The Internet space in Russia is undoubtedly one of the fastest-growing sectors online. The number of Internet users and correspondingly, the resources invested into Internet-based advertising, is growing at a phenomenal pace.
By the end of 2006, there were an estimated 26 million Internet users in Russia, with analysts forecasting an increase to 30 million by the end of 2007. This translates to a growth of 13%-20% year on year – among the fastest in the world.
2006 also saw the number of registered “.ru” domain names cross 700,000, a jump of 61% over the previous year. Traditional businesses are increasingly viewing the Internet as one of the strongest means for development of their brand image and easy communication with their audience.
Russian Online Search Market
Yandex (www.yandex.ru) is the leading search engine in Russia, currently capturing a 48.7% share of the Russian online search market. However, that is a dip of 3.1% since Quarter 1 of 2006, when Yandex had a market share of 51.8%. Along with its highly popular search engine, Yandex offers a web directory, paid advertising/search (local), news, an encyclopedia, shopping search, RSS search, an online transaction system, games, and geographical maps. Its advertising program is called Yandex Direct. With all its services combined, Yandex serves around 60% of all Internet traffic originating in Russia.
The main competitor for Yandex is Google, the worldwide leader in search. Google started off a little slowly in Russia, but by 2006 it had already toppled Rambler to grab the second spot behind Yandex in terms of market share.
During 2006, Google increased its market share by 7.4% and established an office in Moscow as a part of its global expansion strategy. The company intends to become a major player in the Russian Internet advertising market. This new office includes an R&D center that is working towards improving the search quality for those who speak Russian. Google enjoys an edge over other domestic players, partially due to its other offerings that include satellite images, email, etc. Some analysts predict that Google will grab the number-one position in the short run.
Among the other search engines, Rambler lost 2.5% of its audience during 2006 and currently holds only 17.2% of the market share.
Russian Internet Advertising Market
In 2006, the total revenue from Internet advertising revenue in the Russian market amounted to $237 million USD. In comparison to the previous year, this was a whopping 87% growth.
This total includes:
- Media advertising – $87 million (dynamic growth – 42% per annum)
- PPC advertising – $102 million (dynamic growth – 155% per annum)
- Search engine optimization – $50 million (dynamic growth – 60% per annum)
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Search Dominates Online Advertising Market
The online search industry is an area of constant change. The Internet’s widespread reach, combined with its overwhelming growth, has transformed it into a prime source of information. Search engines act as a gateway for users to find such data from millions of websites all over the Internet. The number of hits on search engines runs into the billions each month.
Search dominates the online advertising marketing with a share of over 40%, followed by display ads and classifieds.
Apart from this, other means of Internet advertising, such as social media optimization, viral marketing, and hidden marketing show promising prospects for the future. According to analysts, the online advertising market in Russia should grow to $400 million USD by the end of 2007, and the largest growth will be seen in contextual advertising and search optimization.
This fast growth rate comes with its own set of problems, two of which are:
- A shortage of highly qualified specialists: This will lead to the growth of educational opportunities in the areas of PPC advertising management, search optimization, web analytics, etc.
- An absence of complexity in the provided services. A limited number of companies are currently attempting to provide far too wide a range of services in the area of Internet marketing to be as effective as possible.
We feel that relevant companies will mature and move from direct sales to a consulting model in the short run and, longer term, eventually analytics and consulting for Internet marketing will grow more rapidly.
There is a tendency of growth towards contextual advertising in the Russian market. Lately, its share of the market has increased and outperformed media advertising.
PPA (Pay Per Action) models are being introduced in contextual advertising, and viral and video advertising are beginning to be implemented in media advertising. More attention is being paid to the UGC (User-Generated Content) model, where users generate content by themselves via social networks, blogs, etc.
The mobile search market is still not very popular or well-developed; however, the increasingly rapid popularity of cell phones makes this a lucrative area with significant prospects.