Good excuse for them to get out of this deal - markets in Russia collapsed in the last few months, I doubt Google now thinks that purchase was worth the money they offered.
Translation: Comrade, where's our taste?
Google should just pull out and consider this as a blessing
It would be interesting to know what is the market share of Begun, Yandex.Direct & AdSense on RU.net
BTW I must say that I wouldn't complain to have 3 big contextual networks to choose for marketing campaigns, or even better for monetization of the traffic.
Actually there is a bit more to this story. The reason FAS cited has been a lack of clear information on the “individuals who can exert influence on the activity of the Google group, as well as a list of persons belonging to the Google group, including those outside Russia”. Without this information, the FAS board do not feel they can “objectively judge the impact on competition in the market for Internet search in our country”. Plus they have “concerns” that competitive conditions will be made worse by reducing the number of large players.
This may well be connected to the recent law on strategic industries in Russia, which classified 48 sectors as of "national interest". Among these are television/radio broadcasting and publishing. Companies that hold a dominant position in providing internet and telephone services are also included. There way some pressure for "Internet" as a broad sector to be included but this was ammended after President Medvedev intervened.
The Russian authorities are definitely interested in the Internet and are cautious of Google. Most likely this is the old paranoia about foreign companies and those influencing them but Google's dealings with the US government and the CIA are hardly going to help it's case. Their advancement in Russia may just have got political - we'll know soon enough if this deal doesn't go through on appeal.
This is a massive blow to Google in the Russian market though, which they recently estimated to be worth $1bln by 2011. Even though the Russian markets have been collapsing as Lord Majastic states, the fundamentals in Russia are still excellent. The country as a whole has substantial reserved and is not in the same state of debt as the US/UK. Incoming payments for oil/gas this coming winter will likely free up it's markets again.
It's worth noting that Russia is currently the 3rd largest contributor to the US, since the start of the credit crunch. They have also offered to bail out Iceland to the tune of $4.7bln. Russians remember the crash of '98 well and you can be assured that this lending will stop long before it places them in this situation again. They still have over $550bln in foreign reserves and a stabilization fund of $1.6bln which is untouched.
Yandex.Direct is still the dominant PPC system and IMO converts better than Adwords. I believe this is due to their stricter entrance requirements. Begun.ru was estimated to have 17% of the market at the end of 2007, Google 4% (Alexander Kuznetsov, analyst at ING Wholesale Banking).
Things are always *interesting* working in Russia but as you say Roots, I still appreciate the way there are so many major players here. I don't think it is my interests as an advertiser or user to have only one search engine.
|This is a massive blow to Google in the Russian market though, which they recently estimated to be worth $1bln by 2011. |
That was estimated by the same people who estimated trillions of .COM bubble earlier in this decade.
Valuation of Russian companies is falling down very quickly, Google is lucky to have a good excuse to walk away from this deal that was priced before serious stock market downturn started.
|The country as a whole has substantial reserved and is not in the same state of debt as the US/UK. |
Russia as a country has got $500 bln+ reserves however they are disappearing very quickly due to investor pull out, and combined debt of companies (many of which are state owned) exceeds this figure of reserves. Russian market is in very serious downturn right now raising memories of what happened in 1998. And I am not even talking here about political risks that are massive.
Actually the figure $1bln was put forward by Google's own team. Namely Vladimir Dolgov, Head of Google Russia
It is true that Russia is using some of it's accumulated wealth to replace funds leaving the country but as I wrote, the stabalization fund is still untouched. They are not China but they are still in a position to be currently lending to other governments, including the US. They will not to do this to the detriment of their own economy. As I said, memories of 1998 are still vivid here.
As someone who has lived here for 5 yrs though I can tell you that certain fundamentals are strong for the Russian economy. People here are not in debt. Banks have been incredibly careful in their lending, often charging 23-25% interest. Wages have increased 300% in 3 yrs, a good technical worker can earn $4k/month in Moscow now.
The global economy is in a bad shape but the oil/gas producing countries are still in the best position to pull out of this mess first. The head of BP was quoted as saying Siberia literally floats on oil. Even at $50/barrel you would not be smart to count Russia out. Their upturn started at $28/barrel (when GWB got into government in the US).
Google can see the long term which explains their interest in the market here. It's worth noting that Russia is the first country that they have commissioned serious on and offline advertising campaigns in (aside from one test-week in Japan). They are very determined to get a dominant share in the Russian market, and before Yandex completes it's IPO.
Political risks, sure. But any investor will tell you that is the nature of emerging markets and precisely why the returns are so great. I think $140m was a steal myself.
China is in much better position than Russia - China has got money money and they actually manufacture a lot of stuff for almost all of the world.
|But any investor will tell you that is the nature of emerging markets and precisely why the returns are so great |
The investors are voting with their feet in Russia - they sell shares at any price they can and get out, and even that is difficult - Russian stock exchange is being stopped all the time so investors can't even sell their shares.
|Banks have been incredibly careful in their lending |
I don't think that's the case at all, just like everywhere else banks lending was unchecked in recent years in Russia and there will be plenty of defaults (there are now already), in fact if you look at property market it is so overvalued that great falls that will follow soon are going to hit very hard.
