Russia’s war hits Yandex, the ‘Google of Russia’

Putin’s regime continues to tighten its grip on how information on the war in Ukraine is shared in Russia, and in the wake of that, tech giants in the country — which, like Facebook, Google and Twitter, are also major players in the media sphere — are starting to restructure their media assets.

Yesterday Russian press reported that Yandex — a local giant often called the “Russian Google” — is in negotiations to sell its media division, with Russian social networking giant VK named as a potential buyer.

Sources familiar with the matter confirm to TechCrunch that discussions to sell the division — which includes Yandex News, a news aggregator, and Yandex Zen, a blogging platform linked to a recommender engine — are “in the last stages.” They were unable to confirm a timeline for the potential sale. Yandex declined to comment on the reports.

The rumors come as pressure has been mounting inside the EU to sanction Yandex. The news division is already being called out by EU regulators via sanctions connected to a (now former) key Yandex executive, Tigran Khudaverdyan.

Khudaverdyan was added by the EU yesterday to its list of individuals facing sanctions over Russia’s unprovoked invasion of Ukraine. Citing accusations by a former head of Yandex’s news operation, Lev Gershenzon, the EU highlighted the role Yandex News plays in spreading Kremlin propaganda. (Gershenzon, now based in Berlin, left Yandex in 2013, according to his LinkedIn profile.)

That announcement was followed by another, this time from Yandex: Khudaverdyan was stepping down as the deputy CEO and executive member of the board of Yandex NV — the company’s Netherlands-based parent that is publicly traded on Nasdaq. (The board said it was “shocked and surprised” to learn that he was named under EU sanctions.)

“We are adding to our sanctions list even more oligarchs and regime-affiliated elites, their families and prominent businesspeople, which are involved in economic sectors providing a substantial source of revenue to the regime,” the EU noted. “These sanctions also target those who have a leading role in disinformation and propaganda that accompany President Putin’s war against Ukrainian people. Our message is clear: Those who enable the invasion of Ukraine pay a price for their actions.” Penalties for those sanctioned include the freezing of their assets and European travel bans.

The European Union said Khudaverdyan was added to its list of individuals for two reasons: one, because of his executive oversight of Yandex, and by association, of its news division, which it believes has aided and abetted the Putin regime and its war against Ukraine; and two, because Khudaverdyan was present at a meeting of oligarchs with Russian officials at the Kremlin on February 24, where they discussed the impact of impending sanctions.

Yandex NV halted trading on February 25, when its market cap was at $6.8 billion.

“Tigran Khudaverdyan is the executive director of Yandex — one of the leading technology companies in Russia, which specializes in intelligent products and services powered by machine learning,” the EU said in its official notice. “Yandex’s former head of news accused the company of being a ‘key element in hiding information’ from Russians about the war in Ukraine.”

The EU also referenced a product decision it implied was deterring Yandex search engine users from reading wider news about Ukraine based on search results, writing: “Moreover, the company has been warning Russian users looking for news about Ukraine on its search engine of unreliable information on the internet, after the Russian Government threatened Russian media over what they publish.”

It further noted that very fact that Khudaveryan attended the meeting on February 24 to discuss the impact of Western sanctions indicated that “he is a member of the inner circle of oligarchs close to Vladimir Putin and that he is supporting or implementing actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, as well as stability and security in Ukraine.”

On top of this, as an executive at Yandex, Khudaveryan is one of the top executives in the country in tech, which the EU describes as one of the “economic sectors providing a substantial source of revenue to the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilisation of Ukraine.”

It’s not clear if Khudaveryan stepping away from his roles was a practical move — after all, he can no longer operate internationally — or if Yandex did this to try to distance its executive management from the latest accusations from the EU.

The company has been in the middle of a number of other moves that have further isolated it from its international profile in recent weeks. In addition to halting its Nasdaq trading, two longtime, high-profile international board members — investor Esther Dyson and the Stanford economist Ilya Strebulaev — resigned from the board earlier this month. The company has insisted it remains in a secure position financially and in respect of the scope of sanctions.

