Yandex – Case Study

Yandex Case Study

History of Yandex

When Arkady Volozh and Arkady Borkovsky came together to create a program that would search through bibles, they were still many years away from launching what would become Russia’s leading search engine. Fast forward seven years to September 1997, the two, along with another co-founder, Ilya Segalovich, launched the search engine www.yandex.ru under the software supply company, CompTek. A year later, they introduced contextual advertisements to the site, planting the seeds for profitability. By 2000, the founders created the company, taking on the search engine’s name, and began launching a series of services such as personal email and news. Finally, in 2002 all the hard work paid off as the company turned profitable, propelling it forward to become one of the most successful internet businesses.

Today, Yandex is a publicly-traded internet services company with over 10,000 employees globally. They are the biggest internet services company and the leading search engine in Russia. The company provides an array of services ranging from location services, language translation, media properties, and ride-hailing.

Search Advertising Industry

In 2020, the Search Advertising industry is estimated at $162 billion USD globally.[1] The increase in corporate profits over the past five years has contributed to companies investing in advertising and market research. The industry is expected to continue to grow from continued spending to reach $201 billion by 2024.

The United States leads in ad spending with $63 billion. Following that is China at $34 billion in ad spending. Spending in the industry is split between mobile search advertising and desktop search advertising. Growth in mobile search advertising has grown at a faster rate than stagnant desktop advertising.

Industry Competitors

The competitive landscape in the Search Advertising industry is highly concentrated. Globally, the leading company by search share is Google, with 91.89%.[2] Following that is Microsoft’s bing with 2.79%, Yahoo! with 1.87%, Baidu with 1.1%, and finally Yandex with 0.54%.[3]

While Google is the leading search engine globally, the competitive landscape in certain countries may differ. For example, in China, Baidu is the leading search engine since Google is banned from use in the market. In Russia, the market is a duopoly between Google and Yandex, with Yandex having led as the search engine leader up until July 2019. Yandex is also popular in countries such as Belarus and Kazakhstan, though still substantially behind Google.

Yandex Business Model

Yandex is an internet services company that is focused on the “Happiness of the User.” They primarily serve Russia and the Commonwealth of Independent States with an array of web services. For their end-users these services include email, web browser, news and media, e-commerce, map services, music streaming, etc. They also have a ride-hailing service, Yandex.Taxi, that merged with Uber in 2018.

The search engine, Yandex.ru, is the 5th largest search engine in the world and, until recently, was the number one search engine by search traffic in Russia (as of July 2019, Yandex holds 42.35% share of the total search traffic in Russia). Their taxi service, Yandex.Taxi, holds 56.5% of the taxi services in Moscow alone and 27% of the overall market in Russia. The company generates revenues from 66.4% of their revues from online advertising in their search and 30% from their taxi segment.[4]

Yandex Success Factors

One of Yandex’s key success factors is its early rise to dominance as the leading search engine in Russia. The search engine was created and established well before Google’s entry into the Russian market in 2003. This allowed Yandex to establish first-mover advantage in their home market while their biggest competitor was just figuring out how to operate in Russia.

Additionally, Yandex’s origins of being a Russian language search engine is another success factor. The whole search product was built upon Russian morphology, allowing the search to interpret and understand Russian words better than their competitor’s product. This is key as it highlights the follies of western companies attempting to enter foreign markets but falling short in meaningfully localizing their products for those consumers.

Finally, end consumers’ nationalistic sentiments and skepticism of American organizations is another contributing factor to the search engine’s success. Given the political tensions between the two countries, many end users opt to use a homegrown product, like Yandex, for the sole purpose of supporting a product of their own.

Yandex – Looking ahead

As Yandex looks forward to the next five years, they will need to defend their search market share in their home country while exploring growth through geographic expansion or product diversification. The company should leverage its ability to build services in a meaningfully localized manner to deepen its operations in countries such as Belarus and Turkey.

From product diversification, the company has proven that it can package its technologies into other revenue streams. While online advertising makes up more than half of their revenues, the company is still short of being considered a pure-play. Furthermore, taxi revenues have experienced significant year-over-year growth, solidifying the company’s ability to break into other products and revenue models outside of advertising. They should look at leveraging this capability into other potential products.

[1] Statista, “Search Advertising,” statista, accessed May 6, 2020, https://www.statista.com/outlook/219/100/search-advertising/worldwide#market-revenue.

[2] Statcounter, “Search Engine Market Share Worldwide – April 2020,” statecounter, accessed May 7, 2020, https://gs.statcounter.com/search-engine-market-share.

[3] Statcounter, “Search Engine Market Share Worldwide – April 2020,” statecounter, accessed May 7, 2020, https://gs.statcounter.com/search-engine-market-share.

[4] Yandex, Yandex Announces Fourth Quarter and Full-Year 2019 Financial Results, 2, April 28, 2020, accessed May 7, 2020, https://yandex.gcs-web.com/static-files/05095560-87ab-4769-9d99-596a93fc0df8.

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