While the Internet boom washed over most dotcom businesses in the West with the venegeance of a hurricaine, it seems to have miraculously bypassed Estonia. Its smart cafes and conference centers are still buzzing with confident entrepreneurs, Ericsson's latest GPRS phones in their pocket, and a heavy portfolio in their briefcase.
With the economy growing at six percent, IT operations are also riding the boom. Privador, an Internet security software house, which was spun off from the Estonian Academy of Sciences in 1992, had a revenue growth of 256 percent in the first six months of this year, according to CFO Indrek Kasela. "July was the best month for Estonian IT companies," he says.
The "Nordic start-up"
Ten years since Estonia regained its independence after the fall of the Soviet Union, the small Baltic nation of just 1.4 million has successfully branded itself as a "Nordic start-up." Having raced past its post-Soviet colleagues with its daring market reforms in the early 90s, it is now more Scandinavian than Eastern European. Internet penetration is higher than some southern European nations at 38 percent, while mobile penetration is 43 percent - quite staggering in a nation where the average wages are still under $250 a month.
In its capital city, Tallinn, so ubiquitous are mobile phones that SMS-games at big concerts like Elton John and Depeche Mode are all the rage. "Do you know anyone who doesn't have a mobile phone," asks Linnar Viik, a former IT advisor to the government, whose company Mobi markets SMS games. "Even young kids in the capital have them."
Not only do most young Estonians have mobiles, but they are quick to adapt to the latest technology. GPRS phones were unveiled by the largest operator EMT this June, and there are already 1,000 subscribers.
Estonia - testbed for new services
Mobile-parking was first tested in Estonia, before its launch in Finland and Sweden, and has 15,000 clients. There is even an SMS TV show, where viewers can interact with the TV screen by sending SMS messages at a certain cost.
Almost 15 percent of Estonians bank over the Internet, paying most of their bills through the secure servers. CV-online, an online recruitment agency, which received financing from IT guru Esther Dysen last year, has expanded all across Central and Eastern Europe.
In the Baltics, Estonian companies are agents of change, bringing their IT products, first tested in Estonia, to Latvia and Lithuania. "In Lithuania, Estonia is perceived as an IT innovator," says Vitas Antanelis, a Vilnius-based programmer.
Embracing technology: private and public sector This private sector innovation and public enthusiasm for new technology is mirrored in the public sector, where incorporating IT into the public sphere has become a mantra of sorts.
The Estonian government has hailed its e-government initiative, where most government transactions can be done over the Internet; even cabinet meetings are conducted over intranet servers for those ministers who are absent.
"We've completely eliminated paperwork from the government process," boasts Prime Minister Mart Laar. Meanwhile, the government is considering introducing e-voting in the 2003 elections, and has put aside half a billion kroons ($300,000) for putting out an ID card system for its citizens.
These developments are all very heady for a nation which was shut off behind the Iron Curtain just a decade ago. Most of its neighbors still haven't acheived Estonia's level of IT awareness today. Its phenomenal success is a matter of puzzlement to many, even among Estonians.
The most oft-cited reason is the country's proximity to Finland (just 80 km across the gulf) and Sweden. The majority of Estonia's foreign investment came from the Nordic countries, which have an IT-friendly, business culture. Finnish and Swedish companies moved across the Baltic to take advantage of Estonia's cheaper, yet talented, workforce. Elcoteq built a huge plant in Tallinn manufacturing parts for mobile phones.
Another crucial factor in Estonia's success was its decision to hand over Estonian Telephone to Finland's Sonera and Sweden's Telia in the early 90s. These mobile operators paved the way for bringing innovations to the Estonian market. They set up the first mobile phone network, and built optic fiber lines here.
The government has also been a technology booster from the very beginning, highlighting its importance, and not balking at the cost of implementing new technology. Estonian President Lennart Meri has often stressed the need for an "Estonian Nokia." A well-meaning desire but a goal which might still take another decade or so to realize.
Meanwhile, Nokia-clones aside, another factor in Estonia's success has been plain ole dumb luck, or "lucky shooting," as Viik says. The small nation was very fortunate to have gained its independence in 1991, just when new technologies like the Internet, browsers, e-mails, mobile phones, were all taking off. Mainframes, Unix, Dos, and other outdated systems from computing in the 80s were on their way out.
Stuck with Soviet-era hardware, Estonia was able to jump straight to the IT vanguard when it achieved independence, bypassing the cumbersome steps along the way. It wasn't stuck with mainframes or punch-card infrastructure as some more developed nations were. Since its phone lines were shoddy, and customers might wait years for a landline, many embraced mobile telephony, which gave them a chance to jump over the hoops.
So it is that by a combination of chance, circumstance, geography, and vision, Estonia was able to frog leap over its neighbors. It finds itself in quite an enviable position now, a modern nation that's further ahead in some respects than America, where Internet banking, mobile phones, and SMS-culture are still in their infancy.
Estonia's own hype
But there's a danger, according to Hansabank President Indrek Neivelt that "Estonia might believe its own hype, and become too complacent." There's already some evidence of that happening. While the government has been hyping e-elections, for example, most believe that it will never happen.
The cost and the logistics of such a project are just too daunting, according to experts. "It'll cost ten times as much, 30-40 million kroons, to have an e-election," says Viik.
"Plus, there'll be just four or five people who can evalaute the system, and declare it free from hackers, bugs. It's just hype." The idea works better as a target goal than as a practical project: Unless there was 100 percent Internet penetration, it doesn't make sense.
In other spheres too, there is a danger of believing the hype. While IT companies are doing well in Estonia, a major reason is that the government is still splashing cash at them. Although external demands and orders from abroad are down, the government's spending is holding up the sector.
It is spending $300,000 on a smart card project now; its ministries are big spenders on IT. "If the government weren't spending on IT right now, it would be tough for everybody," admits Kasela.
Although the government might be spending its money wisely, critics claim it isn't doing enough to help those on the other side of the digital divide i.e. the older non-PC generation.
While IT-heads can initiate parliament debates through a new "Today I Decide" site (http://tom.riik.ee/), computer luddites have a harder time getting their views across. While IT heads spent the summer having the Ministry of Justice justify its stand on death penalty, the concerns of farmers in rural Estonia get much less press.
"Increasingly, we're being divided into two societies, one with the technology, and the other without," says a local sociologist. "That is dangerous, especially in a small country."
Some bureaucrats point out that the older generation will die out soon, and the problem will vanish. Twenty, thirty years is not that soon for a nation that is just ten years old.
While Estonia's progress is certainly laudable, especially in its post-Soviet context, it must steer clear of the dangers of IT complacency, of believing that technology alone can solve all its problems.
Vijai Maheshwari is a freelance journalist based in Estonia who writes for a number of publications including Fortune, the Financial Times, Harper's Bazaar, Gear, Nerve, Salon, and others. He uses an old fashioned Nokia but is still a keen observor of the digital scene, both here and elsewhere.