Spotlight on Russia: Major Local Players Lead RTB Market

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russia-rtbThe online ecosystem is different in Russia.

Yandex is the search leader over Google; VK.com (originally VKontakte) and Odnoklassniki.ru are more popular social networks than Facebook. But when it comes to programmatic buying, the country looks similar to the US RTB circa 2011, thanks in part to the participation of Russia's major internet players.

The Russian online advertising market can seem self-contained (i.e. hard for Westerners to break into), because of language and the dominance of major local companies. But Internet penetration is high — 73.8 million Internet users, or 53.7% of the population in 2013, according to eMarketer — especially in major cities. In a spring 2013 report, Yandex found that cities including Moscow and St. Petersburg had internet penetration of 70% and 71% in 2012. Along with rising incomes and a growing middle socioeconomic class, this means advertisers are keen to get involved.

"More and more Russians are gaining access to the Runet (Russian Internet), and that in turn is accelerating market growth," said Konstantin Kruglov, deputy CEO of Tinkoff Digital, in an email to AdExchanger. "The emergence of search-related display opportunities is another key factor; we saw search grow by 37% in 2012 and by 46% in 2011."

Yandex Internet Penetration

Boris Omelnitskiy, president of IAB Russia, added that the language connection that local companies have with consumers is a huge competitive advantage. November 2012 data from online research company Gemius found that both Yandex and Mail.ru had 50.9 million unique visitors for the month, followed by vk.com with 42.2 million. Google had 39.3 million, or 65.8% reach.

Gemius Russian Websites

In 2012, online advertising was the #2 market behind television, bringing in 56.3 billion rubles (approximately $1.76 billion with the exchange rate* on 6/4/2013), compared to television's 143.2 billion rubles (~$4.49 billion), according to AKAR (the Association of Communications Agencies of Russia).

AKAR Advertising

"Last year, digital was the second industry, according to the volume, behind television," said Anna Kolesnikova, CEO of digital agency MediaSet. "We are bigger now than radio, print, outdoor and others. Digital is the most rapidly growing market, with 30% growth last year."

Within online advertising in Russia, programmatic and real-time bidding basically debuted only last year, as Yandex entered the marketplace in March 2012. Scott Neville, CMO of IPONWEB, which operates real-time technology, highlighted Yandex as "the pioneer in opening up its inventory to RTB" and added that Mail.ru is another popular site that is still determining its programmatic strategy.

"Programmatic and RTB has really taken off in the last 18 months, and everyone is talking about it. There are many innovative local players building both demand- and supply-side solutions across not only display but also the mobile and video spaces," he said. "By comparison, Russian RTB is probably already ahead of the Germany market in terms of adoption, though still well behind the UK, US or the Netherlands."

MediaSet's Kolesnikova noted that the major players in the "very young" RTB market are Yandex, Between Digital, AdFox and AdRiver. Neville added Tinkoff Digital and Kavanga to that list as well.

In early 2013, AdFox released a report looking at the RTB ecosystem in Russia in 2012, which said that many Western and local companies got into RTB last year, including Google, Facebook, Crimtan, Criteo, Data Mind, Yandex AdFox and AdRiver.

Russian RTB Market"But 2013 will see the real kick-off for RTB in Russia, when market players will not only test the new technology but also involve the largest advertisers into its usage," the report added. It mentioned that, according to data from eMarketer, online advertising in Russia will account for $4 billion in revenue by 2015, and that RTB will make up 18% of that, or $720 million.

Tinkoff Digital's CEO Kruglov agreed that the RTB market is "still virgin territory for Russia." He also mentioned the eMarketer data but added, "most Russian online ads were prepared and sold by hand prior to our entry in the market. That said, we’ve already seen a tremendous response from clients and we’re currently delivering up to 1 billion impressions per day."

Tinkoff Digital, one of entrepreneur Oleg Tinkoff's ventures, is an ad tech company that works with NSQL database Aerospike to offer RTB in Russia. In March 2013, it introduced MADNET, a mobile RTB platform.

