Arkady Volozh, the bearded cofounder of Yandex, Russia’s largest search engine, bristled at hearing his company branded “the Google of Russia.” Far from emulating the American firm, he pointed out, Yandex launched in 1997, a full year before Google.
More crucially, the moniker poorly describes what Yandex offers today, which is a group of products and services that includes taxis, shopping, payments, music and education.
“Really we’re the Silicon Valley of Russia,” said Mikhail Parakhin, Yandex’s chief technology officer.
That may only be a slight overstatement. Yandex’s Russian presence is immense: It accounts for slightly more than half of the country’s search market and 61 percent of its online advertising, and its sites attract more than 60 million visitors each month. Like American tech giants, it also is expanding its offline logistical capabilities, signing recent deals with Uber and with Sberbank, Russia’s largest bank, to expand its transportation and e-commerce businesses.
Yandex doubled down on its home market, which accounts for 92 percent of its revenues, after a failed foray into Turkey soon after it listed on NASDAQ in 2011 and raised $1.3 billion.
“You either go global in one service which you feel good about,” Volozh said, “or you focus on one market and do it really well.”
Russia already has Europe’s largest base of internet users—some 87 million people—yet penetration rates are low at 71 percent. Along with the space to grow, however, comes the risk that Yandex’s activities may attract greater political scrutiny. President Vladimir Putin paid a visit on September 21, around its 20th anniversary, having criticized the company in past years.
Its early lead online came thanks to technology that responded to local needs. The Yandex search algorithm processed Russian-language requests better than early versions of international competitors, for example. Mapping software that displayed real-time traffic proved immensely popular, especially among drivers on Moscow’s highly congested roads.
There were challenges, of course. As Russia fell into recession in 2014, profits began tumbling. The depreciation of the ruble in late 2014 hit especially hard, because a large chunk of Yandex’s costs are in foreign currency. Google began eating away at its search business by dominating the fast-growing mobile market on Android devices. As macroeconomic conditions improved, however, investors crept back.
Signs of successful diversification beyond search, as well as a victory against Google in a Russian antitrust court this year, which ruled that the American company must stop requiring Android phone makers to install its apps and services and instead offer Android users a choice of default search engine, have pushed Yandex’s shares up by some 50% in the past year.
Investors are particularly bullish on its taxi business. In July Yandex agreed to a $3.7-billion merger with Uber, which effectively ceded the Russian market after a costly price war. Yandex will take a controlling 59.3-percent stake in the new enterprise.
A second joint venture with Sberbank is in the works, which aims to transform Yandex’s price-comparison platform into a full-fledged e-commerce business.
Other initiatives support Yandex’s vision of itself as the hub of Russia’s digital economy. A new machine-learning-powered virtual assistant, Alisa, aims to conquer the Russian-language sphere, where Amazon’s Alexa does not operate and Apple’s Siri can be spotty.
An early version that used Russian literary classics as a training-data set was scrapped because it was so depressing, Parakhin admitted.
“You had the feeling that, after it stops talking, it’ll go and commit suicide,” he joked.
A revamped model will launch in October, however, voiced by the actress who dubbed the Russian version of Spike Jonze’s hit film Her (2013).
As for politics, the company has trod a tightrope, drawing the Kremlin’s ire over its mobile-payment system, which opposition politicians have used for fundraising, and its popular news aggregator, which serves up stories based on an algorithm rather than on the interests of the authorities. In 2014, as tensions between Russia and the West intensified over the annexation of Crimea, Putin declared the internet a “CIA project” and singled out Yandex as susceptible to foreign influence. The company’s stock promptly fell 5 percent.
Since then Yandex has made overtures to the authorities. Its maps now show Crimea as part of Russia, for example. This spring Alexei Navalny, leader of the opposition, accused Yandex of manipulating news results to exclude mention of mass protests he led—charges which Yandex has denied.
On his visit to the company, Putin watched a demonstration of Yandex’s self-driving car and chatted with Alisa. Inside Yandex’s glass-walled offices, among its talented young employees, Russia’s future must have looked bright.
© 2017 Economist Newspaper Ltd., London (September 30). All rights reserved. Reprinted with permission.
Image credits: Alexey Druzhinin/Agence France-Presse/Getty Images