Yandex is Russia’s most famous IT company and search-engine. The company was often far ahead with innovations, rivalling Google. In 2012, when masses flocked together in anti-Putin protests, Russian authorities began to see the internet as a tool of the opposition. Since then many laws have been adopted to control the free flow of information. At first Yandex resisted, but gradually it changed its strategy: if you try to regulate us, fine, but make sure to regulate Google as well. Journalist Yegor Osipov-Gipsh portrays the number one IT-company of Russia.

 by Yegor Osipov-Gipsh

In Russia of the 2000s, the word Yandex was a synonym for the word internet. Founded in 1997 by two classmates, Arkady Volozh and Ilya Segalovich, yandex.ru was the first search engine sensitive to the morphology of the Russian language, with its extensive case system and gendered adjectives. Significantly upgraded in 2001, it quickly turned into the county’s most popular search website, which it still is. In 1998, Yandex was the first in Russia to introduce a contextual ad banner, and it launched Yandex.Direct, an auction-based system of ad placement, three years later. Since then, contextual advertisement has become the company’s main business model: troughout 2017 advertising accounted for 93% of its revenues. In 2003 Yandex broke even.

founders yandex copyThe founders of Yandex, Arkady Volozh (left) and Ilya Segalovitch. Photo's Wikimedia.

Yandex’s advertisement system was unique, and so were its other products, also on a worldwide scale. 2002 saw the launch of Yandex.Market, a platform where visitors can compare prices of goods at thousands of stores. Yandex.Novosti (News), a fully autonomous news aggregation platform that united news into ‘stories’ and showed the top five of them, was launched in 2003. In 2004, Yandex introduced maps of Moscow, Saint Petersburg, and Kiev (Google released its maps only in 2005), and in 2006 the service Yandex.Probki (Traffic Jams) was the first to start providing real-time traffic information. Today, its ten-point scale, from 1 - Roads are Empty to 10 - Walking is Faster, is familiar to every Russian living in a big city. In 2005, Yandex opened its office in Odessa, Ukraine, and launched a Ukrainian domain — Yandex.ua.

Throughout the 2000s, the Russian Internet—Runet—was growing rapidly, from less than 2 million users in 1999 to 55 million in 2011, and so did Yandex. In 2001, it had a few dozen employees; in 2004 the number was around 400, and 3,312 in 2011. The company was a world of its own: at first most employees were programmers, but the proportion gradually decreased to almost 50% by 2012. Still, they were allowed not to bother themselves with projects they didn’t believe in. There was no dress-code, everyone was doing what he or she loved to do, and eventually brilliant products were being born.

yandex office in moscowFirst office of Yandex in Moscow. Photo free of rights.

MatrixNet

When in 2006 Google came to Russia and Yandex’s search share started falling, Volozh and Segalovich gathered a group of developers to improve the search quality. This led to the creation of MatrixNet, a unique machine-learning algorithm that enabled the search engine to consider many more ranking factors. Launched in 2009, it was a great success. In 2013, CERN started using MatrixNet in order to analyze data coming from its Large Hadron Collider.

All this time Ilya Segalovich, Yandex’s co-founder and programmer, was the company’s soul. He managed dozens of projects simultaneously and coached dozens of people, many of whom he personally brought into the company. Extremely honest, polite, and persuasive, Segalovich made sure Yandex was everyone’s home. He himself had no office and worked in an open area. And he prided himself that people weren’t quitting Yandex, even though that wasn’t true.

Post-graduate school

By 2005, it became clear that the country’s top universities couldn’t prepare its students for a programmer’s job at Yandex. In 2007, a friend called Elena Bunina, a mathematician teaching at the country’s most prestigious mathematics department at the Moscow State University, and told her that Volozh wanted to open a post-graduate school at Yandex. That evening, Bunina was drinking tea at Volozh’s kitchen. They talked about her students and their abilities in programming.

elena bunina yandexElena Bunina. Photo Yandex.

Soon, Bunina was invited to a meeting at Yandex. In a conversation over Skype she remembers: ‘Arkady said: We have space, money, and teachers, but we don’t have a principal. I told him I could try, but I won’t abandon my teaching.’ In a few weeks Russia’s first School of Data Analysis (SDA) was founded, and Bunina became its principal.

Ten years later, one-third of all SDA graduates are working for Yandex. Bunina’s appointment was typical for the company: an open-minded, brave, and unexpected move. It worked perfectly, and in 2010, Volozh, in a similar manner, asked her to take the lead of the human resources department. Meanwhile, Yandex kept growing, and in 2011 it had its stock market launch at Nasdaq. On the opening day, it raised $1.3 billion in the biggest initial public offering since Google in 2004.

Putin's pledge

Remarkably, despite its rapid growth, Runet was for a long time of little interest to Vladimir Putin. Anton Nossik, a key person in the development of the Russian Web, explained this with the pledge that Putin gave to him and other key figures of the Russian Internet, including Volozh, on December 28th, 1999. It was three days before he became an acting president. Back then Putin promised to protect the online freedom of Runet’s visitors. Surprisingly, he kept his word, and throughout 2000s all attempts to regulate the internet found no support inside the Kremlin.

