Thomas White Global Investing
Emerging Leaders

Emerging Leaders

May 2012

Arkady Volozh, principal founder and CEO, Yandex


Arkady Volozh

“Any good business is a hobby.”

— Arkady Volozh


One of Arkady Volozh’s early achievements was developing algorithms for a search on Russian classical literature. Quite appropriate then that this shy billionaire now operates from Yandex Towers on Moscow’s Leo Tolstoy Street — the headquarters of Russia’s answer to Google.

The interiors of the Yandex office, meticulously designed using only wood, cork, and carpets, has been described by wonderstruck architects as being “violently minimal” — words that sit well with the personality of its principal founder and CEO. Volozh is very unlike the world’s image of the splurge-happy Russian rich man. No luxury yachts or extravagant limousines for this 47-year-old, who has been working contentedly on search algorithms for more than 20 years now and who, even today, is happy driving his old Volvo.

Volozh’s tastes may be modest but his ambition has been anything but. After all, Yandex is the world’s fifth largest search engine and Russia’s most popular, with a 60.8% market share. In fact, thanks to Yandex, Russia is one of only four national markets where Google is not leading — South Korea, China and, surprisingly, The Czech Republic are the other three. Two-thirds of Russians do their entire web search through Yandex, whose minimalist white homepage, true to form, has been rated as Russia’s most popular and visited website.

What’s more, Yandex is Russia’s largest internet company in terms of revenues. Last year, the firm’s sales zoomed 60% and net income jumped 51% compared to fiscal year 2010, while its advertisers increased 44% during the period, creating quite a storm in the investment community. But this is not new for the company. When the Yandex IPO was launched on the NASDAQ in May 2011, the firm’s stock price rocketed, making Volozh an overnight billionaire with his 40.5 million shares turning out to be worth $1.57 billion. In fact, until the recent Facebook IPO, the $1.3 billion raised by the Yandex listing used to be considered the second largest sum generated through a tech company public offering after Google’s IPO.

The comparisons with the world’s largest search engine don’t end here. In fact, Volozh’s entrepreneurial acumen seems to have ensured that he knows exactly when to adopt Google’s strategies, when to get inspired by its policies, and when to quietly steer away. So Yandex, just like Google, makes its money from relevant advertisements alongside search results; Yandex employees follow the Google work ethic — they walk around the office in T-shirts, enjoy flexi-timings, and occasionally play pool at work — but Yandex’s strength, in sharp contrast to Google’s weakness in a handful of markets such as Russia, lies in its firm grip on ‘local content,’ its instinctive understanding of the complex Cyrillic alphabet from which Russian is derived (as opposed to Google’s laborious attempts to crack it), and what Newsweek terms as the enabling of ‘expert navigation of the Russian net.’

To stay ahead of a technology behemoth like Google, Yandex has relied on another strategy — the steady expansion of its services portfolio. Besides Yandex Search, some of the company’s most popular offerings today are Yandex Money, an online payment system similar to PayPal, and Yandex Traffic, which provides users road-traffic-related information. In 2007, the internet firm acquired Moikrug.ru, a social-networking site for businesspeople, to take advantage of the growing popularity of such portals. And more recently in November 2011, Yandex snapped up mobile app developer SPB Software to make its services more accessible for users of cell phones with Android and Symbian operating systems. Clearly, these moves have played a role in keeping Google at bay. Little wonder then Volozh is often referred to as the ‘giant killer.’

We’ve been in the business longer than other search engines and have created many original products.

— Arkady Volozh

The moniker is ironic given that this low-profile entrepreneur, who gained his friends’ admiration for his quick mind and quicker wit, began his journey armed with only his passion and determination and nothing much else. Volozh’s geologist parents were working in Kazakhstan when he was born. Interestingly, he met the co-founder of Yandex and CTO, Ilya Segalovich, during his school years in Kazakh. Though they initially chose separate careers, with Volozh training to become a mathematician and Ilya hoping to one day be an independent software developer, the two were destined to work together.

Volozh studied applied mathematics at Gubkin Russian State University of Oil and Gas and graduated in 1986. Soon after, he began working at a state pipeline research institute but his restless heart was searching for a more fulfilling occupation. His big break came when the Soviet bloc began disintegrating and small private businesses were legalized in Russia. Volozh seized the opportunity to export pumpkin seeds and import personal computers from Austria. At last, he was quite convinced that his search for the ultimate career had ended, but little did Volozh know that yet another search had begun.

As his familiarity with computers grew through his import business, Volozh began dabbling in algorithms to conduct electronic searches on the Russian Bible and classical literature. Eventually, in 1990, he set up the Arkadia Company to develop search software, and it was at this time that Volozh remembered his old schoolmate Ilya. The duo got together and soon developed an application to enable searching for ‘non-structured information with Russian morphology.’ Luckily, they were rebuffed when they tried to sell the application as a potential search engine, which prompted them to start their own enterprise. It was Ilya who came up with the name ‘Yandex,’ a catchy way to say ‘Yet another Index.’

The name stuck and in 1997, yandex.ru was born. By 2000, the portal became a company and Volozh, who in the intervening years had also co-founded several other IT companies including InfiNet Wireless, a wireless networking technology provider, and CompTek International, one of Russia’s largest distributors of network and telecom equipment, quit his post as CEO of CompTek to take over the helm at Yandex in preparation for bigger things. There has been no looking back since then, neither for the founders nor for the search engine.

Yandex’s extraordinary success can be attributed to a variety of factors. Volozh himself believes that Yandex has immensely benefited from Russia’s large internet-using audience as well as the country’s strong computer programming culture, which has created an enormous pool of skilled personnel for technology entrepreneurs like him. While this is true, given the dozens of successful internet companies in Russia today, Yandex owes its success to Russia’s growing consumer economy too. Over the past few years, investors have been increasingly interested in businesses that are best placed to benefit from the consumption potential of Russians. Moreover, the appetite for Internet-related companies all over the world is also at an all-time high.

Investor confidence in his company is undoubtedly more cheery news for Volozh, who is today married and has three children. But his search for more ways to strengthen Yandex seems to be far from over. In an interview to Russia Today, Volozh says his firm is now focusing on entering underdeveloped markets. The process is underway. Last September, Yandex set foot in Turkey, launching a Turkish version of its search engine and a host of other services customized for local users.

Indeed, a commonly used maxim in Russian literature is: “A great ship needs deep waters.” And so it seems, Volozh certainly is captain of one.

 

 

 

 

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