Russia, Europe’s biggest and fastest-growing Internet market, is red hot. With a skyrocketing number of Internet users, but a still underdeveloped commercial environment, the opportunity to build phenomenally successful domestic e-commerce and other digital businesses in Russia is huge.
Take the case of Yandex, Russia’s most popular Internet search engine: it has around 60%of the domestic search market and raised $1.3 billion in an initial public offering on Nasdaq in 2011.
But the barriers to entry for non-Russian companies are daunting. Google entered Russia in 2006 and seven years later remains behind, despite its global brand and the bundling of its search engine with its Chrome browser. Twitter, Amazon, eBay, Facebook and other U.S. tech giants also find themselves trailing local competitors.
It’s little wonder then that small foreign players are hesitant about entering this burgeoning market. That could soon change. Yandex wants to make it easier for European and U.S. start-ups to enter the Russian market. Company executives will be on the prowl for good candidates at Web Summit in Dublin, which is expected to attract some 8,000 attendees, including start-ups from around the world.
“Russia is the biggest European Internet market but no one from the outside knows how to reach the audience,” says Kseniya Yolkina, Yandex’s head of external relations, who is pictured on Informilo’s home page. “We want to help bring start-ups that already have traction in Europe or the U.S. to Russia. We can introduce them to the top management of the most important Russian Internet companies and give them a market overview.” Partnering with local companies is key for foreign companies. Instagram, for instance, saw its market share climb after embedding its service with VK, the Russian equivalent to Facebook, Yolkina says.
Yandex’s facilitation program for start-ups also includes help from a marketing team to define a relevant audience, as well as market research support.
So what is in it for Yandex? For starters, the company, which also serves Turkey, Ukraine, Belarus and Kazakhstan, wants to work more closely with start-ups. It is an investor in SeedCamp, a London-based microseed investment fund and mentoring program that operates in Europe. It invested in Israel’s Face.com (which was sold to Facebook in 2012), acquired start-ups Twitter Times and SPB Software, and earlier this month snapped up KinoPoisk, a Russian-language website dedicated to movies, television programs and celebrities, for an undisclosed sum. KinoPoisk has a worldwide monthly audience of 18.6 million users, according to comScore Media Metrix, and ranks as the 16th-largest web property in Russia.
Expect the buying spree to continue. The company is actively searching in Europe, Israel and the U.S. to find innovative technologies, says Yolkina. The Russian search company is interested in innovative search and geolocation technologies; personal cloud services such as convenient document sharing between devices; mapping technologies connected with directories, places and navigation; and applying the mechanics of big data to areas such as health and to combat fraud in the financial services sector, she says.
But there are other drivers for bringing foreign start-ups into Russia. “These companies are future advertisers for Yandex,” says Yolkina. “Beyond that we want to make the Russian market more competitive worldwide and to do that we have to create competition with foreign players in our domestic market. If you use the example of Yandex, after Google arrived in Russia we had to work not twice as hard but ten times harder to improve lots of our services. Competition is good. The more international companies come into the market the more it will push the domestic industry to become better.”
The lack of viable domestic start-ups is a concern for Yandex . “Most of the companies that exist on this market are too small, too weak and too far away from Yandex’s technology for us to take them seriously as partners,” she says. “Things have improved in the last three years but there is not yet a significant quantity of quality start-ups.”
For three years Yandex published an application form on its web site that invited any start-up to write and try to get appointment and finance from Yandex. The Russian search company also regularly attends start-up events inside Russia. But “we very rarely find something interesting,” says Yolkina. “So we thought why not try to collect people from different parts of our big country and let them create their projects from zero, with a little help from Yandex.”
That is the idea behind Tolstoy Camp, a two-month boot camp organized by Yandex for the first time this summer. Yandex received more than 1,000 applications from would-be Russian entrepreneurs and conducted more than 300 interviews. The 65 people who made the cut were divided into 22 teams and tasked with presenting 22 ideas. Twelve of the ideas were deemed worthy of further exploration. When the boot camp was over, a number of start-up companies were formed and Yandex decided to give seed money to three of them. One of the boot camp companies, MediCard, an online exchange which helps medical organizations, universities and hospitals connect to patients willing to take part in clinical trials, has been invited to present at a SeedCamp Week Berlin in November. And, Yandex has decided to make Tolstoy Camp a bi-annual event, in keeping with its goal to stimulate start-up activity in the Russian market.
“Yandex began life as a start-up ad we are sure we can really be valuable to both domestic and foreign start-ups not only with money but also with advice and technology,” Yolkina says. “Now we are a big company, one that meets the challenges of competing with global players while remaining as nimble and innovative as a young start-up. Working with start-ups is our way to contribute to the growth of the Russian market and also to ensure that Yandex stays ahead of the curve.”