One such attempt happened in 2008, when Vladislav Surkov, at the time known as Russia’s ‘grey cardinal’ and Kremlin-ideologue, visited Yandex.Novosti. It was just after Russia has invaded Georgia and fought a war there, and Surkov was interested in the algorithm used by the aggregation platform. Lev Gershenzon, then the head of Yandex.Novosti, explained to Surkov how the robot was choosing news, later uniting them into ‘stories’ with titles and presenting the top five on Yandex’s main page.

When Gershenzon was going through the screenshots related to the recent war and explaining that a few links to the Georgian media were essential, Surkov abruptly responded: ‘This we don’t need, there are our enemies.’ Surkov’s colleague, Konstantin Kostin, asked Gershenzon to give him ‘access to the interface’ of the website. Eventually, Gershenzon managed to laugh the situation off, as he recounted in an interview to Svetlana Reiter.

Watershed 2012

Things changed in 2012, when the Russian regime faced unprecedented protests against rigged parliamentary and presidential elections. Putin saw the protestors as the ultimate Others, orchestrated by the US and Hillary Clinton in person. Demonstrators, a large majority of whom had never been to a political rally before December 10th, 2011, used social networks to plan their actions. If they were manipulated by the US, then the internet was too.

By that time, more than half of Russia’s adult population was using the internet: ‘The authorities understood that the internet is now strong enough to compete with the TV networks and their propaganda,’ says Artem Kozlyuk in a telephone conversation. Kozlyuk is the head of Roskomsvoboda, an organisation that monitors freedom of expression on Russia’s internet and stands up against the ongoing crackdown.

The logical step for the authorities was to include the internet in its propaganda coverage. On April 24th, 2014, Putin claimed that foreign intelligence exercises control over Yandex, and that the internet as a whole is a CIA project. Immediately, Yandex shares went down by 5%.

Since 2012, the Russian Parliament has passed a whole chain of repressive internet laws. Censorship was introduced, internet providers were obliged to store data about clients’ actions, and VPN anonimizers were banned, to name a few limitations. In 2012, Russia’s prosecution office opened 260 cases related to vaguely worded penal code articles 280-282 that deal with ‘extremism’. In 2015, already 544 persons were convicted for extremism, a large part of which related to reposts of 'extremist'articles in social networks.

Surveillance

IT, Russia’s only competitive industry, was being attacked with an increasing force. The Yarovaya Law, the most recent instance, which will come into effect in 2018 and which Kozlyuk calls the the ‘law of total surveillance’,  demands of telecom operators to store not only records about their clients’ traffic, but also the content, including messages and calls. This will force the industry to spend time and money on maintaining enormous archives. ‘The next step,’ Kozlyuk believes, ‘will be a law that punishes users for trying to get access to certain information.’

artem kozlyukArtem Kozluyk: 'Yarovaya law is law of total surveillance'. Photo Dmitry Rozhkov

Not surprisingly, Yandex was hit by this repressive wave, too. Most notably, the law on news aggregators has seriously damaged Yandex.Novosti. According to this law, from January 2017, all Russia’s news aggregators are obliged to check the accuracy of the information from media that do not have a license issued by state controlling body of Roskomnadzor. These include Meduza, Russia’s biggest independent publication, registered in Latvia, news websites like Newsru.com or even sports portals such as Sports.ru. For Yandex.Novosti, whose algorithm excludes any human intervention, the only option was to limit the number of media it works with to those registered at Roskomnadzor. As a consequence, dozens of millions of its visitors now see the news that the government wants them to see, since the variety of opinions within ‘stories’ has decreased dramatically.

In July 2016, when it was obvious that the law would be passed, Tatyana Isaeva, the head of Yandex.Novosti, publicly announced she would leave the company. ‘From 2008 onwards Yandex was explaining that it's useless to try to manipulate our aggregation platform. Eventually, the authorities understood this and started a crackdown on media’, she says in a telephone interview.  Isaeva’s successor  left Yandex.Novosti a few months later. ‘There’s a generation change in Yandex, and some important part—its conscience, its soul—has changed, too,’ says Tatyana.

Fighting Google

While Russian authorities were encircling the Runet, Yandex faced its first truly serious challenges. In July 2013, Ilya Segalovich died. For Volozh and the rest of Yandex it was clear that no one could substitute Ilya. A year later, in 2014, Mikhail Parakhin was appointed as chief technology officer, the position formerly held by Segalovich. Upon arrival, Parakhin, who previously worked for Microsoft in Seattle, immediately introduced a semi-annual review to determine whether one would receive a bonus or be fired. And many lost their jobs. For the old Yandex cohort, this was shocking, and Parakhin received as a nickname The Emperor. Pro- and anti-Parakhin clans appeared in the company.

