Can Russia survive a future without Microsoft?

In a statement, Microsoft said it's "coordinating closely and working in lockstep with the governments of the United States, the European Union and the United Kingdom, and we are stopping many aspects of our business in Russia in compliance with governmental sanctions decisions."

"Since the war began, we have acted against Russian positioning, destructive or disruptive measures against more than 20 Ukrainian government, IT and financial sector organisations. We have also acted against cyberattacks targeting several additional civilian sites," the statement continued.

The announcement was later updated to add that Microsoft had committed $35mn that month to support humanitarian assistance and relief efforts in Ukraine.

Following this decision, Russia's Kommersant newspaper reported a spike in demand for pirated Windows products.

Google searches for how to activate or download Microsoft products went up by as much as 250%. Searches for pirated versions of Excel went up by 650% and people continued to download the Windows operating system using VPN services, according to Kommersant.

Ongoing dilemma

Microsoft was questioning its business in Russia even before the invasion of Ukraine.

In 2021, reports emerged that Microsoft Russia had been through several phases of downsizing and restructuring, linked to a decline in revenue.

Berlin-based media outlet bne IntelliNews said that the company's local staff had been cut by two-thirds during this process, from 1,000 in 2014 to about 300 in 2021.

Part of the reason for Microsoft's decline came from government regulations that mandated the purchase of local software solutions to substitute the "import" of foreign technology.

According to bne IntelliNews, Microsoft's revenue had gone down from $137mn in 2016 to $90mn in 2020. It's clear that Microsoft's woes related to Russian sanctions pre-date the events of February 2022.

The Office of Foreign Assets Control (OFAC) at the US Department of the Treasury communicated earlier this year that the company had agreed to a fine of around $3mn, because it sold "software licenses, activated software licenses, and/or provided related services from servers and systems located in the United States and Ireland to Specially Designated Nations, blocked persons, and other end users."

They added that the "majority of the apparent violations involved blocked Russian entities or persons located in the Crimea region of Ukraine."

Causing further headaches, hacker groups operating under names such as 'Midnight Blizzard' or 'Cozy Bear' had been using Teams chats in phishing attacks against governments, NGOs, and businesses, Microsoft acknowledged.

Microsoft Threat Intelligence reported: "In this latest activity, the threat actor uses previously compromised Microsoft 365 tenants owned by small businesses to create new domains that appear as technical support entities.

"Using these domains from compromised tenants, Midnight Blizzard leverages Teams messages to send lures that attempt to steal credentials from a targeted organization by engaging a user and eliciting approval of multifactor authentication (MFA) prompts."

Russia remains defiant

Russia's "import substitution" laws have provided a significant advantage to local technology companies. Recent sanctions have also provided a major boost.

Rusbitech-Astra, which produces a Linux-based operating system called Astra, grew its revenue almost three-fold, from 2.4bn rubles in 2021 to 6.5bn rubles the following year. (The dollar-to-ruble rate has fluctuated considerably since February 2022, but at the time of this article's writing, 6.5bn rubles is equivalent to around $67.5mn.

In August of this year, reports emerged that Microsoft customers had received communications from the company, which stated that existing services would not be eligible for renewal in Russia beyond 30 September.

Forbes Russia reported that Microsoft had confirmed this information, although it was unclear if the decision only related to Microsoft 365 licenses.

Nonetheless, the general market preference for Microsoft products remains strong.

Dmitriy Miroshnik, an industry expert, stated that while there are local substitutes like Astra, RedOS, and BaseAlt, Microsoft's market share for operating systems was still dominant at around 80%. When it came to office products, the company's share was somewhere between 50% and 60%.

Igor Mikhailov, an expert in cyber forensics from F.A.C.C.T., stated that this was a particularly worrying development for corporations in Russia, as it left their networks vulnerable to attack.

"Given the very high levels of activity by pro-government groups and politically motivated hackers attacking Russian companies, this could accelerate the decision to adopt software to substitute Microsoft's solutions," he said.

Focus on local alternatives

But the Russian Government has shown no signs of worry. The Minister of Digital Transformation, Communication, and Mass Media claimed that companies had ample time to plan for this and that Russia "definitely" had viable solutions.

"Everyone had 18 months to prepare, everyone realised that things would come to that, and many started shifting to Russian operating systems based on Linux," said Minister Maksut Shadayev.

The full implications of Microsoft's decision are not yet clear, but many are hoping that workarounds will be available.

When sales were first suspended, the use of VPNs was one of the simpler ways to keep using the global giant's products.

In an interview with IT News, Roman Milytsin of local software producer Astra said Microsoft was simply adapting to the situation, without any strong intention to make a political statement.

"I think that this is just a way for them to comply with the demands of the export restrictions related to sanctions by the US," he said.

In the same interview, Maxim Orlov, Head of the Project Development Department at IVK, a computer hardware producer that supplies the Russian Government, said that the Alt 8 SP software they use could perform as well as foreign solutions.

"When we say foreign solutions, the first name on everyone's mind is probably Windows. The operating system Alt 8 SP can handle any tasks and can absolutely replace Windows; it is doing so already in the public sector and in large industries."

When asked about his thoughts on the future of Microsoft in Russia, he took a hawkish stand.

"I don't think there is any point in trying to predict the actions of Microsoft. We aren't fortune tellers trying to read coffee grinds. We need to focus on the transition of IT structures of Russian companies and organisations to locally developed operating systems and infrastructure. That is our main aim now," he said.