Today, only one player can pretend to match, or hope to surpass, Yandex on the Russian Internet market: Mail.ru Group, a behemoth that was introduced last year on the London Stock Exchange.
Both groups are comparable in their range of revenues (Yandex: $439.7 million in 2010; Mail.ru Group: $324 million) and in their good financial shape (net income: $134.3 million for Yandex; $76.7 million for Mail.ru Group)
But Yandex and Mail.ru Group strongly differ in at least three key aspects.
- While Mail.ru Group represents a vast group of mostly stand-alone sites and services, Yandex has a one-entry strategy based on its portal Yandex.ru.
- The two companies have their strongest positions in different market segments. Yandex is king of search, with a market share estimated at up to 64%, compared to a mere 8% for Mail.ru, but Mail.ru Group seems unbeatable in the social Web: of the three largest Russian-language social networks, the group operates two — MoiMir and Odnoklassniki.ru — and owns a strategic minority equity stake in the third and leading one, Vkontakte.ru.
- The business models strongly differ, too. While Yandex relies almost exclusively on its advertising business, which generates more than 97% of its revenues, Mail.ru Group has a more diversified model that generates revenues from online games as well as Internet value-added services. Advertising accounts for only 38% of its overall revenues.
Another difference is that Mail.ru Group is more connected with international players than Yandex, at least indirectly, through the DST fund which owns minority, but significant, shares in such international sites as Facebook, Zynga, Groupon, Spotify, and 360buy.com. In September 2011, Mail.ru Group became DST’s operational wing, focusing on the Russian market. It still kept a fraction of DST’s stakes in international sites, including a 2.4% stake in Facebook.
By contrast, Yandex’s interests abroad have been modest to date. In its IPO prospectus, the company recognizes it has “limited experience with operations outside Russia.” In the first quarter of 2011, only 3% of its revenues came from advertisers outside Russia.
Which of the two giants has the best long term perspectives? “Those for Yandex are better, in my opinion, than those for Mail.ru Group,” comments prominent Internet industry figure and EWDN co-founder Andrey Zotov. “First, it has a strong technological platform, which makes it less dependent on short-term business or even PR considerations. Second, its corporate governance is at a higher level of quality. Third, there is no conflict of interest in the Yandex “constellation,” in contrast with Mail.ru Group, which is an artificial agglomeration of different and sometimes competing projects that have been gathered together through to the sheer will of its shareholders.”
“The assets of Mail.ru Group are much more diversified than those of Yandex,” objected Maxim Shatilov, a former investment analyst at a Russian VC firm, in an interview with East-West Digital News. “In addition, Mail.ru [the webmail service and portal] and many other companies of the group have no serious competitors. Moreover, the group could acquire small or middle-sized players so as to increase its value and absorb strong teams — which is actually happening with content or media sites as well as online gaming companies.”
“On its side, Yandex has just one adversary, but a very big and serious one [Google], ready for a long siege for the Russian market and to overpass, with its resources, Russia’s search leader. I would personally rather bet on the stocks of Mail.ru Group than on those of Yandex, in the long term,” Shatilov says.
