During 2011 Yandex lost 4% of searches in Russia to Google.ru, reports Vedomosti (in Russian). I heard mentions of this fact throughout last year, but here is how it looks in absolute numbers.

According to LiveInternet statistics, in December last year search market in Russia was divided between Yandex, Google.ru and other smaller search engines as shown below:

In December 2010 Yandex held 64,1% of the search market, and Google – 21,5%. Quite a big change in one year, isn’t it?

Analysts say that Google’s market share most likely increases not due to the search engine traffic itself, but because of other platform Google owns or has partnerships with. Presumably, the majority of growth  can be explained by wide use of Android devices (where search is powered by Google), social network Google+ as well as popularity of Chrome browser, which Google has been advertising on TV in Russia since half a year!

I have to mention, however, than Yandex also works with various partners and web browsers. Facebook search in Russia is, for example, powered by Yandex. Same goes for Windows Phone 7 and Firefox, among others. Needless to say that Aport and Rambler use Yandex’s search engine, and that Bing’s ads in Russia are in reality Yandex Direct.

Just like I predicted earlier, Yandex now announced a strong focus on mobile technologies in 2012, and not only on advertising. They acquired a mobile development company SPB Software, and, I suspect, is going to work on a response to Android – their own mobile OS.

A spokesman of Yandex told Vedomosti that the company expects 58-60% growth in revenue in 2012 and not focusing on increasing their market share, but rather creating new and useful products. The next big release, for example, is supposed to be a new search platform, which better understands interests and preferences of Internet users (read: personalized search).

Russian Internet is developing astonishingly fast! 2011 was a great year full of important events and big changes. Russia became the fastest growing online advertising market in Europe. But even the key players, like Yandex, underestimated the tempo Russian Internet usage grew in 2011!

In his latest presentation at SES San-Francisco (August 2011) Preston Carey, Yandex Business Developer in the US & Europe, presented a forecast that suggested that Russian Internet audience will reach 80 million users by 2014:

Now, it appears, the number of Internet users in Russia reached 70 million already by the end of last year, according to the Russian Ministry of Communications.

This makes Russia the largest online market in Europe leaving the former leader, Germany, behind with its 66 million Internet users.

The Ministry of Communications is very optimistic about this development. They expect the number of Internet users in Russia to reach 90 million by 2014.

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

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

For almost a year now Yandex is using machine learning technology aka Matrixnet. Until recently, the “learnings” were used for improving the SERPs: eliminating spam, understanding users’ intents in cases when search queries are too generic or have multiple possible meanings etc. etc. Opinions differ, but all in all the quality of search results is much better than when I started writing RussianSearchTips.

A week ago Yandex launched yet another search algorithm Reykjavík. They call it their first step towards personalized search. Reykjavík aims to adapt to users’ language preferences, i.e. shows more results in English to those who likes (and clicks on) results in English and the other way around.

Last week yet another human aspect was brought to the world’s attention: behavioral targeting for display advertising. Sounds good, right? But here comes the weird part.. or rather parts

a) “Behavioral targeting” includes dividing the audiences into 2 groups by gender, 5 groups by age and 2 groups by income.. Hmm, not that is interesting. The new technology called Crypta, which is behind this targeting, analyses search queries of Internet users and by looking on what people are searching for, it assigns them to these categories. But income, medium or high, still? C’mon!

b) Yandex is positioning this “smart” targeting as a “Super-premium” service and is charging 1,5 times more for using it, comparing to traditional targeting options. This comes as a surprise to me, since testing these things with both Bing and Google, from my experience, gave nothing. Yandex, however, prior to releasing this targeting, published a number or research papers of how and what different gender and age group search, so now, supported by all those stats, this “smart” targeting can actually sell..perhaps.

Now, a few other things I find amusing. Mail.ru, owning 2 major social networks in Russia (Odnoklassniki.ru and MoiKrug.ru) commented to CNews.ru that “when the (market) players do not possess actual information about their users, they are forced to replace it by hypothetical assumptions based on statistical algorithms. Not sure, Yandex’s approach can be a sufficient replacement for real knowledge about their audience”. WOW, I thought. That is mean.

But guess what, the day before yesterday Yandex released another new feature! Now you can sign in into ANY Yandex service with your account in several social media sites , namely Vkontakte, Odnoklassniks, Facebook, Google, Mail.Ru or Twitter! This feature is available on all devices. Ha-ha, and how is that for “not possessing real data”? Working on it, working on it

I am not sure, when or if antitrust and privacy law suits will hit Yandex, but these developments are really fun to watch! Looking forward to further developments

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.

Entering a new market, especially an immature one, companies have to think about lots of things. For many corporations markets like Russia or China are difficult to crack. If you ask me why, I say, because they are not localized enough. Why Google failed in Russia? Why eBay failed in Japan? All for the same reason: clueless about markets and their business culture.

Opening an online business in Russia, one has to consider the differences in design and usability, SEO and PPC techniques, linguistics, but even doing all of the above right, the business can fail, because people are simply not able to pay for products and services.

Many payment methods such as PayPal do not even operate in Russia. Moneybookers is available, but not very common.

According to a report, recently published by RuMetrica (in Russian), only 40% of Russian people own a credit card. Out of those 40% only 29% of those use credit cards on a daily basis (this makes it 12% of the total population). The majority of credit card owners in Russia use them for receiving salaries, then going to the ATMs. Only 5% of credit card owners confirm that they at least once used their cards to purchase products or services online.

Seems difficult, right? Not living in Russia for many years myself, I am having a hard time to explain why credit cards are not used more. Could be because the banks are still very bureaucratic and do not provide enough transparency. Could be due to a lot of fraud in this area.

Working for several years with the Russian market, I learned that without WebMoney an online business in bound to fail.

WebMoney is a PayPal clone, a payment system targeted primarily at the Russian market. From what I heard, setting up a business account can be a hassle, but without WebMoney there will be no business.

Yandex provides an alternative payment method called Yandex.Dengi. I’ve never used it myself, to be honest, but it seems to be relative big and have partnerships with the major mobile operators, online retailers and airlines.

Taking it even further, one can consider getting into offline terminals for online payments. Yes, right, offline. Looking something like this, these terminals are all over the place. They take cash, a small commission, and for that provide a possibility to make payments for various services, including ISP fees, mobile phone bills, money transfers and even some online gambling sites

The bottom line: make sure to include the payment methods for your online business in Russia into your business plan, and on an early stage.