Yesterday morning Russian Internet press reported that Yandex and Skype signed an agreement and will begin promoting each others’ services in Russia.

Skype will offer everyone who downloads their PC client to install a browser extension Yandex Bar. Yandex Bar, in exchange, will display Skype account balance and provide an easy way to top up Skype account via Yandex Money. This looks like a good way for Yandex to attract more users and possibly regain the market share that they lost to Google last year. In 2011 Skype showed 40% increase in Russian user base ending the year with 22,4 million registered accounts.

So what does Skype get in return? From what I read today it is very unclear: Skype will be promoted on Yandex sites and properties (which is of course a lot of traffic), but it is not specified how.

The latest gossip in Russian Internet circles is that the next step for Yandex after their NASDAQ IPO, successful launch in Turkey and recent partnership with Czech leading search engine Seznam is to launch in Poland. Rumors say that Yandex has already hired a business developer in Poland, with a very impressive track record including companies like Dell and Apple.

Polish Internet audience is estimated to be around 40 million people, where Google holds 97% market share. Entering a market with such strong Google presence might sounds like a strange idea, especially given 2 facts from the recent past:

1. Yandex already made an attempt to enter Polish market back in 2001, but pulled off due to the crisis in .com industry as well as uncertain state of Polish economy.

2. The announcement of international expansion plans Yandex made in summer was very much about entering markets where Google does not have a strong dominant position. The first of these markets was Turkey. Yandex also mentioned Vietnam, Indonesia and Egypt.

So why Poland?

The rumors about Yandex planning an acquisition of Onet.pl (one of the biggest portals in Poland) were circulating in the tech press since summer 2011 (see, for example, Bloomberg report from July). Purchasing of the other major portal Wp.pl also gets mentioned here and there.

Both portals have look and feel of Yahoo!, i.e. publish a lot of categorized content and at the same time have search. Onet.pl search box is currently powered by Google; wp.pl has its own search engine.

In case of this purchase, Yandex will actually claim a big chunk of Polish market right away:

In September 2011 Yandex processed over 3 billion search queries, reports comScore. This allowed Yandex to climb 2 positions up passing South Korean NHN Corporation (Naver) and eBay.

The leader is, obviously, Google with 118 billion queries (globally), followed by Chinese Baidu with 11 billion queries.

Yandex has been showing exceptionally fast growth in both traffic and revenues over the last years. Earlier this year the company raised $1,4 billion in a NASDAQ IPO, and a few months later reported astonishing 93% jump in net income comparing to Q3 of 2010. The company’s value is around $8 billion, which makes it one of the top 25 leading online buisnesses in the world:

Source: http://kpcb.com

Mail.ru, the 3rd largest search engine in Russia after Yandex and Google.ru, with 7% market share, announced their plans to invest into developing their search technology. The company plans to double the amount of specialists developing their search engine.

In the past search on Mail.ru was powered by Yandex, but replaced by Google’s technology in 2010. At the same time, a part of queries in Mail.ru is processed by their own algorithm. According to Mail.ru CTO Vladimir Gabrielyan, this makes sence: Google’s engine is used for general queries, while Mail.ru can focus on improving, for example, local search.

Currently, the main services for Mail.ru are more social than anything else: messengers, online games, email, social networks. Mail.ru Group, listed on London Stock Exchange, owns Mail.ru portal, instant messenger ICQ and social network Odnoklassniki.ru. The Group also owns parts of companies like vKontakte (39,9%), Zynga (1,4%), Groupon (21,35%), Facebook (2,4%).

Will be interesting to follow this development. While Google and Yandex are fighting for Russian market, does Mail.ru has a chance to increase their share?

Mobile has been a hot topic in the Western Internet marketing circles for the last few years, and although it is still in a very immature state, there is a lot of room to play. ComScore reported that in the US 7% of digital traffic comes from mobile devices, and this percentage will only increase.

