How Yandex Is Evolving From Russia’s Google to Its Amazon
WHY YOU SHOULD CARE
Because this company has made a pandemic pivot.
With most residents confined to their homes in Moscow’s sixth week of lockdown, one familiar sight remains on the Russian capital’s near-empty streets: tech giant Yandex’s yellow-jacketed army of couriers.
Strict limits on when Muscovites can leave their homes have increased demand for Yandex’s delivery apps, whose user numbers have grown 75 percent since March, while also driving more people to its search, blogging and streaming video platforms.
We potentially have an opportunity to build a FedEx in the space of a few months.
Greg Abovsky, chief operating officer, Yandex
Yandex hopes it can compensate for the financial hit to online advertising and taxis, its two core businesses, by using the coronavirus pandemic as an opportunity to expand the reach of its other businesses, chief operating officer Greg Abovsky said in an interview.
“This obviously will sound super ballsy, arrogant, but we potentially have an opportunity to build a FedEx in the space of a few months,” said Abovsky.
Often referred to as Russia’s Google for remaining one of the few search engines worldwide to maintain dominance in its local market, Yandex has diversified in recent years to fight off Uber successfully in ride-hailing; launch a $1 billion e-commerce site dubbed “Russia’s Amazon,” plus Alisa, an Alexa-style virtual assistant; and develop its own shows for KinoPoisk, its streaming video platform.
“[Yandex’s] growth rates will seriously speed up as soon as restrictions are relaxed,” says Victor Dima, an analyst at Aton. “Users will adapt to digital services more quickly, which will help increase user frequency after the quarantine is over … in food delivery, e-commerce and media, but probably not before the end of 2020.”
The pandemic has shelved some of Yandex’s expansion plans entirely while opening the door for others, said Abovsky. Drive, the car-sharing platform the company claims to have built into the world’s largest in two years, has been completely suspended by Moscow city authorities.
Revenue from its core online advertising business fell by a percentage in the “high teens” year-over-year in April, Abovsky said. Gross merchandise volume for its taxi joint venture with Uber fell 60 percent in Moscow year-over-year in April, down 70 percent from the beginning of March. A planned initial public offering of the joint venture has been shelved.
“Auto dealers got shut down in late March, early April, and so essentially our revenues on our businesses related to items like autos almost went to zero. Classifieds and advertising related to travel went to zero,” Abovsky said.
Yandex hopes those losses will be mitigated by the surge of its delivery app, which now hosts 20,000 restaurants in Moscow, and its new grocery delivery service, Lavka. Whereas Russia’s other online food retailers offered same-day delivery at best even before the pandemic, Lavka uses dark stores — small storehouses in unprepossessing, cheap-to-rent spaces with no foot traffic — to deliver groceries in a matter of minutes.
Yandex has expanded the service’s reach by reassigning taxi drivers to deliver groceries and food, as well as packages from Beru, the e-commerce joint venture with state-run Sberbank. The company has opened disinfection points for taxis, given drivers masks and hand sanitizer, and spent 250 million rubles ($3.4 million) on a project to deliver coronavirus tests and drive doctors to in-home visits in 24 cities.
Yandex has also launched a “self-isolation index” on its popular maps app that uses consumer data to show how many people are on the streets at any given time and how long lines are in supermarkets, much as it measures (now nonexistent) traffic flows.
The company and the Kremlin
Yandex’s emergence as an Amazon-like quasi-public service during the lockdown has heightened issues over its complex relationship with the Russian state. Last year, the company set up a “public interest fund” that in effect gives the Kremlin a veto over key governance decisions and added two Kremlin-appointed board members. The move was an attempt to assuage fears that U.S. investors, who own most of Yandex’s common stock but not its voting rights, could take over the company and gain access to its vast data on Russian users.
Although Yandex said the Kremlin has no influence over its operations, lockdown conditions have highlighted the difficulties of negotiating its dominant position on the Russian internet with increasingly censorious regulators.
When opposition activists used its navigator app’s comment function to organize online “protests” by leaving angry messages outside government buildings on maps, Yandex quickly removed them on the grounds that they were off-topic. The company also recently apologized after an experimental function showing news stories next to search results about opposition leader Alexei Navalny featured overwhelmingly negative content.
Yandex also faces the more pressing issue of its faltering e-commerce partnership with Sberbank. The joint venture has been the subject of “divorce” talks since before it launched 18 months ago over issues from strategy to Yandex’s use of an algorithm to aggregate logistics contractors instead of taking them in-house.
Although Abovsky said Beru’s sales have picked up over the pandemic, Yandex’s ambitions to expand beyond its original search business and Sberbank’s deep-pocketed drive into a tech “ecosystem” put the companies fundamentally at odds, according to a senior Sberbank executive.
“All their business is low-margin, and finance has higher margins, so it is only natural that we are going to compete,” the executive says. Sberbank has already launched a taxi and food delivery joint venture with Mail.ru, Yandex’s biggest rival.
Abovsky said Yandex was willing to buy out part of Sberbank’s 50 percent stake in the joint venture “if the opportunity presents itself,” but claimed Yandex’s experience delivering groceries to Russians under lockdown could be applied to e-commerce.
“This was a decision that we made in an afternoon and rolled out in a week or two — we essentially built a delivery platform for online merchants from scratch,” Abovsky said. “This isn’t something we’ve ever done before at mass scale.”
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