Yandex is already Russia's Google - now it's planning to become Russia's Amazon
- Yandex is a $12 billion Russian internet giant that operates the country's biggest search engine.
- The so-called Google of Russia is now expanding into online shopping.
- There's a problem though: Barely anyone buys anything online in Russia. Even Amazon only has a tiny presence in the country.
- But Yandex is well-placed to dominate if it can solve issues around delivery, logistics, and trust.
Yandex, popularly known as Russia's Google, is working on its own online shopping service that might help it become Russia's Amazon.
Yandex is Russia's biggest tech firm, and best known for creating the country's most popular search engine.
The firm says it has 50 million monthly users - an impressive statistic given there are 87 million internet users in Russia overall, according to the Association of Internet Trade Companies (AITC).
Now it's expanding into new areas, such as ride-hailing service Yandex.Taxi, AI digital assistant Alice, smart speakers - and now, online shopping.
During an interview with Business Insider, Yandex executive Michael Levin said the firm was evolving its price comparison service, Yandex.Market, into a marketplace where people can order items such as electronics, home appliances, and toys, among other goods.
"This is a very new business for Yandex in terms of being a physical business," Levin said. "For many years, we were purely online. Then there was Yandex Taxi, which became a huge part of Yandex, now there's Yandex.Market with warehouses storing products. We have already hired key members of the team responsible for logistics and warehouses."
The new service is a joint venture with Russia's biggest bank, Sberbank, and the site is currently in beta, Levin said. A full launch is expected later this year, and Yandex has run a pilot project in the cities of Nizhny Novgorod, Kazan, and Ufa.
"The game is really on for the creation of a Russian Amazon"
Levin wouldn't share revenue targets for Yandex's new e-commerce arm, but said the firm's year-end goal was to attract "a few hundred thousand daily users." That's not, he added, that big compared to Yandex more generally, but it's bigger than most shopping sites in Russia.
It's certainly an expensive risk. Up until now, Yandex has made the bulk of its money from online ads, which accounted for 92% of Yandex's revenue in 2017.
Operating expenses will only go up as it contends with the logistics of online shopping in the world's biggest country by land area.
According to BCS analyst Mitch Mitchell, Russian takeup of e-commerce is low compared to the UK and the US. The main issues are logistics, and the fact that Russia is primarily a cash economy, he said. It's more common to order something and then pay when the courier turns up.
"If you were happy with [the item], you would pay the courier," explained Mitchell. "Or you wouldn't like it and he would take it and go away. That aspect of returns makes the process quite expensive. You don't have a sale up front."
"There's clearly no dominant player like an Amazon in the UK," he added. "The game is really on for the creation of a Russian Amazon, if you will."
AITC predicted Russians will spend 1250 billion rubles (£15 billion/$20 billion) online in 2018. That compares to eMarketer's forecast for the UK to spend almost six times as much online this year, or £93.82 billion.
Yandex doesn't see Amazon as competition, said Levin. As Russia becomes more accustomed to ordering its shopping online, Yandex wants to compete with established retailers building out their e-commerce services.
"In Russia, we don't compete against Amazon," said Levin. "We compete against retailers who have been retailers their whole lives, or decades. We are not as good retailers as them probably. What we're good at is machine learning and data science."
Russia's closest equivalent to Amazon is Ozone.ru, said Mitchell, but "no way are they the dominant player." Another contender is Alibaba's cross-border service AliExpress, which ships cheap Chinese electronics over the border to Russia.
Yandex wants to go for bigger ticket items, Levin said, and the company believes its brand name will help it dominate the category.
"We are putting our brand behind this to build trust," he said. "Basically everyone who uses the internet [in Russia] probably knows and trusts Yandex. And almost every [Russian] citizen has been a client of Sberbank at some point. These two brands can create the initial trust."
BCS analyst Mitchell agreed, and said Yandex would succeed as long as it executives well.
"It's clear there's a trend among the population to move towards buying shopping online. The population, as populations all around the world are, is becoming more mobile," he said.
"For the Yandex.Market venture to succeed, it will be a matter of whether they have the goods people want to buy, will it be easy, will deliveries be quick, and if there are issues whether people would be able to get their money back.
"No doubt it will be a major player in the Russian market."