A PEOPLE PROBLEM EASTERN EUROPE'S TALENT POOL IN FOCUS Technology has been at the center of national security and global economic concerns for years.
U.S. President Joe Biden used his State of the Union address this week to again focus on competition with China and competitiveness in technology manufacturing. But that speech was overwhelmed by the more immediate concern of Russia’s invasion of Ukraine, and there is another key link in the technology sector that the first land war in Europe since WWII has highlighted: the booming hub of tech workers in Eastern Europe.
Ukraine, Belarus and Russia – three countries now intertwined in war – have grown into essential growth areas for tech talent in a world more reliant on digital than ever before. From start-ups sourcing the developers and engineers they need to get to the next level, to already established corporations relying on software partners for digital transformation, hundreds of thousands of tech workers in the region have become critical to the global economy.
Gartner estimates there are over one million IT professionals in the three countries, with one-quarter (250,000) working for consulting or outsourcing firms. One in five Fortune 500 companies had tech talent exposure in Ukraine as of 2019, according to an industry report.
Software vendors working on behalf of big corporations, from financials to retail, rely on the talent that the region has cultivated. Take EPAM Systems, as an example. More than 50% of its tech staff are across the three nations – over 30,000 employees.
For many following the rapidly unfolding events on social media, Aleksandr Volodarsky, the Ukrainian founder and CEO of developer outsourcing company Lemon.io, has helped to make the human dimensions and tech worker dimensions of the war real, through tweets such as one in which he showed a picture of his chief marketing officer in military gear.
He had announced back in mid-February that his company was providing two months of pay in advance to employees, and he has since posted that clients are stepping up and “even though developers are mobilized, unavailable, can't work, or volunteered to help the army, they will keep paying them regular salaries.”
“We’ve seen a lot of Eastern European countries become hotbeds for development,” said Scott Berg, software analyst at Needham. “Whether it is the right individuals or the right individuals at the right price, across all of the companies I cover, a solid third if not half have resources in that area.”
First and foremost are the concerns about the safety of workers and their families in this region. Longer-term, there is significant risk of a ripple effect across technology and other sectors.
The ubiquity of digital technology is intersecting with the geopolitical aspirations of countries in what Gartner now refers to as “digital geopolitics.” This competition in the digital realm between countries, “is now one of the most disruptive trends,” wrote David Groombridge, Gartner Research VP, and his colleagues in a report this week.
There was already an acute shortage of labor in the technology sector, where on average, it can take up to 70 days to hire a skilled worker.
“The best talent is in Silicon Valley and the U.S., but the second-biggest hub is Eastern Europe,” said one Wall Street analyst who has traveled throughout the region.
Developing tech talent isn’t easy, and it isn’t a problem as simple to fix as moving a factory from one location to another.
“The people problem takes a long time. These hubs take a long time to develop,” the analyst said.
Unlike the economic hubs that have developed across the globe based on natural resource riches, precious minerals or commodities for fuel, intellectual concentration of resources doesn’t happen often. Before Eastern Europe, it had been decades since a significant new software and technology talent pool had been developed.
So far, the companies most exposed are managing — building up a cash reserve in advance, relying on data centers outside the region to begin with, building redundancies into processes in the event that systems aren’t functioning. The worst fears about cybersecurity risks and access to the technology needed to perform core tasks have not so far come true on a widespread basis, though there have been internet outages in Ukraine and Russian missiles targeting key infrastructure.
And there is a potential silver lining: in the same way that European nations are committing to defense budgets that are much larger now than just a month ago, Eastern European nations such as Poland, Romania and Ukraine may see further investment and support in their economies in the future, even if Russia remains shunned.
Volodarsky recently laid out a business plan with an end date that isn’t typical for a CEO, not measured in a quarter or year, but rather, “until the end of the war.”
• Keep it running with those who can work.
Among all the other global implications of a war that is still for many in the stun phase, one tech lesson that has the potential to be significant for both consumers and businesses is becoming clear: the global economy can’t build a talent pool the size of the one that now exists in Eastern Europe quickly, but it’s hyper-real now that events within a few weeks can suddenly run the risk of seriously damaging it.
DISRUPTION IN ACTION THIS WEEK'S HEADLINES Fanatics hits $27 billion valuation, adds BlackRock, Michael Dell as investors TWO-TIME DISRUPTOR 50 COMPANY Michael Rubin’s Fanatics raised $1.5 billion in a new funding round that values the sports merchandise company at $27 billion. The company was most recently valued at $18 billion less than a year ago. Its latest funding round includes new investors Fidelity, BlackRock, and Michael Dell’s MSD Partners, as well as existing investors.
Airbnb to offer free housing to 100,000 Ukrainian refugees EIGHT-TIME DISRUPTOR 50 COMPANY Airbnb will offer free, temporary housing for up to 100,000 refugees fleeing Ukraine. The company will fund these stays with help from Airbnb hosts and donations to the Airbnb.org Refugee Fund. The initiative is part of Airbnb’s efforts to support refugees through the company’s nonprofit, Airbnb.org.