One reason why RTB hasn't yet taken off in Russia is that advertisers prefer to have more control over where their ads appear, according to Nikolai Danilov, head of technology sales for Yandex, who also oversees the company's entry into the RTB market.

"The role of advertising networks in display is not as large as it is in the US or in Europe, and advertisers and agencies actually try to have more control on the web properties they choose for the ad campaign," he said.

But moving into programmatic buying was a strategic move for Yandex, Danilov added: "When we started this project, our clients had no idea about RTB. We were seeing what was happening in the States and then Europe, and we did see the future that this technology has. We’d rather say that we’ve been leading this market, so currently we are offering to our clients all the possibilities that we have using RTB technologies."

However, he added that most of Yandex's revenue comes from search and, for Q1 2013, the company reported that only 8% of total revenues came from display advertising.

Meanwhile, social network VK plans to introduce its retargeting platform in December 2013. Mail.ru, which owns the Odnoklassniki.ru social network, offers some retargeting features but doesn't have a specific exchange.

In its 2012 annual report Mail.ru said, "In 2012, we continued to develop our self-service advertising platform, Target.Mail.Ru. We introduced new ad formats, new targeting parameters (users interests and behavior), API for third-party developers and a retargeting solution, which allows clients to serve ads to people who already visited their websites. At the end of 2012 Target.Mail.Ru had 1,850 active clients."

Kolesnikova noted that many performance advertisers are interested in RTB, especially those in banking, automotive sales, insurance and ecommerce.

"But that is still an experimental thing," she said. "Because the market is very young, we have to start a number of experiments to be sure what is really working and what is not. The other thing is that we do not have a lot of data suppliers, those with data management platforms. It significantly narrows the possibilities of how RTB can be used in Russia."

WPP's Wunderman agency acquired a majority stake in Russian-based digital agency Actis in 2008. MD Anya Sverdlov, the MD of Actis Wunderman, said the company works with media buying agencies but has seen interest rise in RTB.

"Programmatic and RTB is just coming in, having been brought in by a major network, but also some smaller Russian agencies that have access to some of those technologies," she said. "It hasn't developed yet. Most people are saying that within the next six months or so we will really see that blossom in Russia."

Overall, the Russian population is tech-savvy, according to several people with whom AdExchanger spoke, and many companies have engineering teams in the country. This may help the introduction of RTB into Russia, as many people in the industry already understand the technical side of the issue. IPONWEB has an engineering center in Moscow, and Neville said the Russian population is a sophisticated technology market.

"We have seen that local players are able to quickly innovate and bring forward their own technology solutions, which might otherwise be the easy entry point for global players," he said.

However, while the US first got comfortable with display RTB, and then expanded that technology into video, mobile, and social RTB, in Russia, the technology to support all these ads are available simultaneously. However, without proven results, the available inventory has yet to catch up.

"As for the video, we don’t have a lot of inventory to be placed in RTB," said Media Set's Kolesnikova. "We have to first learn to deal with ordinary banners." Ads on social networks VK.com and Odnokalssniki.ru are display ad formats for now, which should aid in the transition to social RTB.

"As of right now, mobile traffic is not highly monetized in Russia, certainly not to the extent that it has been within the US and European markets," said Tinkoff's Kruglov. "We think that this growth will happen in Russia in 2014-2015."

IAB's Omelnitskiy had a more honest response via email when asked about mobile and video RTB: "Mobile and online video is far from RTB in Russia, just blah-blah at conferences."

The landscape may also become more complex as ad tech companies decide to open offices in Russia or work to offer programmatic buying from another country, usually in Europe. For example, Kolesnikova said MediaSet works through MediaMath in London.

As Facebook Exchange continues its international expansion, and with Google going head-to-head with Yandex, the landscape may shift to include more US-based companies.

"There are lots of players coming forward very quickly, but the ecosystem hasn’t really stabilized," said IPONWEB's Neville. "If you think about the US and go back to 2010, the LUMAScapes were crazy and no one knew who was the market leader yet. Russia is in that stage right now."

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