Mobile Internet in Russia

In Russia the situation is rather different. TNS Gallup Web-Index in their report showed that only 1% of Russian population uses mobile Internet. This is astonishingly low number! According to the same report:

55% of all mobile Internet users in Russia, and 42% in Moscow, surf with old-school feature phones.

Only 3% of Russians (7% of Moscow’s population) use tablets.

25% of mobile Internet users admitted that the only purpose of connecting to the Internet from their phones is reading/ sending emails.

There are also more optimistic assessments, where mobile web users’ figures reach 15-20 million.

Mobile Advertizing in Russia

These low numbers of Russian mobile Internet users probably explain the lack of platforms for Mobile advertizing. Even Yandex, known for their innovative and insightful nature as a company, does not prioritize mobile just yet. I bet, however, they are looking into that direction, as I’ve seen a number of job listings in Yandex Mobile Portal repeatedly appearing online.

One of the largest mobile operator MTS predicts strong growth in mobile ad spendings during the coming years. According to their “realistic” forecast, the value of Russian mobile advertizing market will reach 2,85 billion Russian rubles (6,62 million Euro) by 2013, which is still not much comparing to 687 billion Euro online spend in 2010.

Mobile Search Advertizing in Russia

Generally search in Russia is dominated by Yandex (65% market share). Currently there is no possibility to target mobile devices with any kind of Yandex ads.

Google provides the possibilities to target mobile devices in Russia, just like everywhere else. I am very doubtful about volumes they can deliver at this point though.

However, as I mentioned in one of my earlier posts, Yandex recently released search engine for mobile apps. There is no advertizing program there yet, but the rumors say that it might happen already next year.

SMS/ MMS marketing in Russia

While Western world is buzzing about search and in-app ads, the most common form of Russian mobile advertizing is SMS and MMS. All major mobile operators (e.g. MTS, Beeline, TELE2) offer this possibility, with targeting options. Average cost of one SMS varies between 1,5 – 3 RUR (3-7 Euro cents).

In-app advertizing in Russia

In-app advertizing is pretty much non-existent. There are several pioneering companies working in this direction.

To conclude, at the moment mobile marketing in Russia is limited to SMS / MMS campaigns, and will probably not explode as it has in the West for another 2-3 years. Russian market, however, is very big, and mobile marketing spend increases slowly, but steadily. Ilya Segalovich, Yandex CTO, said in one of his recent interviews that Yandex “will have to join the mobile race”. And if Yandex does, mobile will be big.

I believe in early adoption. The ones who begin to focus on Russian mobile marketing today will be much ahead of the others, when the time comes.

IAB Europe reported that expenditures on online advertizing in Europe in 2010 grew by 15,4% (from 15,3 billion Euro in 2009 to 17,7 billion Euro in 2010). The largest contributors to this grows became developing Eastern and Central European economies. Russia tops the ranking with incredible 37% increase in Internet advertizing spend, followed by Turkey, Romania and Slovenia:

The biggest market for online advertizing is the United Kingdom with total yearly spend of 4,77 billion Euro, followed by Germany (3,63 billion) and France (1,88 billion). Russia is still far behind, but is catching up quickly.

Russian Online Advertizing Market in numbers (2010):

- 687 billion Euro in expenditures

- 7th largest internet advertizing market in Europe

- 11,8% of all advertizing budgets are spent online

- 236 billion Euro was spent on Display/ banner advertizing

- 354 billion Euro was spent on contextual / search advertizing

Today forums and other social media were buzzing with the news concerning Russian domains .RU and .РФ (TLD that stands for Russian Federation in Cyrillic letters; later .RF). Apparently, the rule introduced in spring 2010, requiring that every domain registrar / owner must submit a copy of a valid passport to identify himself/ herself.

The introduction of this rule provoked a lot of angry conversations in SEO forums, and made life difficult for the non-Russian-speaking individuals owning or intending to purchase a .RU or .RF domains.

