspective, there’s a lot of money to be made by maintaining access to the Russian market,” said Justin Sherman, a fellow at the Atlantic Council’s Cyber ​​Statecraft Initiative, pointing out that between 80 and 85 percent of Russians use YouTube.

Still, Google received less than 0.5 percent of its revenue from the Russian market in 2020, amounting to about $800 million that year. By comparison, it received $2.4 billion from the UK in 2020, which has about half the population of Russia. And both are eclipsed by Google’s revenue streams in the US and the Asia Pacific region. Google received 19 percent of its 2020 revenue from the Asia Pacific region, much of it from Singapore and India.

And simply putting restraints on widely used platforms like YouTube in Russia could offer potential drawbacks to a full withdrawal. The Kremlin could retaliate against the companies over any moves to curtail access.

“Blocking Russian war propaganda would most likely trigger the blocking of the whole YouTube by the Russian government, which will make alternative, anti-war information not available to Russian users,” said Sergei Hovyadinov, formerly Google’s top lawyer in Russia and Eastern Europe. But, Hovyadinov added, Google has been taking down content at the request of the Russian government for years. Google did not respond to a request for comment.

A Meta spokesperson said the company does not have any employees on the ground in Russia. The company said it intends to keep its services, including Instagram and WhatsApp, active in the country.

“People in Russia are using FB and IG to protest and organized against the war and as a source of independent information,” tweeted Nick Clegg, president of global affairs for Meta. “We believe turning off our services would silence important expression at a crucial time.”

These dynamics are compounded by incoming Russian regulations that would force the US tech companies to set up local offices in Russia, an effort that would place the companies firmly under the Kremlin’s legal jurisdiction and under more pressure to abide by its edicts.

The fact that Apple and Google have some employees on the ground enabled Russia to send armed men to Google’s Moscow offices amid a pressure campaign to take down an app from Putin’s opponent last year.

Ives, the financial analyst, predicted that the online services will either pull out of Russia or be kicked out by the government soon. Russia just a few years ago blocked Amazon and Google IP addresses in an effort to shut down Telegram, a messaging service.

“The consumer in Moscow is going to slowly be disconnected from YouTube, Netflix, Facebook, Spotify, and it will just continue,” Ives said. “It’s going to get to a point that they’ll have more access to streaming services and e-commerce platforms on the space station than in Russia.”

Apple, Google and Facebook — all consumer-facing companies — are in a very different position than tech companies focused on business software, said Kazaryan with the Internet Research Institute. He said Russians would be hit “where it hurts” if big US software providers remove their services from the country.

“The dependence on foreign software is so huge that right now, things can just break if the US companies move out of Russia,” Kazaryan said. Future sanctions will likely force those companies to at least boot their Russian business customers. He added those services are “way more important” for Russia’s economy.

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