Is Russia’s Yandex beating Google at its own game?

Yandex (window open)

Google may dominate Internet search in most of the world, but there are exceptions. One, of course, is China, where Google has largely backed out and relocated its services in Hong Kong to dodge China’s mammoth Internet censorship regime.

But Google is also way behind in another world market, and it’s huge — at least in geographic terms: Russia. The Russian search market is strongly dominated by Yandex, and the company also has its fingers in most of Google’s other core businesses, from image search and shopping to social networking and cloud services. Although Yandex is not be a household name outside Russia and some former-Soviet states, the Russian market can bring a huge influence to Europe. After all, in terms of sheer number of users, Russia represents Europe’s largest Internet market.

Now Yandex is applying more pressure on Google, announcing its own Web browser, its own Android app store, and a new deal with nemesis Apple to supply mapping data.

What is Yandex, and why should you care?

Russia is different

Yandex logo

The most-visited Web site in Russia isn’t Facebook, Google, YouTube, Yahoo, or Wikipedia. It’s Yandex. Yandex is by far the dominant player in the Russian search market. Where Google is used to commanding two thirds to three quarters of the Internet search market around the world, in Russia the situation is reversed: Yandex accounts for about 60 percent of the Russian search market, and Google tops out at about 25 percent. The comparison used to be even more one-sided: Google has recently gained some ground due to a recent surge in popularity of its Chrome browser.

Yandex traces it roots all the way back to 1990 when its two Arkadys (Arkady Volozh and Arkady Borkovsky) founded a company called — wait for it — Arkadia. Arkadia made MS-DOS software for helping classify patents and other goods. A tiny niche? Yes, but Arkadia’s software featured a full-text search facility with strong support for Russian morphology, which made a strong base for Yandex’s future business. In 1993 Volozh and pal Ilya Segalovich came up with the term “Yandex” to describe their text search technology: The name is a bilingual pun on “index.” They rolled Arkadia into another of Volozh’s company’s (Comptek), which extended the search Russian-language search capabilities, focusing on Russian-language literature and classics. By 1997, Comptek launched the Internet search portal yandex.ru, and in 2000 that was separated out as a standalone company headed by Arkady Volozh — who still runs the company today as CEO. In short, Yandex was operating Internet search before Google existed, and back when Yahoo was a hand-curated index getting search results from AltaVista.

Like other search engines, Yandex gets most of its revenue from selling ads. The Yandex.Direct advertising network it launched in 2001 is loosely analogous to Google AdWords. But that’s just one of many similarities. Yandex jumped into digital mapping in 2004, and in 2005 started launching localized search services for the Ukraine. It launched a photosharing service analogous to Flickr, email, a social networking service for professionals loosely parallel to LinkedIn, added traffic data to its mapping capabilities, and launched an online payment service to compete with the likes of PayPal. Yandex also refined its core search capabilities, adding sophisticated image searching along with “MatrixNet” technology that tries to juggle a huge number of factors in ranking search results for user. It recognizes context: If most people searching for “Lord of the Rings” want the movies, not the books, Yandex will rank results about the movies higher. In 2010, Yandex also launched a real-time search capability that crawls the Web in real time to quickly make news, social networking posts, and rapidly updated information quickly searchable. Oh, and there’s an English-language search engine too.

Does all this sound familiar? These are many of the same search issues where Google and Bing have been duking it out — and Yandex has its fingers in a wide variety of other successful businesses besides. How successful? When Yandex finally decided to go public in early 2011, its IPO raised $1.3 billion. At the time, that was the biggest IPO since Google in 2004. Last year, Yandex pulled in 20 billion rubles (about US$620 million) [updated] in revenue. While that’s a little more than half Google’s revenue, but Yandex does it with only about 3,500 people. With the acquisition of Motorola Mobility, Google has exploded to over 50,000 people.

Now Yandex is making some more moves that ought to have Google taking a much closer look at what’s happening in Russia — and perhaps Europe.

Building a better browser?

