Yandex vs Google: Clash of the Cybertitans

Yevgeny Razumny / Vedomosti

The Internet search engine market in Russia is turning into a battle between domestic giant Yandex and American behemoth Google. When one attacks, the other steps back momentarily and then resumes the game, loudly crying "en garde."

Russia's Federal Antimonopoly Service in September found Google guilty of violating the law on competition, as it had abused its dominant position on the market for preinstalled applications stored on Android devices. The operating system, owned by Google, occupies about 85 percent of the Russian market for smartphones and tablets in natural terms.

The authority, which initiated the study following a claim by Yandex, ordered the U.S. company to eliminate its violations of the law by December 18, including obligatory installation of a number of its applications along with Google Play, an applications store, and a ban imposed on device makers preinstalling applications by other developers.

Yandex claimed that Google obliges device makers to install the whole Google Mobile Service (GMS) pack by depriving producers of the opportunity to choose which GMS components to install. The Russian giant is also irritated by the fact that Google forces producers who are willing to preinstall Google Play to choose Google as the default search engine and place all its applications on the most advantageous spots on the screen. Yandex also believes that Google limits access to Android for competitive mobile applications and services, making certain Android gadget manufacturers exclusively preinstall applications and services from Google.

There is no wonder that Google decided to litigate. "The Federal Antimonopoly Service ordered Google to distribute Google Play separately from such applications as YouTube, Google Maps and Google Photos. We intend to appeal against this decision and explain in court why we find it groundless," the U.S. company's senior lawyer said in the corporate local blog.

Yandex said that it is ready for Google's appeal and welcomes an ultimately public hearing of the matter. "Google's words contradict its actions. The company declaims freedom of choice, but in reality, it imposes bans into contracts with producers. Android's openness is a myth. It's impossible to produce popular Android devices without Google Play, and one can get Google Play only after agreeing to Google's conditions. It's not a freedom; it's an illusion of choice," the Russian company said.

Google voiced five reasons to disagree with the local antimonopoly watchdog. The first one is the producer's choice. "None of the existing manufacturers of devices is obliged to install Google applications in a pack with the Android platform. It's an open and free platform, and producers can use it as they like," Google said, exclaiming that "Android is freedom of choice and open competition."

Yandex argued that most producers make devices embedded with Google Play, as they succumb to the U.S. company's conditions and cannot negotiate with other firms about preinstallation of the default-page search, or manufacture devices without Google Play.

Google countered that there exist many ways to install applications, including an option for users to download and install applications from third-party websites and stores. Yandex, however, said that Google skirts the fact that preinstallation is the main and most effective channel of carrying mobile services to the user.

The U.S. giant emphasized that the producer can install other competitive applications along with Google Play. "The new Samsung Galaxy S6 is a clear example of openness and a wide choice. The smartphone offers at the same time several preinstalled applications rivaling Google," the U.S. company said.  

"Google silences the ban on preinstalling an alternative default search engine. The Samsung Galaxy S6, as well as other GMS devices, only has a preinstalled search by Google, and alternative search engines are forbidden for preinstallation as a service," Yandex snapped back.

The U.S. company pointed to easy downloading and installation of applications. "At present, there are more than a million applications for Android, and an average user installs several dozen of them on a device. We officially announced in May that there were more than 50 billion downloads in 2014. According to App Annie, Yandex's applications were on the second rank by the number of downloads in Apple's AppStore and Google Play in the period of March-June," the giant's senior lawyer said.

Yandex said that downloads by audience coverage is incomparable with preinstallation for mass services.

Google wrapped up its five reasons with user-friendliness. "If a producer installs a package of Google applications, it's important for us so that the user would get a fully functional device," the company said.  

Analysts are ambivalent about the case. Investment company Renaissance Capital said that the antitrust service's decision to penalize Google is "positive for Yandex's mobile positioning." Meanwhile, the appeal turned out to be a cloud able to eclipse the sun.

"We believe that the key negative takeaway for Yandex from this news is not the appeal itself, which is likely to delay the implementation of the antimonopoly service's ruling, but rather Google's commitment to fight for its market share in Russia, which implies a persistently tight competitive environment for Yandex," investment company VTB Capital said in a research note.

"We believe that, if Google were to appeal the decision, it could be several more months before the antitrust ruling is either confirmed or overturned. While we have not expected any immediate impact on Yandex's market share on the back of the ruling, we have always seen it as supportive in the medium term."

Google's decision to litigate the authority's decision, whatever the final outcome, implies that the company continues to see Russia as a strategically important market and will fight for its market share. "Even though Yandex is prepared for such competition, in our view, this might still require allocating additional resources to withstand such pressure," VTB Capital said.

Yandex's chief operating officer Alexander Shulgin told business daily Kommersant in March, shortly after filing the claim to the antimonopoly service against Google, that the position of the Russian company is simple. "As soon as you've conquered a monopoly, you cannot use your dominant position in one sphere to promote your products from a completely different sphere. These are antimonopoly rules in all developed counties," Shulgin said then.

"Producers should be able to install on their devices any combinations of applications that they find necessary. It will make competition healthier."    

Doing Business in Russia 2015
Doing Business in Russia 2015
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