At the times of crisis established companies entrench in their key markets rather than blowing more money on investing into collapsing emerging markets, especially those whose leaders seek confrontation with the HQ countries of the investors.
|The head of BP was quoted as saying Siberia literally floats on oil. |
BP barely managed to maintain their investments in Russia, they almost lost them recently because powers that be played against them, whether Siberia floats in oil or not is not as important on whether you can actually take your money out of casino when you decide the game is over - in some countries it is easy to take money in, but taking them out can be very difficult thing, sometimes impossible.
Yes they are adopting a strategy of stopping the stock market but they have done this when shares gain value too fast as well as fall. It's general view has been that this has worked.
Banks in Russia have not been following the same pattern, sorry. I don't think you will find 23-25% interest rates as standard elsewhere. Compare this with the 110% mortgages handed out in the US/UK. These simply haven't happened here. Defaults are very low in Russia, due to the fact that loans need to be co-signed. This means the debt moves to another family member or the co-signer. Going bankrupt is not an easy process here.
In regard to your other point, yes I am well aware of the BP issues in Russia. That was not my point, the Russian government has this money. The days of them needing foreign investment to get this out of the ground are long past (which explains why they are taking actions like that). I'm not saying that is fair but you should look at the situation with a 15 yr window. The oil companies have made a fortune in Russia and although the climate is less "easy" for them now, the last thing they are doing is abandoning the country.
|It's general view has been that this has worked. |
What makes you think that? And what do you mean by "worked"? Just on Friday Russian stock markets fallen by 14-15%, that's not the first time - if you look at total stock market loss then Russia would be probably #1 country that lost most of stock value.
|The days of them needing foreign investment to get this out of the ground are long past |
So that's why key oil and gas companies in Russia took on so much debt that now needs to be repaid back to foreign investors?
Anyway, I don't really intent to argue about this - I think the harsh reality that sets in Russia will be self-explanatory, we shall see if Google now walks away from this deal using this as excuse, which I think they would (I'd do that if I was them).
Actually I believe Iceland takes that honour (according to S&P). Russia has been hit, loosing 53% but other emerging economies have equally felt that pressure. China, down 47.9% and India 47.9% on last year.
The truth is, as investors loose money in their domestic markets they have to pull funds from emerging ones. The weakness in the stock markets of emerging countries is more of an indicator of issues back in the west rather than a true valuation of the stock there. But this is not the place for stock market or history lessons.
We'll see how Google react to this ruling, they seem quite dissapointed. I'd be surprised to see them now walk away out of choice but I'll be happy to return here in a few months and update this issue with you.
>> The head of BP was quoted as saying Siberia literally floats on oil
China will be very happy. I am not sure if you have followed this, but there are more Chinese than Russians there. Apparently it was Chinese about 150 years ago and a Tsar took it in China's worst moments. China is just waiting by the river knowing that their enemies' body will eventually pass floating :)
Chinese emigrants to conquer Siberia - Pravda.Ru
Why China should purchase the Russian Far East. - By Kim Iskyan ...
American Thinker: China's manifest destiny
Chinese Workers Sowing Dreams in Siberia - Los Angeles Times
Just this month Russia gave China a contested area without a shot being fired. Russia is going down, population is dying very fast, and their economy is third world once you take oil and gas out. Oil and gas has bee neglected as well, they just take the money, without investing it in new fields of tech.
|Not a big, like Chinese baidu is one example |
I never understand the logic behind explaining the Russian economy with the "oil and gas out". No one discusses middle east states in that framework. It's true that Russia's economy is dominated by oil/gas and commodities but these are part of their economic reality. You can't view Russia's position without them.
They do have a population problem, that is true, but so do most European countries. The birth rate is Russia is average for Europe but their mortality rate is higher than it should be due to drinking etc. However Putin has implimented several policies that seem to be taking effect. Most notably the offer of $10k for having a second (or more) child. A new study published in 2007 shows that, as a whole, the rate of population decrease has slowed: if the net decrease in January-August 2006 was 408,200 people, it was 196,600 in the same period in 2007. We'll see if that addresses the problem within the next 5-8 years.
As to Russia returning the two islands. Yes I thought that was handled well. They are a special case though, Russia had been occuping them for a mere 80yrs. Siberia, as you rightly say has been Russian territory for significantly longer. It would certainly be a very different situation.
China is becoming a vastly wealthy country with an estimated $2/3trillion in reserves at the moment. That does make it very powerful but that threat is not limited to Russia. The US needs to address the huge trade gap (currently $233bln). In basic terms China does not buy from the US, it only sells. You have to ask yourself how long that situation can continue.
Although it's not entirely true to say the Chinese don't buy, they seem to have picked up most of Wall Street and a large percentage of US government borrowing recently.
|No one discusses middle east states in that framework. |
There are a few reasons for that. First is that population in Middle East states is a lot lower than in Russia, and also oil extraction costs a lot lower too. This means that while Gulf states can still live well with oil at $20 per barrel, Russia can't - so for Russia drop in oil prices is much more significant.
Furthermore, Gulf states don't use their wealth to try to oppose the world and threaten with nuclear weapons, in this respect these countries are much more stable for investment purposes. You also don't hear much about Gulf state rulers taking over foreign companies who invested their money there - from this point of view putting money there is better too.