Yandex Overtakes Google as Russia’s Top Search Engine on …


Yandex (NASDAQ:YNDX) owns Russia’s top search engine, but its lead over Alphabet‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google always had a caveat: Yandex was more popular on desktop PCs, but Google consistently beat Yandex on tablets and smartphones, sparking concerns about Yandex’s mobile growth.

However, the latest figures from Yandex.Radar indicate that in mid-August Yandex’s market share surpassed Google’s on Android devices for the first time ever and that its lead continued to widen through the end of the month.

A young woman uses the voice assistant on her smartphone.

Image source: Getty Images.

Yandex finished the week of Aug. 20 with a 49.54% share of the Android search engine market, while Google’s share slipped to 49.06%. That’s a big reversal from a year ago, when Yandex’s 41.44% share was well below Google’s 57.37% share. How did Yandex pull so many users away from Google?

Understanding Yandex’s mobile strategy

Yandex is aggressively expanding its ecosystem beyond its core search engine. It offers email and cloud services, a virtual assistant named Alice, an AI-powered recommendations platform, and integrated streaming videos on its homepage.

It lets users hail rides and order food through Yandex.Taxi, which was merged with Uber‘s services as a joint venture, and it’s testing self-driving cars for the service. It offers online payment services via its Yandex.Checkout platform, and its e-commerce unit Yandex.Market recently launched an e-commerce joint venture with Russia’s top bank, Sberbank.

Yandex doesn’t own a mobile OS like Google, but in 2014, it launched a firmware update called Yandex.kit, which let OEMs replace all of Google’s Android apps with its own. It then partnered with numerous smartphone makers to drop Google’s services.

This was similar to Microsoft‘s strategy of partnering with smartphone makers to replace Google’s apps with its own alternatives, like Cortana, Office, Outlook, and OneDrive. It also highlights a fundamental weakness of Android: Google technically owns Android, but it’s still an open source OS that can be legally modified by other companies.

A person conducts an internet search on a laptop.

Image source: Getty Images.

These strategies seem to be holding Google at bay. Excluding the impact of Yandex.Market, which was recently deconsolidated, Yandex’s revenue grew 39% annually last quarter, its adjusted net income jumped 44%, and its adjusted EBITDA rose 32%. Its paid clicks climbed 10%, as its average cost per click grew 6%.

Why Russia matters to Google

Russia is a sensitive topic for Google, which faces criticism in the United States for the proliferation of fake Russian ads during the 2016 election.

Google also faces regulatory pressure in Russia — the government threatened to ban its services in 2015 after it refused to turn over personal data from bloggers, forced it to move some servers to Russia to keep personal data within the country, and temporarily blocked Google’s websites earlier this year as part of an attempt to crack down on the encrypted mobile messaging app Telegram.

Yet Russia remains a fertile market for internet services. Russia has an internet penetration rate of 71%, which is higher than other BRIC markets but lower than the penetration rates of developed markets like the US and Japan. Google could also try to expand its e-commerce efforts — which fell short in other markets — in Russia, since e-commerce transactions only account for 3% of all retail transactions in Russia this year according to eMarketer.

Google doesn’t disclose how much revenue comes from the Russian market, but if sanctions ease and the ruble rebounds, it could certainly boost its overseas revenues.

Will Google keep losing ground to Yandex?

Yandex’s growth on Android is bad news for Google, since it contradicts the notion that Google will keep dominating mobile devices as Yandex gets left behind on PCs. It also indicates that the expansion of Yandex’s ecosystem and its efforts to boot Google’s services from Android devices are paying off.

 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Yandex. The Motley Fool has a disclosure policy.

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