Rus­sia’s search giant looks to e-com­merce for growth

Af­ter beat­ing Google, Rus­sia’s Yan­dex tar­gets e-com­merce “Shops now pay for con­crete trans­ac­tions”

Bloomberg Businessweek (Asia) - - NEWS - Ilya Khren­nikov

In a Google-dom­i­nated world, Yan­dex be­came Rus­sia’s largest in­ter­net search en­gine by of­fer­ing a bet­ter way to in­ter­pret the pe­cu­liar­i­ties of Slavic gram­mar. And two years be­fore Uber made it to the coun­try, Yan­dex started a ride-hail­ing ser­vice that’s be­come the mar­ket leader in Moscow. Now the company is tar­get­ing a busi­ness ruled in many places by an­other Amer­i­can be­he­moth, Ama­, with a re­newed bet on e-com­merce as ex­pan­sion in its search busi­ness be­gins to slow. “Consumers like us, and stores want to list on our plat­form,” says Pavel Aleshin, the ex­ec­u­tive over­see­ing the company’s on­line shop­ping ef­fort.

Yan­dex.Mar­ket, a sep­a­rate site from the company’s search page, in­cludes more than 20,000 mer­chants sell­ing every­thing from dog food to roller skates. Its min­i­mal­ist lay­out draws about 22 mil­lion vis­i­tors a month, ac­cord­ing to re­searcher TNS. To at­tract busi­ness, Yan­dex has started ar­rang­ing na­tion­wide de­liv­ery for smaller e-tail­ers and helps them set up vir­tual call cen­ters to deal with cus­tomers. At the same time, it’s chang­ing the way it charges mer­chants. Un­til last year, Yan­dex.Mar­ket made most of its money from small click fees—as lit­tle as 3 rubles (4¢)—when search re­sults di­rected cus­tomers to a site. Now it takes a com­mis­sion of 1 per­cent on or­ders made via the mar­ket­place. That’s far be­low the 6 per­cent to 20 per­cent Ama­zon charges, though Yan­dex says the price is aimed at at­tract­ing more mer­chants and will likely rise.

E-com­merce is grow­ing fast in Rus­sia, de­spite a re­ces­sion. Yan­dex.Mar­ket’s rev­enue jumped 55 per­cent in the first quar­ter, the first pe­riod for which its par­ent re­ported sep­a­rate re­sults for the unit, and the busi­ness ac­counted for 6.3 per­cent of to­tal sales. The company is Rus­sia’s big­gest e-tailer, with about 10 per­cent of the coun­try’s e-com­merce mar­ket, which last year climbed 16 per­cent, to 650 bil­lion rubles ($10 bil­lion), re­searcher Data In­sight es­ti­mates.

A host of oth­ers split the rest. Avito, con­trolled by South African in­ter­net company Naspers, is ex­pand­ing be­yond its fo­cus on con­sumer clas­si­fied ads with more goods from busi­nesses. AliEx­press, the con­sumer arm of China’s Alibaba Group, of­fers mostly im­ported prod­ucts. And lo­cals and Ul­mart run web stores but don’t work much with smaller mer­chants. Ama­zon, which op­er­ates in 13 coun­tries be­yond the U.S., isn’t in Rus­sia and de­clined to com­ment on its plans for the coun­try.

To lure consumers, Yan­dex is adding cat­e­gories such as toys, cos­met­ics, and home im­prove­ment goods, which haven’t been widely sold on­line in Rus­sia. It lets buy­ers or­der di­rectly from phones and tablets, since many Rus­sian web stores aren’t con­fig­ured to work well with the smaller screens on mo­bile de­vices. And it’s step­ping up ad­ver­tis­ing in far-flung re­gions of the coun­try and of­fer­ing a ser­vice that lets consumers com­pare costs— and var­i­ous ship­ping meth­ods— na­tion­wide, mean­ing peo­ple in smaller cities can get the lower prices usu­ally avail­able in Moscow.

While most re­tail­ers can still choose to pay click fees rather than com­mis­sions, Yan­dex is re­quir­ing watch sell­ers to adopt the new fee model if they want to list on the site. That’s “mu­tu­ally ben­e­fi­cial, as shops now pay for con­crete trans­ac­tions in­stead of web clicks that won’t nec­es­sar­ily re­sult in a pur­chase,” Aleshin says. Vy­ach­eslav Zhi­garev, deputy head of Time­cross. ru, which sells Ca­sio watches, isn’t so sure. He says the sys­tem has cre­ated more work for his staffers, who must sep­a­rately track sales made via Yan­dex be­cause the com­pa­nies’ soft­ware wasn’t prop­erly in­te­grated. And it costs more, he says— though he ac­knowl­edges it’s tough to avoid Yan­dex. “We need Yan­dex. Mar­ket to at­tract cus­tomers and can’t do with­out it,” Zhi­garev says. “But their com­mis­sion model has cre­ated some com­pli­ca­tions and in­creased what we pay.”

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