How the Kremlin Subjugated Yandex
November 1, 2023
  • Yuriy Marin

    Digital Media Producer and Journalist

Journalist Yuriy Marin tells the story of how Russia’s biggest and most successful IT company came to be controlled by state-appointed managers and emerged as a pillar of Vladimir Putin’s regime.
In mid-2023, media reports appeared about the impending division of Yandex’s business into foreign and Russian units. By separating several of the most promising areas from the “toxic,” Russian part – including driverless cars, cloud technologies, online education and data marking – the Russian IT giant, with a reputation as one of the most innovative companies in the world, hoped to preserve its international business and get its top management out of the sanctions crosshairs.
Alexei Kudrin, corporate development advisor at Yandex since December 2022. Source:
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,
“Arkady Volozh said that after the start of the war, he supported talented engineers’ decision to leave Russia. This ‘evacuation’ could not go unnoticed by the Russian political leadership.”
Arkady Volozh (left) and Yuri Milner, cofounder and former chairman of Group (now VK) and founder of DST Global, one of the world’s biggest venture capital firms. 2011. Source:
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.
State interference in the company’s affairs left Yandex less and less freedom, and the impending deal can even be considered a victory for the top management,
Dmitri Medvedev opens the 2008 Russian Internet Forum, Moscow Region. Source: Wiki Commons
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, 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).
In 2006, RBC Soft development director Timur Aitov uttered the phrase about the three buttons of the Runet, explicitly claiming that Yandex, and Rambler could be controlled by foreign intelligence services through Western investment holdings.
Yandex’s Moscow headquarters. Source: Wiki Commons
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 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

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.
This was the first time that Yandex found itself in a position of real dependence on the Kremlin.
Blog search and news aggregation

In parallel with the government pressure on Yandex, public demands also grew. The blogosphere became an important social phenomenon in the mid-2000s, with ordinary citizens engaging in public conversations with each other. The key platform became the personal diary service LiveJournal, developed by American programmer Brad Fitzpatrick – it was there that the star of oppositional politician Alexei Navalny, philanthropist Elizaveta Glinka, blogger Ilya Varlamov and others was born. Radio station and TV programs even appeared featuring rundowns of the latest LiveJournal posts.

Despite its considerable social resonance in Russia, LiveJournal remained primarily a personal diary service, lacking features like nationwide rankings and the ability to search by posts. This is exactly the add-on that Yandex created, providing the ability to search for information only among user posts, as well as to create a snapshot of the day with the most popular discussions and authors.

The ranking of popular posts and bloggers in LiveJournal instantly became a topic of discussion. Getting to the top of the Yandex ranking equaled social capital, and many began to try to get there, including through foul play (boosting comments and views using artificially created accounts). In turn, Yandex launched algorithms to prevent such manipulation, which swiftly brought accusations of censorship. Desperate to find a solution, the company decided to close first the ranking and then the entire specialized search service for the blogosphere, leaving only the filtering function for it on its main search page.

Meanwhile, a similar story played out with the Yandex News service, though the company’s opponent was no longer ordinary internet users, but the almighty state.

The Yandex News service worked as an aggregator, collecting content from many sources and based on that forming the most relevant news stories with links to the sources. What distinguished it was its algorithmized snapshot of the day, compiled solely on the basis of materials from numerous publications. Thus, censorship interference, the management of Yandex News declared, would be impossible. The top five events featured on the Yandex home page became one of the most visited pages on the Russian internet.

The mass protests of 2011-13 marked a turning point in relations between the regime and society in general, and in particular in the history of Yandex News. From that moment on, the authorities began to actively interfere in the Russian online media space, with the dismantling of being the biggest event during this period.

At the end of 2016, a law was passed putting the responsibility for false information published by unlicensed publications on news aggregators.
Essentially, this made Yandex News stop aggregating information from unlicensed media.
Another shot was a 2015 law on the right to be forgotten – an individual or company could now have previously published unwanted information about themselves deleted, without a court decision.

In addition, the Kremlin seems to have put pressure on Yandex not only at the legislative level, but also through unofficial channels. A leak of Yandex News source codes, together with a Meduza investigation, confirmed the existence of censorship restrictions on the service, namely an approved list of media outlets whose materials were allowed to be displayed on the main page.

Immediately after Russia’s full-scale invasion of Ukraine in 2022, Yandex decided to sell the news service and its main page to the VK holding (formerly Group).
Tigran Khudaverdyan was appointed Yandex’s director general in March 2022. Source: Wiki Commons
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.
Share this article
Read More
You consent to processing your personal data and accept our privacy policy