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Meet the Russian Company That Got Its Antitrust Watchdog to Bite Google

A chat with Yandex's top lawyer gunning for Google.

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Here’s something Yandex has accomplished that few other Google competitors have: It took the Internet behemoth to court for antitrust — and won.

In October, Russia’s antitrust authority ruled that Google’s practice of bundling its services on Android handsets violated national law. The case’s lead complainant was Yandex, an 18-year old Web search and advertising company. It’s not a global name, but is big in Russia. Last quarter, Yandex raked in $233.1 million in revenue. (For context, Google averaged about $179 million in sales a day over the same period.) Most Russians use Yandex for Internet searches — an estimated 57 percent in the last quarter, though that share has slipped in recent years.

The culprit? According to Yandex, it’s the favored position of Google’s apps, including its search one and its browser, on Android smartphones, which outnumber iPhones in Russia considerably. To fight it off, Yandex has pushed to cut handset agreements of its own: It finalized one with Lenovo last year, and paired with Microsoft last month to make Yandex’s homepage and search results the Russian default for Windows 10.

It’s also wielding the antitrust axe. On top of arguing the case in Russia, Yandex is participating in the European Union’s investigation into Android, launched in April. Re/code spoke with Roman Krupenin, Yandex legal head of IT, distribution and M&A, and its lead legal rep trying to bludgeon Google.

Google is appealing the decision in Russia. The company has until December 18th to file its response to regulators in Moscow. The interview below has been edited for brevity and clarity.

Re/code: In other countries, antitrust arguments against Google have gone after its search business. You went after Android. Why?

Roman Krupenin: The key, with respect to Android, is the distribution of services. What we have seen in the Russian market, there were always — since the inception of Android — restrictions in terms of the distribution of our services. So we were not able to pre-install our search in the default position. We were not able to pre-install our other applications. We were unable to get second screen or third screen.

In the last year, some of our long-term partners, who’ve we had agreements and business relations with for several years, said they were no longer able to pre-install any of our services. And they were no longer able to continue the partnership, due to the limitations and restrictions imposed on them by Google.

We saw that we had much less potential in reaching our customers when we aren’t pre-installed on Android.

They said, “We’re not able to pre-install your services anymore.” Including the ones that are not competing with Google. For instance, we have YandexTaxi, a taxi-hailing service — and they were also not able to pre-install that. [Ed: Specifically, Yandex mentioned that Russian handset makers Prestigio, Explay and Fly recanted on their pre-installation deals. Google has said its Android agreements do not demand exclusivity.]

When did that happen?

That was around fall or summer of 2014. Just to explain the impact: At that point in time, they represented around 20 percent of the Android market in Russia. We saw that we had much less potential in reaching our customers when we aren’t pre-installed on Android. In this instance, they were our long-term partners. They were generally abrupt with this separation.

Unlike many of Google’s competitors that lodge complaints, yours succeeded. Was there something you did to win? Is there something unique about Russia?

We were able to demonstrate there’s actually harm to consumers. We were able to provide compelling evidence that there’s actually harm to competition and harm to consumers. In the U.S., the court dismissed that case but for entirely different reasons. The plaintiffs were unable to demonstrate that there are damages. However, on the face of the documents that the courts looked into, they said there were plausible cases for anti-competition.

In terms of the U.S. market share of Android devices, it’s around 51 percent. In Russia, the market share for Android is exceeding 80 percent. Also, in Russia, we have a strong local player in search. It appears that Google may have used more severe restrictions in the Russian market.

Because they have a competitor on search?

It appears so, yes.

You are a complainant in the EU case and recently acknowledged that you’re lobbying more aggressively in Brussels. What have your conversations with the EU been like?

We are in working discussions with them. As we understand, they understand the importance of the case for the mobile industry. They are just doing their work in order to investigate the case. Generally, the abuses they are looking at are almost exactly the same as what we have brought before the Russian authority.

In response to the Russian and EU charges, Google has said that the mobile OS world has grown more open — Android users can easily download non-Google apps; they can use non-Google OS versions, like Cyanogen; consumers can buy iPhones or Windows. What’s your response to this?

Let’s take the Android open-source project. In order to take a device with AOSP, you would need to take the application store. So where do you go to get the application store? The largest and most important, the application store that has all the users’ needs, is the Google Play store. It has, like, four times more applications than any others for Android currently available. Also, the majority of app developers build for Play. So there are network effects at work here.

If you’re an OEM, if you are not using the Google ecosystem, you’re basically producing a different device than the device that Google provides. So what will happen if you’re producing a device without Google Play and the Google Play service’s API layer? You will not be able to provide access [for] your users to any of Google’s applications. So Google does not distribute its applications. There will be no Maps, no native YouTube client, no Google search. You probably wouldn’t be able to provide your users a majority of the most popular applications.

In an ideal world, what would you like Google to do?

There needs to be unbundling. Google is saying, “If you want access to Play, you need to install search.” So Google Play should be licensed separately; there should not be a bundling relationship. And there should not be a requirement to set search as default. Basically, Google, by preserving those distribution channels themselves, restricts and limits the ability of others to compete for these places. And pre-installation is generally the single most important distribution channel. We have seen it many times.

Let’s take Russia. In 2014, there were around 25 million devices shipped on the Russian market. Almost all of those devices have Google applications pre-installed. So you can understand what the audience reach of the pre-installation gets you. And it’s generally not possible to obtain that kind of audience through downloads.

So you can understand what the audience reach of the pre-installation gets you. And it’s generally not possible to obtain that kind of audience through downloads.

We have seen the so-called default bias. [Smartphone users] are not reaching out for alternatives — unless the quality of the pre-installed applications is substantially inferior. You might remember the case with Apple Maps. People typically downloaded Google Maps.

If you point to any device on the market, they probably have Google Play on it. Even in their recent blog post, where they said they would appeal the decision, they were only able to name devices where the manufacturers are producing devices for China, where the restrictions are not applicable. [Ed: Google also mentioned the non-Google applications pre-installed on the latest Samsung phone.]

In terms of ability to buy other devices, the prices of iPhones are much higher than the average Android device. And in terms of the Windows phones, they have much [fewer] applications.

Do you think this antitrust argument would extend to other big Android markets, save China, like Brazil and India?

Each of the markets is different. There needs to be some local player that has an ability to collect the evidence, to bring it before the authorities.

Google is appealing the charges. What are the next steps?

We’ll participate in the case. And we consider our position to be supported by the evidence and the economic theory. We’re happy to go through the appeal process and to have a discussion [that is] as open as possible.

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