Yandex in 2017  

Number of employees

6.900

Registration

Schiphol Boulevard 165, Schiphol, The Netherlands

Market Value

$ 11.1 bln

Main Shareholders

WCM Investment 5.63%; Morgan Stanley 5.06%; Wellington Management Company 3.81%

In 2012 Yandex released its mobile navigator and  a mobile browser a year later. However, soon it became evident that Google had ensured that no other search engine could be pre-installed on Android smartphones that are sold in Russia. As Gregoriy Bakunov, Yandex’s technology distribution director, explained, smartphone developers could either stick to Google services or choose a competitor’s solution, but then they would lose the right to use Google services around the world.

It turned out, Yandex was virtually cut off from the country’s largest-growing platform, which in 2017 is used by 47.7% visitors of the Runet (iOS has 17.7%). The company’s share of Russian search market began to fall. In 2015, Yandex took the case to FAS, Russia’s state anti-monopoly regulator. In November, Yandex’s capitalisation at Nasdaq reached a historic low. In April 2016, for the first time ever, Google became Russia’s most visited website on a monthly basis.

In April 2017, Google announced a settlement agreement with FAS. Google allowed vendors to install any applications on Android smartphones in Russia for the next 6 years and 9 months. It also began offering Android users a choice between Google, Yandex, and Mail.ru, Russia’s smaller search engine. Since May, Yandex’s share of search across all devices grew, except for iOS.

Yandex Search Share

January ’17

May ’17

November ’17

All Search

52,8%

53,5%

56,6%

Mobile

40,6%

39,3%

44,6%

Android

38%

37,4%

45,5%

iOS

41,5%

39,7%

39,6%

The decision to develop experimental products, taken in 2011, was successful, too:: in July 2017, Yandex.Taxi merged with Uber, establishing joint operations in Russia and some neighbouring countries. In summer, Yandex also announced plans to create an e-commerce platform based on Yandex.Market together with Sberbank, Russia’s state company, that will invest 0.5 billion USD in the venture and will hold, on par with Yandex, 50%.

In fall, Yandex upgraded its search engine and launched Alice, Russia’s first conversational intelligent assistant. This year Yandex’s total revenues grew by 23%, while the price of its shares has nearly doubled. As of this writing, the company is worth $11.1 billion, gaining more than $7 billion as compared to January 2016.

Putin's visit

One could assume that it was Yandex’s remarkable comeback that made Vladimir Putin consider visiting the company on its 20th anniversary in September 2017. However, keeping in mind how guilelessly he brought its shares down in 2014, that seems unlikely. Some argued that the visit would help change his image and would kick off the presidential campaign of 2018.

putin visits yandexPutin visits Yandex headquearters at its 20th anniversary in September 2017. Photo Kremlin.ru

Two months later, Putin still hadn’t formally announced his participation in the upcoming elections. That leaves another explanation, which at the long run seems the most reasonable: it was simply the visit of a conqueror who won the war. Just like 20 years earlier, Yandex still stands as a symbol of the Runet, and with his visit, Putin shows that it’s no longer a contested area.

In fact, Yandex, despite legally being a Dutch company that is traded in the US, first felt itself a hostage after the annexation of Crimea, when it had to cancel many agreements with Western companies. 'For Arkady, the company’s growth outside Russia was important, but then we had to roll back,' remembers Bunina.In the near and long future, the situation will hardly change. In Ukraine, where Russia is fighting an ongoing war, Yandex was shut down as a part of sanctions imposed by president Petro Poroshenko. In Turkey, with whom Russia was engaged in a seven-month economic war after Turkey shot down a Russian jet in November 2015, Yandex still hasn’t found a larger partner to promote its local search engine.

But even if Russia, amid EU and US sanctions, will manage to stabilise its relations with some other countries, where Yandex—itself not a subject to any sanctions—could potentially develop its experimental businesses like Taxi or Navigator, there is no reason to believe that such a stability would be somewhat long-lasting.

Generational change

But apart from this obvious dependence of Russia, there’s more. The generational change that Isaeva spoke about brought not just new people, but also young people who spent their entire conscious lives in an increasingly oppressive state and who never worked in a truly free IT industry.

Speaking about the company's attitude to the wave of governmental attacks on the internet, a senior analyst who joined Yandex five years ago and wants to speak on the condition of anonymity, says: ‘We’ve been cooperating with the state for our whole life, and we’ve been always fulfilling the legitimate demands of the authorities. For us it pretty much all the same, whichever law is there.’ At the same time, however, he believes that Yandex ‘seeks to discuss with the authorities laws that infringe human rights’. He also points out that he participates in protest rallies and donates to Russia’s opposition.

While this personal doublethink is a reflection of Russia’s reality, a similar reasoning seems to guide the whole company. At first, Yandex tried to resist the adoption of the internet laws. But when that proved ineffective, its strategy changed. As Artem Kozlyuk notices, ‘recently, the company’s representatives, though often present at various meetings with the authorities, never appeared to stand up for the industry, to try to take the laws to the Constitutional Court.’ Instead, he says, ‘their position was: okay, you’re trying to regulate us, fine; but make sure to regulate Google, too.’