EUGENE LOMIZE: Pay-per-click search advertising is our key product, responsible for more than 80% of Yandex's revenue. However, for the remaining 20% of our revenue, we have several products, which are display products and our special products for ecommerce. For display advertising, so far it's mainly traditional advertising, with fixed prices and brand advertising. Yandex is very strong for branding sales, so we didn't really see the need for any ad exchange product.
Now, at the moment, we have a set of products optimizing coverage. We have an ad network and we decided that we are going to grow performance-optimizing ad exchange products too. We have DSP doing all of the coverage optimizing.
We started selling programmatic products in the network and on our own resources. At the moment, about 16% of impressions are from these new products. They are much cheaper. We are definitely losing money here but this is our investment into new products. This 16% of impressions is much higher than average in Russia. We are switching clients to new products.
Looking at Russia overall, how is the space growing?
The general situation with programmatic products in Russia is that they have shown tremendous growth from the previous year, between three and five times growth, I think. But the result is equal to a week and a half of revenue of our contextual advertising at Yandex.Direct, which means it's really, really tiny. But, it will keep growing.
It will keep growing because of propaganda, because it's cheaper than branding sales, and because it's more efficient. Several things are preventing this growth: the structure of the sales and display industry, all these chains of agencies and the system of relations between them and the their traditional way of working. Actually, I would say they are very reluctant to give way to a new product.
But they will have to if we have a stronger recession in Russia. The market will be forced to switch to more efficient products, like what happened in 2008, when big clients all of a sudden started to use contextual advertising. It was because of the recession. The same thing may happen now with programmatic buying.
In February of this year, Yandex announced a partnership with Google. What is currently happening with that partnership and what is the thinking behind it?
We are still in the integration process for our systems. It's a major problem of all ad exchange markets, because integrations are painful on both sides. It's a normal process, just takes time.
The reason why we decided to do this was that just being smart, efficient and doing targeting is not everything. We have to be big in other selling points. We want to offer something giant. To do that, we merged with Google, because Google has a big display advertising network in Russia already. To some extent it's obviously risky. Everybody is saying, "Well, you are competitors. Why are you merging?"
We are merging only for display programmatic advertising. These are new products. It will keep growing very fast, and for some period of time – I don't know for how long – we do not need to care about competition. As money goes into this product, it will go to all players who are offering good products, good targeting and everything. We shall have good growth. There will be a moment later when we shall have to start thinking in terms of competition.
Do you work with other international ad tech players?
We are in contact with all the big players internationally. We have relationships with Criteo, Sociomatic and many others. Coming into Russia, they have problems of integration. We have very strict laws for advertising in Russia, with very severe responsibilities for companies, so because of that, we have to impose strict moderation rules.
We developed a procedure that protects us (as a company) and gives us reasonable control over what was shown and by whom. For these international companies, it takes some time to integrate with the system. It was a really painful process and for the whole previous year, we were discussing this system and trying to implement it in an acceptable way for these companies.
What about mobile? Programmatic display is still small in Russia; is mobile starting to take off?
To tell you the truth, the money hasn't come to mobile in Russia yet. The mobile market in Russia looks a little bit disappointing at the moment, because there is a lot of buzz about it. People are rushing there, doing some products and then seeing no results.
That doesn't mean that it will not develop, but it's just at the point that the United States probably was several years ago. But in Russia, we are a little bit behind. It will happen next year or the year after. It will happen for sure.
What goals do you have for advertising technology at Yandex for the rest of the year, and what do you hope to see in terms of growth?
We are very much concentrated on making our advertising user-centric, which means that we should know all the devices of a specific user. It will improve the performance of our contextual advertising because we can get extra targeting signals from a variety of devices. It will make branding display campaigns more efficient, because we will have thorough coverage of users, thorough reach and frequency. It's very important. This is the way of the future actually.
Mobile advertising is a relatively small story. The big story is user-centric advertising, which includes mobile as a part of it. After that, our next focus is that we are thinking of developing not just an ad exchange network, but we want to have video formats in there and video advertising.