A converted warehouse in a Moscow industrial zone is home to the most popular Internet search engine in Russia. Hundreds of casually dressed employees enjoy intellectual sparring, shooting pool, table tennis, or a massage in the open plan office.
Sound like one of Google's foreign subsidiaries? Think again. It's the headquarters of Yandex, a homegrown search company. Google (GOOG), named a World Economic Forum technology pioneer in 2002, may be the most popular search engine in many countries, but it still lags way behind in Russia. Despite several years of trying, the American search giant can't seem to catch up to its local rival, which on Nov. 29 was named a 2008 tech pioneer.
Yandex handles 55% of local language search queries in Russia. Its closest rival is Rambler, another Russian company, with a 17% share, followed by Google with 15%, according to research site LiveInternet.ru. "Western portals cannot offer Russian users anything that they have not been getting from Yandex for years," says Arkady Volozh, co-founder and chief executive, who has a degree in applied mathematics.
But Yandex isn't just a search engine. It also offers photo-sharing and professional networking features analogous to Flickr (YHOO) and LinkedIn. It organized its own free Wi-Fi network with hotspots all over Russia long before Google got into that game in the U.S. And it has a laundry list of other features, including its own mail service (protected by unique anti-spam technology it developed), news clustering and aggregation, blog search, free Web hosting, shopping, mobile search, and a homegrown electronic payment system. Its social networking service for professionals is called MoiKrug (Russian for "My Circle"), and it's rolling out another one for the masses called ya.ru (Me).
That may make Yandex sound like a bit of a mish-mash, but the company isn't short on technical chops and accomplishments. It was the first to introduce contextual Internet advertising in Russia, running a context-specific banner on Yandex.ru 10 years ago. Now Yandex accounts for 55% to 60% of all ads tied to search topics on the Russian Internet, generating $72 million in revenue for Yandex last year. And the company, which offers both online and mobile search, looks well poised to further tap the fast-growing Russian market, thanks to its laser focus on catering to locals in the local language.
To be sure, no other search provider can challenge Google on a global scale. But the search king has been humbled in some countries, including China and Russia. In such markets, local players are sometimes more nimble. Yandex, for instance, indexes and searches documents in the major Cyrillic languages—Russian, Ukranian, and Belorussian. That's a bigger job than it used to be: From 1997 to 2007, the size of the Russian language portion of the Internet grew from a mere 4 gigabytes to about 28,000 gigabytes. Yandex also indexes information in English, French, and German that might be of interest to a Russian-speaking audience.
The company traces its roots to 1990. Volozh co-founded a firm called Arcardia (now CompTek) that became one of the largest distributors of networking and telecom equipment in Russia. The company developed two information search systems with names that sound quaint to today's Net-savvy users: "The International Classifier of Inventions" and the "Goods and Services Classifier."
In 1993, Volozh and his CompTek partners decided to build on the technology by creating a subsidiary called Yandex (short for "yet another indexer") to focus on Russian-language searching. They enlisted the help of the Russian Academy of Sciences to enhance the system's linguistic abilities: Search in Russian is complex because the language uses numerous word variations to reflect grammatical purpose and meaning. Yandex says that one of its key technological advantages is that it automatically searches all possible forms of a given word in an attempt to make each search more accurate.
Yandex became a standalone company in 2000. Ru-Net Holdings, an affiliate of Baring Vostok Capital Partners, invested $5.3 million, and some CompTek shareholders became shareholders. Now Yandex is attracting 6 million users a day. The company keeps on innovating, releasing new localized services such as real-time information about Moscow's infamous traffic jams. And, to take into account the fact that most Russians don't have credit cards or checkbooks, its payment system allows people to convert cash into digital rubles at local outlets.
Like Google, Yandex is cultivating young talent. In September it opened the Yandex School of Data Analysis, offering free tuition to its two-year program for its class of 80 masters' degree students. The company, which already employs 1,000 people, is going to need the help. "The Internet user base is growing at more than 20% a year here; it has all the chances to be the largest market in Europe," says Volozh.