Kudrin’s plan

The idea of splitting the business emerged in spring 2022, though later it took on added importance after Yandex founder Arkady Volozh came under EU sanctions – with not just a split under consideration, but the sale of the Russian business to preserve the assets in the West.

The operation to split the company even required personnel changes in the government: former Minister of Finance Alexei Kudrin resigned as chief of the Accounts Chamber and went over to Yandex as a corporate development adviser. It is believed that Kudrin, known for his liberal views (in 2011, he even spoke at an oppositional rally calling for fair elections), became the architect of a deal that was supposed to shield the company’s key people and help Yandex maintain its relative independence. The buyer was supposed to be a “consortium of billionaires” – 20 people in total – including Vladimir Potanin, Leonid Mikhelson and Alexei Mordashov.

Despite the seemingly universal interest, the impending deal was torpedoed by VTB head Andrei Kostin, who on the sidelines of the St Petersburg International Economic Forum called it impractical, pointing to a presidential decree establishing a special procedure for the sale by foreigners of shares in Russian companies. Kostin stated his view that a suitable solution would be to put the organization under external management, i.e. to nationalize it.

Though foreign investors are present in the company’s capital, the real issue is the voting shares that allow their holder to take part in the management of Yandex. The largest holder (45.1%) is the family trust of Volozh. Meanwhile, the founder resigned from all his positions at the company in December 2022 and even said goodbye to employees. At that time, it seemed like just a formality, done to clear Volozh from sanctions, but now it seems that Volozh was really preparing to leave Yandex and was looking for ways to do it with as little friction as possible, without using his leverage over the company to force the process.

In September 2022, the company abruptly published the source codes of YDB, an important technology that helps to store and process large amounts of data. This database management system can be used for machine learning and to operate large internet services. In the context of Russia’s constantly fraying international ties, such a step looked strange (the global community is unlikely to get involved in the development of a Russian product through open source or even to start using it in their projects). Many experts believed that Yandex’s top managers were actually “exporting” the technology abroad. In addition, in his open letter dated August 2023,

How much did criticism of the war cost Volozh?

Still, the idea of a full-scale nationalization, as proposed by Kostin, raised justified fears that it would disrupt the company’s operations. Even against the backdrop of numerous censorship scandals at Yandex News, the company still enjoyed a reputation as a community of people with liberal views (a point actively used by state populists to attack Yandex). The prospect of nationalization could lead to a “brain drain,” deepening the current shortage of tech specialists in Russia. Thus, Kostin’s idea did not find support.

At the end of the summer, Volozh made headlines by describing himself on his personal website as an “Kazakhstan-born, Israeli tech entrepreneur,” while devoting only one line to Yandex and not mentioning Russia. Shortly after, he sent a letter to the media in which he called the military operations in Ukraine a “barbaric invasion” and confirmed that his history with the company was over. Vladimir Putin commented on this at the Eastern Economic Forum, saying that Volozh’s statements were attributable to his desire to preserve his business, and wished him good health and a good life in Israel.

Putin’s words sounded like a threat and might even mean that Volozh would be deprived of his share in Yandex without any compensation. It is entirely possible that Volozh decided to make the anti-war statement in the first place because he no longer hoped to get anything for his stake.

However, the worst-case scenario seems to have not materialized: in October, reports appeared that a deal was nearing completion, albeit at a serious discount: instead of $250 million, the company’s founder would receive about $70-80 million (in addition to part of the international business). Thus, public criticism of the war could cost Volozh more than $150 million.

As of October 2023, the sale had still not been finalized, although the process had gained momentum. Not long before, several Russian legal entities belonging to Yandex were put under the full control of the Netherlands-based Yandex NV, while a Russian government commission on foreign investment green-lighted the restructuring. The deal is planned to be completed by the end of November: according to the latest reports, each of the new shareholders will receive a 7% stake in the company, while the whole company, having seen a 50% discount, is valued at $5.5 billion.

The reasons for the takeover of Yandex, of course, are not limited to the Kremlin’s desire to punish Volozh for his anti-war statements. Relations between Yandex and the state began to deteriorate much earlier.

which had succeeded in putting off a definitive transfer of the company to businessmen close to Putin for the longest time possible.

The ‘three buttons’ of the Runet

Government interference in the internet industry is now taken for granted, but it was not always the norm. Until the end of the 2000s, the Russian internet remained a free space, as Kremlin officials were preoccupied with taming traditional media (primarily television). The department responsible for regulating the industry was called the Federal Agency for Press and Mass Media. It was under its patronage that the main industry conference, the Russian Internet Forum (RIF), was held.

Yandex, along with other big industry players, had long been co-organizers of the conference, where the main dialogue took place between telecom companies and producers of content and services. The year 2005 marked a turning point, when government representatives began to actively interfere, putting issues of legal regulation of the internet on the agenda.

