Yandex searches past its language barrierNovember 13, 2013: 5:00 AM ET
Moscow-based Yandex dominates search in Russian. But can the world's fourth-largest search engine break out of the Cyrillic world?
By Clay Dillow
FORTUNE -- The "Google of Russia" would prefer you not refer to it as the "Google of Russia," but the analogy has stuck and for good reason. Like Google, Russia's Yandex dominates the search market in its home country, dwarfing the market share of its competitors. It makes money the same way Google does, through advertising via Yandex's equivalent of AdWords and AdSense. And like Google, Yandex (YNDX) is much more than a search company, offering free mail hosting, a data-rich mapping service, a PayPal-like transaction service, and various productivity-enhancing apps. In Russia, "Yandex" is both noun and verb. Need to know where the closest metro stop is, or what time a local coffee shop closes? Yandex it.
"We say that Google is the Yandex of the U.S.," jokes Vladamir Issaev, Yandex's chief of international media relations. "Only because we started a year earlier. But it makes for an easy description of what Yandex does and where Yandex is."
Like its American counterpart, Yandex was founded by two friends and schoolmates. Like Google (GOOG), it was playfully named -- the origin myth describes the word Yandex as shorthand for "Yet Another iNDEXer," though it's also something of a pun -- but you'd have to understand both Russian and English to really get it. And therein lies the most significant difference between Google and Yandex: While Google is built around Roman characters, Yandex is built around far less-ubiquitous Cyrillic. As a consequence, Google has easily spread across both the English-speaking world and much of the rest of the globe where Roman characters and Latinate languages dominate, while Yandex has thrived in Cyrillic-heavy Russia and Central Asia -- and pretty much nowhere else.
That's not so bad for Yandex, at least in the near-term. Russia is the world's sixth-largest Internet market, and connectivity there lags far behind that of much of Western Europe and the U.S., meaning Yandex has plenty of room to grow just by maintaining its 60% search market share in Russia alone (Google holds roughly 25% market share in Russia, with Bing (MSFT) and various smaller engines carving up the remainder), a fact that has helped push the company's stock up 70% this year alone. But standing still isn't in Yandex's DNA, and its leadership knows that if the world's fourth-largest search engine is to continue a decade of prodigious growth it will have to expand beyond Russia and the handful of Eastern European and Central Asian states where Russian is the lingua franca.
In the era of contextual search, that's not as easy as simply writing some code to translate between tongues (which itself isn't so easy, as anyone who has ever used Google Translate can attest). And it's why Issaev apologizes to me as we tour Yandex's Moscow headquarters, which -- with its eye-popping colors, meeting rooms full of beanbag chairs, and whimsical motif -- is decidedly Google-esque. Yandex CEO Arkady Volozh sends his regrets, Issaev says, but we won't be able to meet while I'm here. In fact, I won't be able to meet with any of Yandex's senior leadership -- they're all in Turkey, where two years ago Yandex began rolling out its search engine, apps, and other tools optimized for the Turkish language. It's Yandex's first foray into a country where Russian isn't a major language, and a live fire exercise for Yandex's roughly 3,000-strong development team.
In Turkey, Issaev says, Yandex is not only learning to migrate its products to the non-Russian world but also shouldering its way into a promising marketplace. "They have something like 5 billion pages in Turkish, so it's a big job for a search engine to rank everything," he says. "And it's a very big country -- 70 to 80 million people. But Internet penetration is growing fast, and there's a large share of young people, people 18-25. So the market is interesting. They're very, very engaged, and we continue to invest a lot into there."
Right now Yandex is working feverishly to grab a greater market share in Turkey and prove it has the development chops to be not only a global search company, but a global provider of maps, transit apps, e-commerce solutions, movie recommendations -- whatever the market demands, in whatever language it demands. For instance: Istanbul, like Moscow, has notoriously bad traffic, and Yandex has benefited there from the real-time traffic mapping expertise it honed in its home country. And the company is tinkering with culture-specific applications, like a Ramadan app that alerts observant Muslims when the sun officially rises and sets each day, etc.
There are only a few nations that actually have indigenous search engines like Yandex in Russia, Issaev explains. China has Baidu (BIDU), for instance, while South Korea has Naver and the Czech Republic has Seznam. Everywhere else Google reigns supreme, but in those countries the indigenous engine generally holds 60-70% of the market share while Google holds 20-25%. That's true for Russia, Issaev says, and that's the kind of split that's possible in countries where Google is currently unchallenged -- 60-65% for Google and 20-25% for the No. 2 search company.
Yandex's strategy outside of Russia is to be that No. 2 company. Some 40% of Turks now know Yandex due to advertising and other marketing tactics that the company has carried out there since 2011. "That's not a market share number," Issaev says, but in a country where Google has historically owned nearly 100% of the market share, it's a promising start. Yandex is content to leave Google with the lion's share but believes it could hold 15-20% market share in as few as 3-5 years. And Yandex would be happy with that, but not just in Turkey. Yandex wants to replicate that success across the globe, largely at Google's expense.
"We would like to get 20-25% in search traffic, that would be enough to prove the concept for us," Issaev says. "We need to prove that we can do it in Turkey first. If we can do it there, we can do it anywhere."
Official numbers on just how well Yandex's Turkish campaign is working will likely become available sometime after the new year, Issaev says. And while they'll have virtually no impact on Yandex's core business in Russia, they will reveal a good deal about Yandex's global strategy and just how feasible its transition to a global search company is -- all while the company struggles through something of a Steve Jobs moment. In July Yandex's visionary co-founder and chief technology officer, Ilya Segalovich, passed away at age 48 after a battle with stomach cancer.
That loss has impacted the entire company. "Ilya was very strategy-oriented and knew how everything worked," Issaev says. "What's next? I don't know, we miss him. I personally miss his vision and his involvement. But life goes on. He contributed a lot to the foundation of this company, and Yandex will continue to build higher on that foundation."
A new CTO has not yet been named even as the company pushes ahead with its ambitious plans in Turkey and, potentially, elsewhere. All that points to a pivotal 2014 for a company that's currently little-known in Roman letters but might soon be battling for market share with one of the most recognizable brands in the world -- you know the one: the Yandex of the United States.