There is a very strange story unfolding in Russia’s tech sector. The leading e-commerce platform Wildberries is in a very weird merger with an outdoor billboard company called Russ that is ten times smaller than it and brings nothing to the party that any analyst can discern. But the deal was personally endorsed by Russian President Vladimir Putin.

Now it turns out that the founder and driving force of the company, Tatiana Bakalchuk, who is also Russia’s richest woman, is divorcing her husband, Vladislav Bakalchuk, who only holds 1% of the company.

In a very bizarre twist, Vladislav has turned to Chechen President Ramzan Kadyrov for help, who said he would “fix it”.

What is clear is that this is not a commercial deal. Russ is linked to billionaire Suleiman Kerimov of Polyus Gold and veteran technocrat Igor Shuvalov, who is one of Putin’s right-hand men and heads up the state investment company VEB. Shuvalov is one of the most powerful men in the country and is totally loyal to Putin. Kerimov was born in Dagestan and is close to Kadyrov, but is also a Duma deputy, a billionaire and deeply ingrained into Russia’s elite politics, but has always maintained a measure of independence from the Kremlin.

This is potentially a problem for Putin, as Shuvalov will do what Putin tells him to do and Putin backs Tatiana, whereas Kerimov clearly wants to get some control over Wildberries, which is worth billions, and is probably using Kadyrov, who has backed Vladislav, to facilitate that. And Kerimov is as slick an operator as they come in Russia.

For his part Putin may be happy to have someone as savvy as Kerimov in a position of influence at Wildberries, but it might also be a land grab by Kerimov. No one really knows what is going on.

Whatever it is, Tatiana is now swimming with the sharks. It looks like she is being forced into this deal by the Kremlin, which just took over Russia’s other star internet company Yandex, after its founder Arkady Volozh exited the country due to the war, and has since set up a new Amsterdam-based cloud and AI company, Nebius Group. Volozh has left 95% of the value of the Russian Yandex behind, which will be controlled by a consortium of oligarchs that are all stuck in Russia now due to sanctions.

The only bit of this story that is clear to me is that Putin wants to see a state-owned, or at least a state-controlled, internet giant like Amazon or Alibaba set up that has global reach. Tatiana was already in the process of building that, as Wildberries has been rolling out in lots of new countries in the last few years, including a popular Ukrainian service – until the war started. Since then, Wildberries has still been expanding, but has redirected its focus south and east. With Kerimov in the company, which is still privately owned by Tatiana, Putin will clearly get a lot more control over it.

This is all par for the course for how Putin deals with the country’s leading companies. Putin has been following a hybrid free market/state control model since the noughties that we dubbed ZAO Kremlin: typically he sets up two competing giants that are under state control in some way (but can still nominally be privately owned companies) to ensure there is competition. The Kremlin can still pull the strings if it needs to, but day to day the company is expected to be efficiently run on market principles and do real, profitable business. Amongst these pairs are: VTB & Sberbank in banking; Gazprom and Novatek in gas; Rosneft and Gazprom Neft in oil; and so on.

Notably in high turnover, low-margin sectors like supermarkets, those sectors are entirely left alone to be run as privately-owned companies and the Kremlin plays no role at all. These “non-political” businesses are managed by the liberal economic team under the Ministry of Finance and Central Bank of Russia (CBR) using the normal tools of interest rates and taxes. And given the size of the Russian market – the biggest consumer market in Europe – many of these companies have grown into world-class operations.

But any “strategic” sector like energy and raw materials all have a ZAO Kremlin pair, where Putin’s style of management is more like that of a CEO than a president. In the noughties he used to hold regular one-on-one meetings with the oligarchs where they presented their investment plans, and he would make sure these dovetailed with the Kremlin’s objectives. Setting up national champions was one of Putin’s goals; he wanted a measure of monopolistic power in key markets, especially with commodities.

As part of this hybrid model, in addition to these pairs, which are always the biggest in the sector, there is a raft of smaller commercially owned companies that operate entirely on commercial lines and add more competitive pressure from below. They keep everything healthy.

Putin has realised that the failure of the centrally planned system was the lack of market competition, so has built competition into the heart of Putinomics, but kept fairly informal control of the largest part of the sector. It’s his updated version of communism: Soviet central planning 2.0.

And to be honest it has worked pretty well. Efficiency, profits and share price have all become things at the ZAO Kremlin pairs and they are for the most part well-run, although they also benefit from their monopolistic power on the market that squeezes the purely commercial second tier.

But a good example of this hybrid approach was that in the brief boom years before the invasion of Ukraine, the state decided that instead of taxing the enormous profits these companies make, the default statist approach, the Kremlin kept taxes low and ordered its companies to pay out 50% of profits as dividends instead. And most of them did – eventually – starting from about 2016.

A company like the gas champion Gazprom used to be wryly dubbed “The Ministry of Infrastructure”, as for years it only paid RUB8 per share come rain or shine and invested the bulk of its profits in a never-ending investment programme.

That all changed in June 2019, when the company hiked its dividend payout twice in one month, which led to a spike in its share price. The board recommended doubling dividends to RUB16 per share in May, causing a surge in the share price, but then got the call from the Kremlin that this was not enough, and so increased the dividend recommendation again to a whopping RUB51 per share. The stock price exploded.

The beauty of taking out profits as dividends and not taxes is that it encourages the development of the capital market and spreads the wealth much further. As the Kremlin is the majority shareholder in these companies it gets most of the money, but the dividends are also paid to private investors that share in the bounty so that things like banks, pension funds and even retail investors all see their wealth increase with wide-ranging unstructured benefits for the whole economy.

It’s a much better way of organising things than central planning or taxing and then stimulating via state-directed investment or funding targeted tax breaks for priority sectors, which is the normal way governments work. The irony is that it is a very unstructured market-orientated model that uses the state’s control over key assets to promote general economic growth and development.

Now it appears that the Kremlin is moving into a new sector: the internet.

Until now, the ZAO Kremlin pairs have been limited to mostly raw material extraction, but in the new global online economy it seems the Kremlin has decided to take advantage of the massive shock to the economy to build some ZAO Kremlin pairs in e-commerce.

Volozh’s decision to leave Russia presented the Kremlin with a once-in-a-lifetime opportunity to take control of Yandex. However, as part of the earthquake that has hit Russia’s online economy it has also grabbed control of VK, Russia’s answer to Facebook. While other firms have been cut back on their ambitious online plans – Sberbank was investing heavily into creating an online ecosystem and even went as far as dropping the word “bank” from its name, but has given up on those plans now – VK has been pouring money into acquisitions.

As an aside, the company happens to be run by Vladimir Kiriyenko, the son of former Prime Minister Sergei Kiriyenko and also Putin’s First Deputy Chief of Staff of the Presidential Administration and the mastermind behind developing the Kremlin’s domestic policy.

At the end of this process it appears that Putin will end up in control of Russia’s three biggest internet companies, the Russian equivalents of Google, Amazon and Facebook.