By the standards of the time, this seemed like gross interference in the affairs of business, and created the first split in the professional community, separating the statists from supporters of a free market. The attempt to dictate the discussion at the RIF was widely perceived as an expropriation of the platform, and the three largest internet companies (Yandex, Mail.ru and Rambler) decided to create their own conference – the Internet and Business Conference (KIB).

Not a single representative of the biggest players came to the next RIF, meaning the voices of the statists sounded much louder (they were especially adamant in their demands to put Wikipedia under control).

Aitov also called on the state to more actively “take over the key positions in the mass segment of the Runet.”

This is exactly what happened. The company SUP Media, created by a banker close to the Russian Presidential Administration, Alexander Mamut, acquired the LiveJournal blog platform, popular in Russia, before merging into a single company with Rambler (which had delisted from the London Stock Exchange in 2009).

In 2008, Yuri Milner’s Digital Sky Technologies fund consolidated a 50.55% stake in Mail.ru while simultaneously selling a third of its equity to businessman Alisher Usmanov (from the point of view of the European Union, a “pro-Kremlin oligarch with particularly close ties to Russian President Vladimir Putin”).
Yandex thus remained the only truly independent player in the industry.

The Google/Begun fight and a golden share for Sberbank

Yandex’s main problem at that time was not government pressure, however. A much greater danger came from Google, which was gaining more and more ground in the Russian market, localizing key services in Russia and even opening two offices in the country (in St Petersburg and Moscow) with an emphasis on development and marketing.

Yandex was losing market share in its key service, though at the end of the 2000s it managed to break this trend thanks to effective marketing positioning, as well as the development of super-local services such as schedules showing when hot water would be turned off in buildings and maps tracking traffic jams.

Google’s response was to go after the online advertising market: the Americans tried to buy the Begun contextual advertising service, which was owned by Rambler and the second biggest player in this market, behind Yandex Direct. The parties had already signed an agreement, which included an interesting detail – the search service on the main page of Rambler was to switch to Google. This would not only catapult Google to the top of the Russian contextual advertising market, but also significantly increase its search audience.

This deal threatened Yandex’s long-term outlook, and the company began a fight to block it (for example, a press release appeared about the demise of its unique search technology). In the end, the deal was rejected by Russia’s antitrust regulator.

Not long after, the state began to seriously worry about preventing “hostile takeovers” of Russian internet companies. Yandex was at that time preparing the biggest IPO in the global tech sector, which would seriously complicate a potential attempt to wrest control of it à la Rambler and Mail.ru.

However, back in 2009, no one wanted to clip the wings of a company that was legitimately capable of competing with Google in the global market. A compromise was soon found: Yandex issued a “golden share” that provided veto power over transactions and gave it to Sberbank, which at that time was also undergoing a rapid transformation from a grimy state bank to a tech-focused financial corporation.

The war

With the outbreak of the war, public and government pressure on the company ratcheted up. After Yandex News, search also fell victim to restrictions, with links to Instagram and Facebook, banned in Russia, as well as the sites of Meduza, Mediazona, Current Time TV and other media removed from search results.

The situation was complicated by internal tensions: ordinary Yandex employees began to move abroad en masse, taking advantage of remote work processes established during the pandemic, while many top managers simply quit. After the shock of the first months of the war, Yandex tried to return to a strategy of maximum neutrality: the borders of states were no longer shown on Yandex Maps, an office for 2,000 people was opened in Serbia for those who did not want to go back to Russia, and managing director Tigran Khudaverdyan promised “not to sacrifice all of us for a moment of glory” and claimed that Yandex services were as necessary for the lives of citizens as electricity and running water.

Many Yandex employees found this position ethically unacceptable. On top of this, there were purely financial issues: despite record profits in the domestic market, the salaries of key employees were tied to options and shares, which were frozen on the stock exchange.

All this led to the accelerated restructuring. Though Arkady Volozh has long been thinking in purely international terms, the attempt to “cash out” the stake in the Russian Yandex for the sake of preserving the international business proved not as successful as Volozh wanted. Indeed, he had already begun to offer international investors which part of Yandex they wanted to stay invested in – the Russian or foreign one.

It is entirely possible that Yandex’s constant attempts to play for time, to put off a final decision on the fate of the company in the context of the Russian political system, led to the point where the organization ceased to control its own destiny. Yandex has long and jealously guarded its positions in the Russian market, which served as its bedrock. However, when it became a de facto monopolist, it began to lose sight of the key components that had driven its success: a vision for the future, creative freedom and the talent of its employees.

It seems that the outgoing leaders of Yandex no longer care much whether Russia will remain capable of creating world-class technologies or whether Russians will continue to be able to use modern taxi and delivery services. Meanwhile, the people who replace them will likely have completely different tasks.