Kommersant (Moscow) - January 24, 2008

The holding taps the contextual advertising market

The media holding RBC is poised to enter the contextual advertising market. According to an announcement made by the company yesterday, it is buying 75% in Magna.ru. The company also plans to boost its market share to 15 percent over the next three years, with the market projected to expand to $600m, thus putting pressure on Yandex and Rambler. RBC's plan would be hard to accomplish, as unlike its rivals, the holding runs no search engine of its own, which is admittedly the most efficient contextual advertising medium.

General Director of Media Mir (which manages RBC's entertainment projects) Mikhail Gurevich told Kommersant that RBC bought 75 percent in Magna from St. Petersburg-based developers. The parties have disclosed neither the terms of the deal, nor Magna's financial results. According to a source close to the transaction, Magna's annual turnover is "no more than $100,000." Finam Investment Company expert and consultant Leonid Delitsin believes that the assets cannot cost more than its annual revenue: "RBC did not purchase a readymade business, but rather a team that is capable of making one."

Contextual advertising is made up of targeted textual ads placed on websites that a user is viewing and in search engines based on the keywords of a user's query. The advertiser pays depending on the number of clicks. Furthermore, the advertisers compete for the most attractive advertising platforms through online auctions: the more contenders for an advertising position, the more each click would cost. The cost per click ranges between $0.03 and $15 (the upper end, for instance, now taken by clicks on ads from UPVC window producers).

Contextual advertising has been the fastest developing and the most lucrative advertising market in the Russian Internet segment, expanding by a factor of 2-2.5 a year. In the estimation of MindShare, contextual advertising sales reached $102m in the Russian Internet zone in 2006, when the contextual ad sales topped media sales for the first time. In 2007, total contextual ad sales zoomed in on $220m. Media Mir's Mikhail Gurevich expects the market to reach $400m by 2011 (earlier, more optimistic forecasts from other market participants even put the figure at $500m-600m). Sergei Spivak, general director of the agency Prior.Ru, defined RBC's new acquisition as a "timely move." He observed that over the past few years the holding had aggregated a whole selection of websites targeting a wide range of users (including social networks, dating services, etc.). "The holding will definitely benefit from placing contextual ads there directly and not through contractors," he explained.

Essentially, the Russian contextual advertising market is controlled by two major players - Yandex (with Yandex.Direct handling nearly 60 percent of all contextual advertising sales) and Rambler (with its Begun holding up to 30 percent of the market). So far, they have been cautious in commenting on the new competitor. "It is still too early to pass any judgment on the project's prospects," Begun's head Alexei Basov ventured. "This is by no means the first player trying to get a foothold on the contextual advertising market. So far, none have managed to undermine the positions of the major players, however." "RBC's market entry is overdue," a representative of an advertising network said. "Even to win back a mere 10 percent of the market, the holding will need to make considerable investment, $30m-50m." Finam's Leonid Delitsin agrees that RBC will find it difficult to develop on the market, as it lacks a universal search engine in contrast to its competitors. "Such resources as Yandex and Rambler make the data retrieval that advertisers are looking for much simpler. Evidence suggests that textual advertising is more efficient in search engines than on any other resources," he added.