A Search Engine That Keeps on Rising

Ishfaque is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Yandex (NASDAQ: YNDX) has been substantially ahead of competitors, Google and Mail.ru in the Russian market. The company has long dominated the search engine space with a market share of roughly 62%, which is more than twice Google's market share of 26% as of February 2013, according to liveinternet.ru. 

In an earlier post on Yandex, I highlighted that the Russian search giant is rapidly racing towards becoming the fourth largest search property in the world. Fast forward two months and Yandex has unseated Microsoft (NASDAQ: MSFT) to become the fourth largest search engine in the world. 

Moving Up the Search Rankings

For the first time Yandex has overtaken the software powerhouse, Microsoft in terms of the number of search queries worldwide for two consecutive months, according to a comScore qSearch report. In December 2012, Microsoft was responsible for 4.48 Billion search queries and Yandex had 4.84 Billion search queries. As a result, Yandex holds a global market share of 2.8% and Microsoft holds 2.5%.

Surprisingly, Yandex managed to receive more search queries despite having only 74.4 million unique users which is significantly lower than Microsoft's unique users of 268.6 million, as of December 2012. The table below illustrates the global market share of search engines on a monthly basis, and clearly shows Yandex's increased prominence. 

Global Market Share of  Search Engines

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p>Aug-12</p> </td> <td> <p>Sep-12</p> </td> <td> <p>Oct-12</p> </td> <td> <p>Nov-12</p> </td> <td> <p>Dec-12</p> </td> </tr> <tr> <td> <p><strong>Google</strong></p> </td> <td> <p>65.2%</p> </td> <td> <p>65.5%</p> </td> <td> <p>65.7%</p> </td> <td> <p>65.2%</p> </td> <td> <p>65.2%</p> </td> </tr> <tr> <td> <p><strong>Baidu </strong></p> </td> <td> <p>9.6%</p> </td> <td> <p>8.4%</p> </td> <td> <p>8.0%</p> </td> <td> <p>8.3%</p> </td> <td> <p>8.2%</p> </td> </tr> <tr> <td> <p><strong>Yahoo </strong></p> </td> <td> <p>6.1%</p> </td> <td> <p>5.3%</p> </td> <td> <p>5.1%</p> </td> <td> <p>4.9%</p> </td> <td> <p>4.9%</p> </td> </tr> <tr> <td> <p><strong>Microsoft </strong></p> </td> <td> <p>2.6%</p> </td> <td> <p>2.6%</p> </td> <td> <p>2.6%</p> </td> <td> <p>2.6%</p> </td> <td> <p>2.5%</p> </td> </tr> <tr> <td> <p><strong>Yandex </strong></p> </td> <td> <p>2.2%</p> </td> <td> <p>2.3%</p> </td> <td> <p>2.6%</p> </td> <td> <p>2.6%</p> </td> <td> <p>2.8%</p> </td> </tr> <tr> <td colspan="3"> <p><em>Source: comScore, Estimates</em></p> </td> <td> <p> </p> </td> <td> <p> </p> </td> <td> <p> </p> </td> </tr> </tbody> </table>

Not surprisingly, Google leads the pack by a huge distance and maintains it strong position at the top. Whereas, Chinese search titan, Baidu (NASDAQ: BIDU) is steadily losing its grip to the Chinese rising star, Qihoo 360. Just like Yandex, Baidu has been long dominant in its own regional market, but in the wake up of competitive threats has lost some market share.

Both Yandex and Baidu have been able to stave off competition from Google by a better understanding of the local language and user preferences in their respective home territories. Also, Yahoo keeps on losing market share in the global marketplace in spite of a search agreement partnership with Microsoft.

Will Yandex Get Stronger in Europe?

Yandex is gaining ground in Russia by overcoming local competitors. In addition to the local market, it has a stong position in nearby countries which includes Belarus, Kazakhstan and Ukraine. Yandex has made inroads into Turkey to tap into the growing Internet population of the European country.

However, Yandex's market share of Turkey is very small and is slight above 1%. Going forward the market share can be expected to increase as Turkey has a population of 76 million and an Internet penetration rate of 46%. In the coming years, Yandex will likely make its way into other European countries once it has more experience operating in nearby countries.

Strong Footing 

In addition to being the "Google of Russia", Yandex is making strong progress in other business segments as well. The company operates the Russia's leading Shopping Comparison site, Yandex.market which has more than 13 million monthly visitors and is frequented by almost 40% of Russian online shoppers. Yandex also has a leading browser, which is integrated with other Yandex services making its 50+ million unique visitors more 'sticky'.

Yandex also recently struck a joint-venture deal with Russia's biggest state bank, Sberbank for its online payments platform Yandex.Money. Yandex will have 25% ownership and Sberbank will hold the majority with 75%. However, getting into such a partnership with a leading regional bank will assist Yandex in ramping up its e-money, and improve the payments ecosystem. The secular trend towards online and digital wallets will provide additional tailwind for growing the online payments business. 

The Bottom Line

Yandex is the most valuable Internet property in Russia and its market dominance has been rock solid for many years now. The company is making its way into Turkey and will almost certainly tap into other European countries for incremental search volumes and advertising revenues.

The company has also built up a strong position in eCommerce and has a built up strong joint venture in the payments business as well. The company's adverting revenues are stellar, thanks to strong advertising relationships. Almost certainly, Yandex will be a strong force to reckon with in the coming years.

ishfaque has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, and Yandex. The Motley Fool owns shares of Baidu, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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