Discounts and Darwinism

In pre-crisis Estonia a discount was almost a foreign concept. Ten percent off might be given, but then only, it sometimes seemed, if you were a blood relative of the business owner or had once saved his life in an armed conflict. 

Now, around 25 deal-of-the-day websites are bringing the discount culture to the market with discounts of up to 75 percent off regular prices. But how much discounting can one tiny market endure?

Seeds in America

It all started with Groupon, a portmanteau derived from “group coupon.” The US company was founded in 2008 to offer daily internet discounts of up to 90 percent on goods and services. And it’s been well received by consumers: the financial media has speculated that Groupon will set a new speed record for hitting a billion dollars in gross sales.

It was Cherry.ee who first brought the product to Estonia, albeit with a model modified for local market conditions. Cherry’s marketing director Martin Kõiva says his company tries to keep the average discount at 50 percent. Discounts are rarely less than that, unless the product or service is “something big,” as Kõiva characterizes it. 

Something big would be direct flights on Estonian Air, which have been offered through Cherry at a 40-percent discount. Discounts in Estonia don’t routinely approach the American 90 percent, though sometimes they do stretch to 75 percent. 

The broker’s commission also differs from the American version. “Groupon always takes 50 percent,” said Kõiva, “and ours is a lot less.” In the deal-of-the-day model, website operators earn money only when their clients’ products sell. Ingvar Kupinski, CEO of Cherry’s competitor Deal24, a German-backed venture in Estonia, says 20 to 25 percent is the average commission in Estonia. “And it’s less in Latvia, and in Lithuania even less than that.”

Read more from ERR News

Microsoft deal is good for Skype

On Tuesday, Microsoft announced that it had acquired the Luxembourg-based, Estonia-founded Internet phone company, Skype for $8.5 billion (6 billion euros). In February, Microsoft and Nokia struck a sweeping deal that would bring Windows Phone operating system as its “principal smartphone strategy,” and where Nokia would “drive the future of Windows Phone.”

To learn more about the alliance, Deutsche Welle turned to Linnar Viik, a man often called the father of the Estonian Internet. Viik was instrumental in implementing the country’s “Tiger Leap” project in the late 1990s, which wired all Estonian schools and established free Internet stations around the country. Later, he was a director of product development at Skype and is now the rector at the Estonian IT College in Tallinn.

Deutsche Welle: This deal has gotten a lot of attention around the technology world and in Estonia, too, I’m sure. Why is this deal a good thing for Skype?

Linnar Viik: Skype has been successful in the retail business, but despite its effort to build up a close relationship with the business community and a good product offering, it has not become “sticky” to the business user at anticipated levels. That can be reflected in Skype revenues: The vast majority of Skype revenues are still related to the retail users. So I think the big network of business reselling and value-added partnership of Microsoft, formally present around the globe, could be an extremely good integrating channel into a business productivity [application] with the functionality of Skype.

On a business level, Microsoft does not have such an offering at the moment. I believe strongly that from a business communication and group-working and networking perspective, Skype adds value to Microsoft, and Skype can also benefit from the Microsoft network.

Also, I think that the presence of Microsoft’s most successful products, the Office family, in the business use, could be a splendid case (…) where Skype would be closer to a number of Office applications, or integrated more closely with Office applications.

Read more from Deutsche Welle

Microsoft will acquire Skype

Skype and Microsoft have entered into a definitive agreement whereby Microsoft will acquire Skype for $8.5 billion US, Tony Bates, Skype’s CEO writes on skype’s website.

“It is an exciting day for all of us at Skype – we’ve taken a significant step towards realising our vision of making the world a better, more connected place.

I believe this acquisition is the very best way to extend Skype’s reach and will allow us to bring real-time video and voice communications to more people around the world than ever before. The combination of Skype and Microsoft will directly benefit all of you who use Skype by ushering in a new era of generative ways for everyone to communicate.

What I love most about this company are the people. Not only the team here at Skype and our partners, but everyone like you who uses Skype every day – you are the people who have made Skype what it is.

Subject to regulatory approvals and customary closing conditions, Skype will operate as a new business division of Microsoft, and I look forward to working with the team as president of Microsoft Skype to write the next chapter of the Skype story. Onwards! “

Source: skype.com

Ryanair took Estonian Air’s passengers

In a press release on May 11, budget airline Ryanair apologized to outgoing Estonian Air CEO Andrus Aljas “for taking all his passengers” and offered him a free flight on any of Ryanair’s routes from Tallinn. The airline said it hopes that Aljas can now understand just why Estonian Air’s policy of high fares has continued to push passengers to Ryanair.

Read more from BBN

Ryanai’s first Estonian roots were Dublin, Dusseldorf (Weeze), Edinburgh, London (Luton), Milan (Bergamo), Oslo (Rygge) and Stockholm (Skavsta). Read more from http://www.ryanair.com/en/news/ryanair-announces-first-estonian-routes

Long-term unemployment increased

According to Statistics Estonia, in the 1st quarter of 2011, the unemployed persons numbered 99,000 and the unemployment rate was 14.4%. More than a half of the unemployed are long-term unemployed who have been unemployed for a year or more.

The unemployment started to decrease rapidly in the last year but increased slightly in the 1st quarter of the current year. According to the data of the Labour Force Survey, the estimated number of unemployed persons, which decreased to 93,000 in the 4th quarter, increased by 6,000 in the 1st quarter of the current year. The unemployment rate, which rose to 19.8% at the beginning of 2010, decreased to 13.6% at the end of the year. At the beginning of the current year it increased to 14.4%.