Elon Musk says SpaceX’s internet service is available in Ukraine, sending more terminals SIX-TIME DISRUPTOR 50 COMPANY SpaceX’s internet service Starlink is available in Ukraine and more terminals are being sent to the country, according to the company’s CEO Elon Musk. The conflict-hit nation has seen internet disruptions with Russian troops advancing and missiles hitting key infrastructure.
Patreon suspends donation page for nonprofit giving body armor to Ukrainian army RANKED NO. 48 ON LAST YEAR'S LIST Patreon, a start-up whose website allows people to give money to individuals and groups, has suspended the fundraising campaign that a nonprofit organization was using to collect donations to distribute body armor, medical kits, and helmets to Ukrainian soldiers.
CHART OF THE WEEK SNOWFLAKE SHARES TUMBLE 15% ON SLOWING REVENUE GROWTH Shares of Snowflake closed down 15% today after the now-public Disruptor 50 company reported earnings on Wednesday that showed the slowest revenue growth since at least 2019. The company also guided for slowing growth in product revenue, a segment that makes up a significant share of its overall sales.
WHERE ARE THEY NOW? LOOKING BACK AT THE INAUGURAL LIST, 10 YEARS LATER... THIS WEEK: BOKU In a world where not everyone has a debit or credit card, Boku’s mission for the past 13 years has been to provide consumers a way to pay for online services with only their phone numbers.
The mobile payments company, founded in 2008, directly connects online bank accounts to phone numbers so that consumers can pay for services like Netflix and Spotify without ever inputting a credit or debit card number.
And one of the biggest stories in fintech continues to evolve today.
“The payment ecosystem is fragmenting quite a lot,” said Boku CEO Jon Prideaux.
While other former CNBC Disruptors such as Stripe and Square (now Block) “are riding on the card rail,” according to Prideaux, Boku’s opportunity is in providing consumers access to the brands, products, and services they want, while helping merchants sell to consumers in the way many now prefer to pay.
Prior to Boku, Prideaux worked at Visa Europe for 17 years on its e-commerce capabilities and card technology.
FOUNDER EFFECT CNBC MAKE IT SITS DOWN WITH DUOLINGO'S LUIS VON AHN By the time Duolingo founder Luis von Ahn turned 24, he was already a millionaire several times over. Now 43, he may not be a household name — but you’re probably one of the hundreds of millions of people who use his technology every day.
That’s true whether you use Duolingo, the popular language-learning website and app that launched in 2011, or not. Von Ahn is also partially responsible for CAPTCHA: He worked on the Carnegie Mellon University research team that coined the phrase in 2003, and helped develop the technology behind “these distorted characters that you have to type all over the internet, whenever you’re buying tickets on Ticketmaster or whatever,” he tells CNBC Make It.
CAPTCHA existed to solve a major problem — spammers were writing code to steal millions of email addresses and flood those inboxes with junk mail. Today, von Ahn tells CNBC Make It that roughly 200 million people fill out a CAPTCHA daily.
Around the same time, von Ahn was dabbling in entrepreneurship. In 2003, he created a simple game pairing two players and showing them the same image. If their descriptions matched, they moved on to the next image. He sold the game to Google for “a couple million dollars,” he says.
In 2006, von Ahn was awarded a MacArthur Fellowship, also known as the “genius” grant. With millions in the bank, he could have sat back, happy. Instead, he says, he suffered pangs of guilt over the amount of time people were wasting filling out CAPTCHA forms.
“If you multiply 10 seconds by 200 million, I started thinking, OK, that turns out to be 500,000 hours every day,” von Ahn says. “During those 10 seconds, while you’re typing a CAPTCHA, your brain was doing something that computers could not yet do. Computers could not recognize these distorted characters.”
The lost productivity led him and a group of researchers to develop reCAPTCHA, which launched in 2007 as a quicker way to differentiate between humans and bots. Google acquired reCAPTCHA in 2009 for an undisclosed sum. Von Ahn says it was in the tens of millions of dollars.
Again, he could have sat back. Instead, he and Severin Hacker — a standout Ph.D. student at Carnegie Melon University, where von Ahn is a consulting professor — landed on the idea for an educational app that would teach people how to learn new languages, for free.
Today, 6% of Duolingo’s user base pays for subscriptions, allowing the company to keep some of its services free for millions of other users. The company has a market capitalization of $2.79 billion, as of Thursday morning.
Von Ahn’s continued success doesn’t just come from his knack for building businesses — it also comes from his ability to build cultures people want to inhabit. When potential executive-level hires take a car from the airport to the office for job interviews, von Ahn pays the driver to give feedback on their interactions, to weed out toxic personalities.
“That’s part of your interview and people don’t know it,” he says. “Normally, most people are just perfectly fine, but we have not made offers to very, very qualified, competent people because they were nasty to our driver.”
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