Interestingly, .RF domains, while being a hot topic of discussion for several months, never gained popularity in Russia. The press reported that in June 2011 there were around 850 000 registered .РФ domains and 3,3 million .RU domains, however one hardly ever sees any websites in .Rf (apart from http://президент.рф/ meaning president.ru)

Popular explanations of this fact, among the others, are:

a) Having .RF domain is not great for the companies planning or considering expanding the business to countries outside former USSR, where no one can read Cyrillic and no one has Cyrillic keyboard, which will make it impossible to type in the domain or conduct email correspondence.

b) Some people reported problems with indexing of .RF domains by various search engines, such as Mail.ru and Yahoo.

c) Not all CMS support Cyrillic domains correctly.

Although for a Russian-speaking user .RF domain (or any Cyrillic domain really) is more memorable, technically it is more difficult to maintain it. The common practice among the Russian businesses is to SEO .RU domains and make sites .RF mirrors of .RU sites. Then .RF domains are used for marketing and branding, while .RU domains stay preferable for search engines.

I find the development of the Internet in Russia very interesting to monitor. The market is huge and continues to grow, however the numbers of Internet users do not grow in the same pace as e-commerce. People surf, people are mobile, but do people buy online?

Recently I heard and read a lot of stats about Russian Internet audience. The most general numbers you can find in this presentation, given by Preston Carey of Yandex at SMX Advanced London, which I attended last week. You can see than Internet penetration in Russia is still only 43%. Hard to imagine, right? But don’t get discouraged yet. 43% of the population is approx. 46 million people, which is double the population of Scandinavia, for example.

Another research, presented by Yandex, says that Russian Internet audience grew by 18% in 2010. Most of the growth (5.8 million users) came from the “regions”, which is the Russian definition of everything outside Moscow and St. Petersburg. This can be probably explained by the fact that the prices on fast Internet connection in the “regions” dropped by 30-60%.

About e-commerce

E-commerce is growing as well, however, in my opinion, not as fast. You can see the trend: more and more Russian Internet giants are creating their own ad serving platforms. In addition to good old Yandex.Direct, Google Adwords and Begun, Russian internet audience is going to be exposed to targeted ads in all major social networks: vKontakte, Odnoklassniki.ru and MoiMir. The simplest economic principle: if there is demand, the supply will eventually match it.

What I find interesting is the industry data. According to another Russian research agency, the most successful verticals in Russian e-commerce, based on traffic and conversion, are mobile phones, computers & spare parts, and home & kitchen appliances.

The leaders in conversion were Fifty.ru (2,95%), Techhome.ru (2,85%) and Toool.ru (2,53%). I think it is worth looking into the best practices, because, from what I’ve seen, Western best practices do not always work for the Russian Internet audience.

The largest online store in Russia Ozon.ru (sort of Amazon of the Russian Internet) in their presentation at SPBRIF (Internet conference in St. Petersburg) reported the following numbers: 1 000 000 products, 1 000 employees, and 4 billion Russian Rubles (approx. $143 000 000) in sales per year.

Ozon.ru claims to have 14 652 000 visitors per month. Surprisingly, the giant of Russian e-commerce has only 0.93% conversion. Another curious fact is something Geno Prussakov, the guru of affiliate industry, twitted from SPBRIF. Apparently 80% of Ozon’s orders are paid for by cash on delivery.

The bottom line of this: preparing to open up an online business in Russia, do not base calculations on volumes. The volumes are there, but buyers might not be just yet. Investigate local payment options, analyze the strongest players in the vertical, and conduct a thorough market research before investing, as Russia is a big, but a very difficult market.

I saw this in a number of Russian newspapers during February and found it rather interesting. Based in Russia visual search engine Quintura is going to sue Google over technology used behind Google’s Wonder Wheel. Wonder Wheel is a service that helps to visualize semantic relations between keywords. Russian Quintura launched a similar service back in 2006, and received the last of its 8 patents for this technology in 2009.

Quintura's semantic search cloud

The results are not exactly the same:

Google's Wonder Wheel semantic cloud

Yakov Sadchikov, the CEO of Quintura, mentioned in his interview to Infox (In Russian) that there are several companies who violated the patents and that Quinura will demand that all of them pay for using the technology.