In the 1st quarter, the long-term unemployment increased. The number of unemployed persons who had been looking for a job for two years or more rose to 56,000, of whom 27,000 had been looking for a job even for two years or more. The share of long-term unemployment increased to 57% in the 1st quarter of the current year. At the same time the number of persons who had been unemployed less than a year decreased continuously. This number has decreased by two times during the year – from 86,000 to 43,000.

Unemployed by duration of unemployment, 1st quarter 2008 – 1st quarter 2011

Diagram: Unemployed by duration of unemployment, 1st quarter 2008 – 1st quarter 2011

In the 1st quarter, the employed persons numbered 591,000, which is by 2,000 or 0.3% less compared to the previous quarter. Compared to the same quarter of the previous year, the number of employed persons increased by 38,000 or 6.8%. The employment has increased in most of the economic activities with a year. The employment growth was most influenced by manufacturing and construction, where the number of employed persons increased by 22,000 and 9,000, respectively, compared to the 1st quarter 2010.

Compared to the 4th quarter of 2010, the unemployment increased slightly due to decreased employment, but mainly due to the increasing economic activity of the population. The economically inactive persons numbered 339,000 in the 1st quarter 2011, which is by 9,000 less compared to the previous quarter. Among inactive persons the number of students, homemakers and retired persons decreased because the improved situation on the labour market has encouraged them to seek for a job. The number of persons inactive due to studies is decreasing also due to the decreasing number of young people in studying age. The discouraged persons or persons who had stopped seeking for a job numbered less than 10,000 in the 1st quarter, which is also less than in the previous quarter.

The unemployment rate is the share of the unemployed in the labour force (the sum of employed and unemployed persons). The estimates are based on the data of the Labour Force Survey. Statistics Estonia has been conducting the Labour Force Survey since 1995 and every quarter 5,000 persons participate in it. The Labour Force Survey is carried out by statistical organisations in all the European Union Member States on the basis of harmonised methodology.

Source: Statistics Estonia

Free entrance to all museums on Saturday evening

On Saturday, 14 May the Museum Night 2011 will take place in Estonia for the third year in succession, where there is free entrance for everyone to nearly 200 museums, memory institutions and churches all over Estonia. More information is available on Museum Night 2011 website http://www.muuseum.ee/et/kuum/muuseumioo

People visited museums 2.2 million times in 2010

According to the Statistics Estonia, people visited museums 2.2 million times in 2010, which was nearly 4% less than in the previous year.

In a longer term perspective museum attendance still shows the increasing trend. During the last decade museum attendance has increased. Compared to 2001, the attendance has increased by 600,000 visits.

The most visited museums in 2010 were Science Centres AHHAA in Tallinn and Tartu, Estonian Open Air Museum, Palmse Manor, Kumu Art Museum and Estonian Agricultural Museum in Ülenurme rural municipality in Tartu county.

The income of museums was more than 36 million euros in 2010, which is nearly as mush as two years ago. Compared to 2009 the income of the museums increased 13%. 52% of the museums’ income was covered by the state, 8% by local governments. The rest was covered by donations or own income. The expenditure of museums was nearly 33 million euros, of which 44% went to personnel costs and 2% for completing new museum pieces.

The average cost of a museum ticket was 1.4 euros, a year earlier – 1.2 euros.

In 2010, there were 245 museums in total in Estonia. The number of local lore museums, archaeology and history museums was the biggest.

Nearly 1,600 people were working in museums in 2010, compared to 2009 their number has slightly increased.

Museum attendance by counties, 2010

Diagram: Museum attendance by counties, 2010

Source: Statistics Estonia

The year started with rapid economic growth

According to the flash estimates of Statistics Estonia, the gross domestic product of Estonia grew by 8% year-on-year in the first quarter of 2011. Growth was dynamic also on a quarterly basis: the first-quarter GDP increased by 2.1% compared to the fourth quarter of 2010.

The last time the first quarter showed such vigorous growth was in 2007. However, the very fast expansion has partly been driven by one-off factors and the growth rate is forecasted to slow in the second half of the year.

Export growth continues to stimulate economic growth. Manufacturing volumes expanded owing to both strong external demand and a pick-up in Estonia’s competitiveness achieved owing to adjustments during the recession. Our main target markets – Finland and Sweden – have enjoyed somewhat more dynamic growth than the average in Europe. This has boosted Estonia’s exports as well.

Since global investment activity has picked up, demand for investment goods (such as machinery and equipment) has increased. The Estonian exporters have been able to win market share after recovering from the crisis. This has happened partly due to local lower labour costs but also owing to the ability to restructure manufacturing according to rapidly changing external demand.

Investment activity, which started recovering at the end of 2010, increased even more in the first quarter of 2011, referring to expanding production capacity. Household consumption has been resuming more modestly, mostly because of the need to repay earlier loans and the high unemployment rate. Excessive pessimism and cautiousness related to the adoption of the euro are now, however, withdrawing.

The faster than forecasted growth at the start of this year was mostly driven by the more rapid recovery of external demand. This has been beneficial to countries that are open to external trade. Another factor contributing to export growth was the relatively low reference base, but its impact will draw back in the second half of the year. The growth rate of exports will slow from now on, and this will also be reflected in growth figures.

The resumption of domestic demand will become increasingly more important, with consumers and investors playing the key role here. As regards external factors, risks related to the high volatility of commodity and food prices continue to persist.

 Source: Bank of Estonia

Author: Peeter Luikmel, Eesti Pank, economist

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