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Thursday, March 21, 2013

Rate.ee : The Facebook That Could Have Been

Rate.ee : A Tale of Failure

We frequently hear that Estonian technology (mobile parking, e-voting) is ready to take the world by storm. The technology is so great, and so ahead of the technology in other countries, that it's destined to be a success.

However, it takes more than just good technology to succeed. Sometimes, even great technology and a market-leading position will still lead to failure.

This is one of those stories.


Rate.ee is a social networking website started in 2002. Shortly after its launch, it gained enormous popularity in Estonia, and ranked firmly in the top 5 of all websites in Estonia. Anyone who was anyone had an account on the site.

You can guess how this story ended, since no one reading this post probably has a Rate account, while most people have an account on Facebook, LinkedIn, or other social networking sites. Though their websites are still active, and they are still in business, their traffic numbers are small and they have little usage outside Estonia (click on each country for statistics). Their founder (Andrei Korobeinik) is now a member of Estonian parliament, and has started new ventures, so we are quite sure he's not really focused on Rate any more.

Normally, we'd analyze the detailed numbers of this case. However, this is more a story of failed execution, and not a doomed business model, so we'll only go over the numbers briefly. In addition, the ownership structure of Rate is complicated (entities involved include: Rate Solutions, Andrei Invest, Serenda Estonia, EMT) and evolved over the years, and our heads start to spin when trying to piece it all together. The main point to understand here is that EMT's acquisition in 2006 (detailed below) was just for the Estonian site (Rate.ee), and Rate Solutions was a separate entity focused on bringing Rate to the worldwide market.

A Brief History

It should be noted that EMT claims their investment was primarily to market mobile services in Estonia to the user base of Rate.ee, and after the acquisition, they launched a mobile product (SIM card) tied to the site, which they claim had over 50,000 users at its peak. As far as we can tell from the information available, the investment from EMT's perspective did achieve their goals (gaining mobile customers) both from a market and financial perspective.

Our Analysis

Rate's technology, especially in the early years, was great. Not only did it have many features to keep users on the site and connect with their friends, but it scaled well. It was a high-traffic site, and it managed to handle all that usage with few problems. Often we see Estonian sites that can't scale well (technically) to larger markets, but this technology appears to have been built well and on a solid foundation.

In short, when Facebook opened to all users in 2006, Rate was years ahead of it in terms of features and technology. Rate also had enviable profit margins, and investors with capital.

It was Rate's contest to lose, and sadly, they lost it.

We think this was a failure in execution and strategy, and management is likely to blame. They did not bring on the right people with experience in expanding rapidly to larger markets.

Estonian companies often underestimate how important it is to have excellent management that can formulate a strategy and then execute on it. When competing on the world market, that also means you're competing with the world's best managers. For a variety of reasons, there are few of those to be found in Estonia. It's one thing to have a good idea, but it's another thing to actually make it successful.


  1. I agree rate.ee wasn't able to fully foster its potential in the market. However, I wouldn't declare it a failure. Besides more noble (or vague) goals, companies are founded to make money for their founders. As the founder of rate.ee became a millionaire by age 25 through his hard work, I would call rate.ee a success.

    Could rate.ee been a bigger success? Sure, as the comparison with Facebook shows. On the other hand, there have been hundreds (if not thousands) of Facebook-likes around the world - and who would have known which of them (if any) will become the massive success(es)?

    Also, what comes to judging management, in many cases only time will tell. If the owners of rate.ee would have decided in 2005 to hire a new leader for the company, would they have believed in Mark Zuckerberg? A CV from a university student probably wouldn't have made it. The same goes for many of the superstars; few believed in Bill Gates, Larry Ellison and many others until they had already shown what they were made of.

    One lesson to be learned from rate.ee vs Facebook comparison is - how to cultivate high but sound level of ambition in Estonia? In Estonia there are many big-mouth serial entrepreneurs who have never succeeded in anything - still they are ready to conquer the world on the day of founding a new start-up. On the other hand, for many entrepreneurs it's enough they can make a million or two with their project. It's better to secure your family's future than to become known for a failed world domination attempt.

    In order to reach mature level of ambition (not too apologetic, not just hot air), the ecosystem grows slowly. You need several Andrei Korobeiniks to mentor the next generation - and you need grounded confidence to not to sell your company as soon as somebody offers to buy you a Ferrari. Mark Zuckerberg comes from a well-off family and as a Harvard student he wasn't worrying about his mortgage when launching Facebook.

  2. It is a bit unclear for me how Rate´s case fits with "ee Bubble" promise. Was Rate a bubble? As I see it, it was just a natural death in very fast internet business - much happens in 10 years, especially for services meant only for local market.

    Maybe Flirtic would have been a better case to chew? Same guys trying to compete with global market.

    1. I think their point is that even if there is a great technology, many Estonian businesses have trouble making it succeed on the world market.

      A lot of the news I see today from Estonian startups basically assumes their great technology will be the best in the world.

  3. Great timeline break down! They could have been more agressive with entering the american market. Even a small piece of the pie is all you need. Going into too many countries had too many variables to be successful. But even let's say they entered the US market, they would of had to really be in the valley and had the right connections to go big.

  4. "You can guess how this story ended, since no one reading this post probably has a Rate account, ..."

    I read your post and I have rate.ee account since 2002.
    Next time do not make such false assumptions!

  5. Rate.ee was an Estonia version of amihotornot.com

  6. 2.5 million Euros is not cool. You know what's cool 250 million Euros! That's the failure right there: aiming low and being content with peanuts. And, well, yes, a seat in the parliament, apparently.