Yandex: Playing the Cards to Win

From filing a complaint against Google’s alleged unfair advantage to expanding its offerings, Yandex is looking for ways to gain ground in the Russian search market, as the European Union continues to probe into Google’s activities in Europe. The Russian search engine had a 10 percent share in the European search market in December 2012 and holds a 64 percent share in Russia.  

Russia. Whether feared or revered, the country has been garnering extra attention in the last couple of years. From filing a complaint against Google’s alleged unfair advantage, to expanding its service and product offerings, to falling Yandex stock prices due to the Ukrainian-Russian conflict, Yandex is doing its best to gain market share in Russia.

Opportunities for Advertising

Yandex’s paid clicks grew 19 percent year-over-year in Q3 of 2014 and had an 8 percent YoY growth in CPC. Despite the current political situation embroiling the country, Russia’s Internet use is growing and advertisers are taking advantage of that. Yandex has been expanding its offering by creating apps, the latest of which is Yandex.Radio. Offering digital marketers the opportunity to advertise using audio display and radio format ads, Yandex.Radio limits advertising to no more than three minutes per hour of listening.

With an average of 69.8 million monthly unique viewers, Russia is ranked by eMarketer as fourth in the world for online video viewing and second for average monthly hours per viewer, just behind Japan. The majority of Russian users – an estimated 82.9 million – are online video consumers.

Yandex’s Edge

An interesting difference between Google and Yandex is that the Russian search engine is better at understanding CrazyFont: writing in Russian using English, rather than Cyrillic, letters. CrazyFont is the most popular among Russians living abroad who don’t have access to a Russian keyboard. Yandex understands the complex searches better and therefore, returns more results.

Yandex’s attempts to gain ground in Russia are further evidenced by its creation of Yandex.Kit, which allows users to use Android without Google, choosing Yandex instead. Yandex has also developed its own full-fledged app store to compete with Google Play. The company’s 33.5 percent profit margin is significantly higher than Google’s 20 percent, and has been growing at about 30 percent per year, compared with Google’s disappointing 12 percent. Despite that growth – 166 new employees were hired during 2014’s Q3 – product development costs increased only 2 percent from the prior quarter.

Of course, Russia may not have such a feared and revered reputation if the government did not extend its control over to Internet companies. Speculation abounds that Google may leave Russia if the government enacts stricter regulations. Similarly to how the Chinese government limited Google’s reach in China, if Putin decides Google is a threat, Yandex’s market share will be set to increase without significant competition from any other search engines.

Google’s Dominance

The Russian-Ukrainian conflict has had its effect on the Russian search engine, causing share prices to decline by 47 percent in one year. Yet on the bright side, Yandex’s 18.9 price-earnings (PE) ratio is higher than S&P 500’s projected PE ratio of 17, and EPS is forecasted to grow at a faster rate than Russia’s GDP.

From a Russian analyst’s perspective, Sergey Libin of Raiffeisenbank told Bloomberg that “Google is set to further increase its share of the mobile audience as the economy shrinks, incomes decline and people prefer cheaper Android phones.” Though Yandex may in some ways be better suited to serving the Russian Internet user, Google seems to have an advantage with its wider accessibility. Libin suspects that “Yandex expects a ruling in its favor and sees it as a silver bullet … The reality is that Internet users are migrating to mobile and since Android devices dominate mobile, Google dominates that segment.”

So, Yandex or Google?

From expanding its app offerings to improving its search algorithms, Yandex is widely recognized as being superior to Google in the SEO and SEM sphere. Yet, Yandex is seeking to play the political hand, as well, hoping that the Russian government will limit Google’s reach in its home country and eventually discourage Google from pursuing growth in Russia.

When it comes to search marketing, the two engines need to be attended to, as they both serve the same audience who use each engine in different ways, or you have those who are loyal to one or the other. If Google is forced to leave Russia, Yandex will be a necessity. Just keep this in mind, Yandex is playing its cards to win.

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