Yandex Browser (translation)

As of Monday, Yandex is in the Web browser business. The brand-new Yandex browser is available now for Windows and Mac OS X and offers cloud-enabled services like machine translation, a unified address and search bar, and quick access to locally-relevant information. The interface is highly reminiscent of Google Chrome — no surprise considering Yandex built the browser on Google’s open-source Chromium project. It also partnered with the fellow Russian company Kaspserksy to warn about potentially hazardous sites and downloads.

To speed up its browser, Yandex has inked a long-term partnership with Norway’s Opera Software for Opera’s Turbo technology, which runs pages through cloud-based servers to compress and rejigger them for speed. (Amazon does something similar with the Silk browser in its Kindle Fire tablets.) For folks with slow or unreliable connections, that Turbo technology could give the Yandex browser a major edge. And if acquiring features from Opera doesn’t seem like a selling point to North American ears — where Opera is at best an also-ran in the Web browser arena — remember that Russia is different. Opera (and Opera Mini) have historically been a major presence in the Russian market — and by some accounts is still the leading browser.

Google Play? No: Yandex.Store

Yandex.Store (Android, Yandex Maps)

Launching a browser isn’t the only way Yandex is looking to keep Google at bay: It’s also launching its own Android app market called Yandex.Store. The marketplace will initially carry nearly 40,000 apps when it launches later in October; again, that’s in part due to a partnership with Opera, where it’s picking up content licensed for the Opera Mobile Store. But the Yandex.Store isn’t just a new outlet for Opera’s mobile offerings. Yandex has inked deals with MegaFon (one of Russia’s largest mobile operators) to use Yandex.Store as a whitelabel storefront for smartphones and tablets, and has also arranged for Yandex.Store to come pre-installed on devices from 3Q, text, and Pocketbook as a native app. Of course, Yandex.Store integrates with Yandex.Money — the online payments system that’s one of the most widely-used in Russia, unlike Google Checkout — and also supports mobile billing, and in-app purchases.

Yandex is positioning its own app store as another “building block” in its mobile strategy, which already includes cloud storage, maps, email, and both local and Internet search. In other words, it’s trying to cover all the same bases that Google covers with its core Android apps. Yandex.Store won’t be able to compete with Google Play or Amazon’s Appstore in western markets — but it could do a good job of keeping Google Play or Amazon’s Appstore from getting a strong foothold in Russia. Especially since Yandex is already a leading online payments operator.

The enemy of my enemy is…

Yandex mapping data in iOS 6

Yandex also isn’t afraid of hopping into bed with Google’s frenemies. Now that Apple has booted Google Maps out of iOS 6, the Wall Street Journal and other outlets are reporting that Yandex is making a deal with Apple to supply mapping data for Russia — that will apparently include mapping information supplied to iOS users both inside and outside Russia. According to reports, the deal will also include location-based search capability. iOS 6 (and Siri) make extensive use of data from Yelp and other providers to show information on local businesses and points of interest — in Russia, that information will apparently be supplied by Yandex. Financial terms of the deal have not been disclosed.

Does Google need to worry?

Globally, Yandex doesn’t yet represent a significant threat to Google or other western Internet giants. After all, Yandex is essentially a non-entity outside Russia and the Commonwealth of Independent States. The only country that wasn’t in the former Soviet bloc where Yandex has a significant presence is Turkey — and that only got started about a year ago.

But the success of Yandex — and its obvious intentions to keep Google at bay — highlight the complexities technology companies face trying to run global operations. From a North American or even Western perspective, it’s easy to think that search is all about Google and Bing, mobile is all about Android and iOS, and browsers are all about IE, Firefox, and Chrome. But the world just isn’t that simple. If there’s one thing the success of Yandex — and companies like Alibaba and Baidu — prove, it’s that innovations in Internet and mobile technology aren’t turning the world into a global village. Tech companies will always have to worry about how things will play in Peoria — or Moscow.

[UPDATE: Original text indicated Yandex’s 2011 revenue was US$20 billion; actual figure is 20 billion Russian rubles, or about US$620 million. The error was mine.—gd]

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