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U.S. Big Tech Could Learn From Russia's Yandex

Leonid Bershidsky

(Bloomberg Opinion) -- Yandex NV, Russia’s biggest technology company, has figured out how to avoid nationalization or a foreign ownership ban. Big Tech in the U.S. should pay attention: The governance scheme Yandex appears to have worked out in consultation with the Russian government could be a good solution for companies that are de facto public utilities under private control.

Yandex, set up in 2000 to monetize a search engine developed in the 1990s by the team of co-founder Arkady Volozh, is as close as it gets in Russia to a Silicon Valley-style internet giant. For a long time, it mainly aped Google’s services for the Russian market, but it has grown into a conglomerate that developed or bought up other businesses, from marketplaces to delivery projects. It’s not just Russia’s Google but Russia’s Amazon and Russia’s Uber, too (it first outcompeted Uber’s Russian operation, then swallowed it up). In fact, when Russian President Vladimir Putin signed a “sovereign internet” law earlier this year, officially meant to keep web services functioning inside Russia should the U.S. cut the country off from the worldwide computer network, many said Yandex would be that “sovereign internet.”

Yandex’s size and its ability to match the tech giants have made the company strategic for the Russian government. As early as 2009, Volozh had to protect Yandex from nationalization or from being taken over by one of Putin’s billionaire friends by issuing a “golden share,” which could block the sale of more than 25% of the company’s stock, to state-controlled Sberbank.

But the government also could be helpful when Yandex needed it. In 2015, the Russian tech giant filed an antitrust complaint against Google, which had been eating into its market share on mobile, and in 2017 Google had to settle with the Russian antitrust authority, allowing Android smartphone vendors to install Yandex apps. Now, the Russian parliament is considering a bill that would ban the sale of phones and computers without pre-installed Russian software. Yandex would be the  main beneficiary.

In Putin’s mind, that kind of protection comes at a price: Yandex must guarantee that it will never fall under foreign control. The previous “golden share” arrangement didn’t quite rule that out. Volozh and top employees control the company’s Class B stock, which gives them 57% of the voting power. If those shares are sold or their owners die, Class B shares will automatically convert to Class A ones, which are traded on stock exchanges, and foreign shareholders will end up with the most voting power.

In July, legislator Anton Gorelkin introduced a bill that would limit the foreign ownership of strategically important internet companies to 20%. Yandex opposed it, but the government approved it, and it became clear that the bill would be passed. So Volozh began working feverishly on a solution, which was finally announced on Monday “after many months of discussion,” as Volozh wrote in a letter to employees. 

The company has set up a special body called the Public Interests Foundation, made up of representatives of Russia’s top math, engineering and business schools (most of them owned by the state) and Russia’s big-business lobby, the Union of Industrialists and Entrepreneurs. The foundation will have two seats out of 12 on Yandex’s board of directors, and it will have a veto on all deals involving 10% or more of Yandex stock, big intellectual property sales and any transfer of Russian citizens’ personal data.

Putin’s press secretary, Dmitry Peskov, denied that the Kremlin had taken part in the discussions mentioned in Volozh’s letter, but praised Yandex for appreciating the company’s “special responsibility” and the “special attention” on the part of the state that it enjoys. Immediately after the Yandex announcement, Gorelkin called the solution “elegant” and pulled his bill. All this was immediately reflected in a share price spike.

This may read like a distinctively Russian story, in which a group of business founders is trying to avoid a state takeover and the Kremlin prefers not to establish formal control over the national tech champion while keeping a close eye on it. The schools provide a convenient smokescreen both for the government and for investors. 

But what Yandex has done isn’t only relevant within the context of Putin’s Russia. It could be seen as a template for Big Tech, even though Yandex’s market capitalization, at $13.2 billion, is only a fraction of Alphabet Inc.’s ($910.6 billion) or Facebook Inc.’s ($562.9 billion).

These two companies that make up the internet’s advertising duopoly, are often discussed along with Amazon.com Inc. as public services rather than mere businesses by politicians on both the right and the left of the U.S. political spectrum. Last year, Republican Representative Steve King of Iowa proposed treating Google and Facebook as public utilities. Senator Elizabeth Warren of Massachusetts, a leading Democratic presidential candidate, would break up some of the Big Tech companies and designate some as “platform utilities” that would be banned from sharing user data with third parties and required to treat all users equally.

Obviously, the tech firms are opposed to such heavy-handed regulation, but what they do on their own only brings them closer to a confrontation with governments, both in the U.S. and in Europe. Facebook’s refusal to police misleading political advertising and Google’s data-sharing practices scream for some kind of state interference. 

Like Yandex, the companies could act preemptively to set up governance structures that would veto business ideas viewed as damaging to society’s interests. Vesting veto powers in councils made up of the representatives of top universities and nongovernmental organizations could accomplish that purpose. If such a structure can win approval even from an authoritarian regime such as the Russian one (with the caveat that academic institutions in Russia aren’t as independent as those in the West), it could probably satisfy most Big Tech critics in democracies, too.  

The alternative, as in Yandex’s case, could be far more restrictive.

To contact the author of this story: Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story: Jonathan Landman at jlandman4@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

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