The prevailing wisdom is that U.S. companies rule the Internet. Think again. This year Russia’s most popular Internet search engine, Yandex, raised $1.4 billion in an initial public offering on Nasdaq, significantly more than either LinkedIn or Groupon — the biggest IPO for an Internet company since Google listed in 2004.
Now the homegrown Russian search engine giant is moving into Turkey.
While no other search provider can yet challenge Google on a global scale, “the game isn’t over yet,” says Internet doyenne Esther Dyson, a Yandex board member. “Search is changing: It is now about data structures and meaning as well as algorithms and statistics. And a lot of what used to be search is now moving into applications, especially on mobile phones.”
“Clearly Google has won the search market as it is now,” continues Dyson. The real question is what comes next. Yandex’s programmers are well-equipped to meet this challenge, and the company is planning to make acquisitions that will give it even more firepower. The outcome is not a given. “Both companies will have a chance to play another round in a world that also includes Facebook, Twitter and unknown unknowns,” says Dyson.
Google entered Russia in 2001 and ten years later remains far behind, despite its global brand and the bundling of its search engine with its Chrome browser. Yandex retains over 60% of the market in Russia, which, according to comScore, is now the biggest Internet market in Europe.
“It is a huge leap to go from local to international,” Arkady Volozh, Yandex’s soft-spoken co-founder and CEO, noted in an interview with Informilo. But he believes the company is well-positioned to expand out of its home market.
While Google controls 90% of the search market in Western European countries like France and Germany, it is not as well-established in the rapidly growing Turkish market, which is worth an estimated $200 million a year, and has an estimated 35 million Internet users. Turkey is already the sixth-largest Internet market in Europe, and boasts the second-highest number of average hours spent online per user in Europe — 32.2 — and the highest average number of page views per visitor, according to a September 2011 comScore Media Metrix report.
Instead of just localizing its existing services Yandex custom-built an entirely new product — tailored specifically to web users in Turkey — which involved developing a number of new capabilities, such as storing web documents in different languages and a system of document prioritization.
Since September 20th there has been a small Yandex team in place in Turkey including analysts, managers and translators. It is aiming to grab between 3% and 5% of the market and if things go well, Volozh says, the company will seriously consider further international expansion.
Yandex has already developed its own international index. (In contrast, Chinese search giant Baidu relies on Bing outside China). It also offers products that go way beyond search, including photo-sharing and professional networking, its own mail service (protected by its own anti-spam technology), news clustering and aggregation, blog search, free Web hosting, shopping, mobile search, and a homegrown electronic payment system.
It doesn’t plan to stop there. Yandex has been buying four to six start-ups a year and is hunting for more in areas like advertising, geolocation and voice processing, Volozh says.
While employees at the Moscow headquarters celebrated with champagne and watched with excitement as news of the IPO was broadcast on TV last May, there is no time for resting on laurels when you are going up against Google in multiple markets, says Volozh. Other than shaving off his trademark mustache, he says, life hasn’t changed much since the IPO: He still spends late hours in the office.
Yandex got where it is today by indexing and searching documents in the major Cyrillic languages —Russian, Ukrainian and Belorussian. Volozh, who has a degree in applied mathematics, initially co-founded a firm called Arcardia, which then became a part of ComTek, one of the largest distributors of networking and telecom equipment in Russia at that time. The company developed two information search systems. In 1993, Volozh and his CompTek partners decided to build on the technology by creating a subsidiary called Yandex (short for "yet another indexer") to focus on Russian-language searching. Yandex became a standalone company in 2000.
The Russian company was named a World Economic Forum Technology Pioneer in 2008, six years after Google. And following in Google’s footsteps, Yandex had a wildly successful IPO. Also like the U.S. search giant, Yandex is cultivating young talent. It opened the Yandex School of Data Analysis, offering free tuition to its two-year program for master's degree students, and has started sponsoring local competitions, cultivating a start-up culture inside Russia.
With Yandex’s star rising globally, the latest crop of Russian Internet entrepreneurs doesn’t have to turn to Silicon Valley. Yandex has taught them that a locally focused web start-up can succeed big-time.