In any case, divesting the news business completely could be seen as another way of distancing Yandex from all that drama.

VK would be an interesting buyer in that regard. Recall that when VK’s founder, Pavel Durov, was in the process of being kicked out as the head of the company, part of the internal dispute he had was that he believed that the government was already playing too strong of a role in the business after Mail.ru, which is controlled by companies connected to the Kremlin, took a controlling stake in the social media platform (it now owns VK). The burgeoning conflict in Ukraine, at that point focused on events in Crimea, was the tipping point, he said at the time.

Yandex has for years had ambitions to expand internationally. In practical terms that has mostly played out as a footprint across Russian-speaking countries and business in Turkey. Yandex has sought to maintain a stance that it is a “neutral” platform that’s being developed inside Putin’s Russia — arguing it has to operate within the law.

But it is questionable whether Yandex, or any company, can remain neutral under the current Russian regime.

The neutral illusion

Legal restrictions that apply online include media licensing rules that apply to larger news aggregators — meaning Yandex News can only show news sources that are listed in an official register overseen by the state media regulator, making “neutral” essentially still something qualified by official, government auditors. Independent media, in the process, also becomes shut out. The latest on that front is that investigative news site Bellingcat (which has been reporting on the Ukraine war and is a long-running thorn in Putin’s propaganda efforts) has been banned in the country.

Sources familiar with the planned sale of Yandex News and Zen told TechCrunch that Yandex had previously considered selling the media division — even as long as five years ago. However we were told the complexity of unpicking the integration of these products with other Yandex properties likely put off any earlier move toward a media exit.

Since then, the Kremlin has increased regulation of media in Russia — evident in developments such as a requirement last year that news aggregators label foreign media sources as “foreign agents.”

Per our sources, a decision by Yandex to get out of the space was finally accelerated after the introduction of new regulations restricting speech around the Ukraine war earlier this month when the Russian parliament approved a new law that carries a penalty of up to 15 years in prison for anyone deemed to be spreading “false” information about the Russian military.

That law poses a clear risks for bloggers on platforms like Yandex Zen, as well as for the tech platform itself — if its algorithms are deemed to be inflating sanctioned content.

In recent years Yandex has also been singled out for attention from Russian politicians over the working of its news sorting algorithms, as RTB reported — accused of influencing the results of top news items (something it has repeatedly denied).

Yandex had recently applied some changes to the Zen platform — likely in a bid to shrink such political and now legal risk — switching from an open recommendation model, which had pulled in content from the open Internet, to only recommending subscription-based content — a move that sparked anger from bloggers reliant on revenue generated through recommendations.

But our sources suggested the company no longer believes it’s viable to continue operating in the media space while trying to maintain a claim of neutrality — and will instead focus its efforts on search and other tech-focused services, which “don’t have such a huge media effect.”

“Dealing with such regulations is a very hard job — not only a technical one,” a source with knowledge of the planned sale added.

The search giant has a wide range of other services and business lines, as it has sought to diversify from ad revenue — including cloud and e-commerce services, translation tech, self-driving car tech, plus ride-hailing and food delivery services, among others.

One told us that Yandex needs to “reinvestigate how to restructure its business” as it gives up on media to focus more on tech — and tries to adapt to tighter Kremlin controls and an international landscape of rising sanctions against Russia — was the suggestion.

Enter VK

Russian social media giant VK has been linked as a possible buyer for the Yandex media properties.

Three of our sources confirmed it is one of the parties negotiating to buy Yandex’s media business — with one source inside VK telling us it also discussed a possible deal with Yandex last year.

“They discussed buying Yandex News and Zen last year — but now is a good time to buy because Yandex wants to sell,”  this source confirmed, speaking on condition of anonymity.

