Internet business begins to pay back

Businesses on the Russian Internet have started to bring in real incomes for their owners. Those Russian major Internet holding companies, which disclose their financial results, i.e. Yandex, Rambler and RBC, have been profitable. Market participants and experts believe that the growth in incomes on the Russian Internet would attract major international Internet portals to the market. Yandex’s revenue under GÀÀÐ totaled $17m last year, and its profit amounted to $7m, the company’s general director Arkadiy Volozh said yesterday. He noted that the company’s revenue had increased tenfold over the past two years, compared to $1.7m in 2002.

The Internet business of Yandex’s main competitor, the Rambler search engine, is profitable too. Earlier Rambler did not publish its reports. However, it is now preparing for an IPO in London, and the group has disclosed its results to potential investors. A report by Aton (which is one of the Rambler’s consultants for the IPO) provides Rambler Media’s preliminary financial results for 2004. The group’s revenue totaled $12.5m. Specifically, it received $7m from its business on the Internet. The group’s net loss amounted to $3.2m last year, mainly due to the Rambler TV project, which caused losses totaling $3.5m. At the same time the Internet business brought a net profit of $0.7m to Rambler.

The Internet business of RosBusinessConsulting (RBC), which published its preliminary results for 2004 last week, was also profitable. RBC received $20.5m in revenues from Internet advertising, and www.rbc.ru brought 75 percent of all advertising revenues to the company. RBC does not publish its profit from advertising sales, but the company’s overall profit totaled $10.9m, while its revenue amounted to $75m.

Of Russia’s large Internet portals, Mail.ru so far does not provide financial results. However, its business is profitable, Mail.ru vice president Anna Artamonova has said. Mail.ru general director Dmitriy Grishin added that the portal’s revenue doubled last year.

Market participants are pointing out that the Internet has managed to appeal to advertisers representing small to medium-size businesses. Arkadiy Volozh of Yandex remarked that most of the 20,000 companies displaying their advertisements on his portal belonged to this category. He was pleased to note that a large number of relatively small clients had allowed the company to decrease its dependence on major customers and had enhanced the stability of its business. RBC general director Yury Rovensky shares this opinion. He noted that customers whose advertisements are never seen on billboards and on TV were now using the Internet.

Leonid Boguslavskiy, chairman of the ru-Net Holdings’ Board of Directors (owning 34 percent of shares in Yandex) has remarked that a combination of several factors had enabled Internet companies to grow swiftly. He said that the number of Internet users had now significantly increased, and so did the time spent by each of them online. Additionally, the Russian advertising market, especially the Internet advertising market, is developing drastically.

According to information from Russia’s Association of Communication Agencies (ACAR), Internet advertising was the most dynamically developing segment of the Russian advertising market in 2004, with its volume totaling $30m, and exceeding 2003’s figure by 67 percent. Furthermore, ACAR did not take into account contextual advertisements, Lev Gleizer, general director of the AdWatch agency and a member of the ACAR expert council, admitted. Arkadiy Volozh estimates that contextual advertisements brought $15 in extra revenues to Russian Internet companies in 2004, and Yury Rovensky of RBC believes that the overall volume of Russia’s Internet advertising market totaled approximately $50m.

Nevertheless, Arsen Revazov, president of the IMHO VI advertising agency, thinks that Yandex had exaggerated its revenue from banner advertisements twofold, i.e. by approximately $2m. Moreover, companies’ statements relating to contextual advertisements cannot be verified at all, Revazov has noted. However, he agreed that the Russian advertising market was now growing rapidly. Gleizer is positive that the Russian Internet’s prosperity would sooner or later make the world’s leading companies on this market jealous, that is Google, Yahoo! and MSN (owned by Microsoft), which are bound to enter the Russian market. He reckons that Russian firms will find it difficult to resist the foreigners. For example, Google managed to gain the leading position on the German Internet a few years ago, although it started at zero level. However, Arkadiy Volozh doubts that foreigners would be able to carry out a Russian Internet blitzkrieg. He remarked that Internet companies were now receiving a significant proportion of their revenues from their regional businesses, and establishing cooperation with regions required a great deal of time. Roman Dorokhov