Another source described VK as the “closest” potential buyer for Yandex News and Zen at this point — also suggesting a deal could be done “within several months” as they said “time matters for Yandex.”

We contacted VK to ask for official comment on the rumors that it’s in talks to buy Yandex News and Zen but at the time of writing the company had not responded.

VK does already have a news product in its suite of consumer software offerings, displaying news content via the Mail.ru internet portal.

Our source at VK pointed to the potential to grow Yandex Zen in the social vacuum left by Instagram being barred from the Russian market — saying that, from a business perspective, the company is happy about the restrictions on Western social media giants since it stands to gain traffic.

“We want to be the only media and only social [player] in Russia, Belarus and other [Russian-speaking countries],” the source added.

Unlike Yandex, VK does not have stated ambitions to scale an international business — focusing growth efforts on local markets (however unlikely the prospect of major international growth for Yandex may now be as Western sanctions on Russia ramp up).

Yandex Search, meanwhile, still has to operate under internet regulations which can — and are — being used to block entire websites and apps that the Kremlin doesn’t like, restricting the content it’s able to connect users to.

Last September, for example, Yandex was forced to delist from search results a tactical voting app created by the jailed Kremlin critic, Alexei Navalny, to comply with a government ban.

A Russian court also banned Yandex from using the phrase “smart voting” in its keyword search system — meaning it cannot serve suggested content related to that phrase — although Yandex has sought to appeal the ruling.

If Kremlin restrictions and Western sanctions continue to hit Russia’s economy it could lead to a brain drain of technical talent — not least given that the IT community is likely among the most outward-facing and globally connected of the professions, with thousands of tech workers taking a personal risk to express public opposition to the war in a recent public petition, for example.

There is, then, a question of how far the Kremlin may be willing to go in dialing up operational restrictions on homegrown tech companies — in case its actions end up convincing entire companies to migrate overseas (as Durov, the founder of Telegram did, leaving his earlier company, VK, behind in Russia).

Attack of the clones

Russian tech businesses with international aspirations must surely be considering their options as the country becomes increasingly isolated from the rest of the world — even as others already fully folded into the Kremlin sphere of influence, eye fresh opportunities for local growth in the vacuum left by sanctioned foreigners.

One thing is clear: Russia’s war on Ukraine is certainly having huge ramifications for the shape of the digital economy inside Russia.

The West has targeted technology as a key lever to pressure Putin’s regime following the invasion of Ukraine. While grassroots efforts like Ukraine’s IT Army hacker group have systematically gone after and taken down the websites and internet operations of a number of Russian institutions and businesses, the U.S. and EU have slapped restrictions on Russian banks, business executives and other entities, such as the infamous troll farm known as the Internet Research Agency.

Western sanctions have already contributed to a number of foreign tech giants pulling out of Russia as payments have been disrupted and high-level pressure to withdraw their services is amped up.

Some of the shift in activity has been pushed by the Russian state itself. Mainstream social media platforms — including Facebook, Instagram and Twitter — have been blocked or restricted by Russia’s Internet and media censor, Roskomnadzor, as the Kremlin tightens its grip on the digital information sphere.

One inevitable consequence of limits on Western tech giants is that it creates opportunities for Russian companies to step in and fill the gap.

Today, for example, Reuters reported on an Instagram clone — called Rossgram — being spun up by local entrepreneurs and slated for launch on March 28. The news agency quotes a post by the initiative’s PR director on the VKontakte social network, writing: “Our group of developers were already ready for this turn of events and decided not to miss the opportunity to create a Russian analogue of a popular social network beloved by our compatriots.”

Meanwhile, IIDF, a venture fund founded by the Agency for Strategic Initiatives (which itself is a nonprofit established by the Russian government), has started to compile a register of tech services that either already exist or are being built to replace or clone services that are pulling out of the country or being banned from operating. The register is being made by way of the IIDF’s accelerator, and so potentially you could imagine it also running programs to fund new startups emerging to fill that gap.