Google Yandex M&A

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Presentation Contemplating The Acquisition of Yandex By Google.

Presentation Contemplating The Acquisition of Yandex By Google.

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  • 1. November 2013 Time to End the Cold War: Why Google Should Acquire Yandex By Charles Worthman
  • 2. Executive Summary
  • 3. 2 CONFIDENTIAL Executive Summary – Google Should Acquire Yandex Google, which essentially invented modern online advertising, still earns almost all of the company’s revenue from advertising making Google as much an advertising company as an innovative tech company Search is the main driver of Google’s advertising revenues and thus its cash flows According to the company’s core philosophy the main competency of Google is search. Google states: “With one of the world’s largest research groups focused exclusively on solving search problems, we know what we do well, and how we could do it better. Through continued iteration on difficult problems, we’ve been able to solve complex issues and provide continuous improvements to a service that already makes finding information a fast and seamless experience for millions of people. Our dedication to improving search helps usapply what we’ve learned to new products, like Gmail and Google Maps. Our hope is to bring the power of search to previously unexplored areas, and to help people access and use even more of the ever-expanding information in their lives.” In almost all markets around the world users have voted and Google is clearly the best search company in the world with a market share of over between 65% and 88% worldwide depending on the source Yet in a few major internet markets in the world Google is not the dominant search engine: China where Baidu has over 60% of the market, South Korea where Naver is used by about 70% of users and Russia where Yandex, the “Google of Russia” has a market share of 62% - 64% depending on the source China is not a market Google can enter in a big way due to well publicized censor concerns, leaving only South Korea and Russia as markets where Google has not managed to achieve dominance despite best efforts Google should acquire Yandex to obtain dominance in the Russian market Based in the Netherland’s Yandex adheres to relatively strict requirements for accounting and other procedures vs. other Russian based companies
  • 4. 3 CONFIDENTIAL Executive Summary – Google Should Acquire Yandex “There are very few companies in the world that can compete with Google, and Yandex is one of them and the only one in Europe.” Konstantin Belov, an analyst at UralSib Financial Corp. “Yandex's algorithm accounts for the intricacies of Russian grammar, where the same word can have dozens of different endings depending on its place in a sentence.” – BusinessWeek “Yandex is geared to structural growth in internet advertising as the Russian market sees higher internet penetration and higher share of ad budgets moving away from traditional media to new media. We expect rapid growth of the internet advertising sector and Yandex to stay in the lead in paid search.” – Bank of America Merrill Lynch“It’s remarkable that there are fewer countries with their own search engines today than those with their own space program.” Dmitry Grishin, Co-Founder and CEO of Mail.Ru Group “Russia is a key market, with more internet users than any other country in Europe. But participants clearly must be ready to play by a whole other set of rules and against especially well-entrenched competitors.” – Wired Magazine “In some directions, Yandex is even ahead of Google, for example, the Yandex real-time traffic monitoring service launched 4 years before Google could offer a similar service to its Russian users.” - Sergey Kuznetsov HSE‘s School of Applied Mathematics and Information Science “Of course, Yandex’s leadership might not be eternal. Google could significantly reduce the gap with a strong team and sufficient investment on the Russian market. But it is difficult to imagine Google seriously threatening Yandex positions in the next 5 to 7 years.” - Andrey Zotov, East- West Digital News co-founder: “In the medium or long term, Google has its chance, especially if Google will make some special deal with leading telecoms. It won’t be easy, however, since Yandex is a well structured company and it will be almost impossible for anyone to win the search competition with Yandex. The best Cyrillic search results will keep users around Yandex for a long time to come.” - Alexander Galitsky, co-founder and managing partner at Almaz Capital Partners
  • 5. 4 CONFIDENTIAL Experienced Management  Yandex is run by a very experienced team of computer scientists  Yandex has been around as long as Google and has a team that is much more experienced in Russian, the second most popular web language Patent Portfolio & Search Knowledge Helpful to Google  Yandex has a large patent and IP portfolio from its years in the internet business  Having been in the search business as long as Google, Yandex’s knowledge and team would be an asset to Google Russian Mobile Is A Big Opportunity  Despite having the highest wireless penetration rate in Europe, Russia’s Smartphone penetration is low  For key areas like social, video and apps Russia is one of the most active countries  Unlike the U.S., Android has a higher tablet market share than iOS in Russia Gives Google Immediate Dominance in Russia  Yandex is the search leader in Russia with 62% market share in the country  Has 54 million unique visitors a month in Russia alone  Has 241K advertisers and over 50% of online ad market share Significant Initial Synergies Make Acquisition Cheap For Google  A large number of overlapping product focuses leads to significant synergies  The transaction is accretive on both a GAAP and a cash basis without including significant additional revenue opportunities in Russia from being a combined firm Russia Is An Attractive Market  Russia is the top internet market in Europe by number of users and 6th in the world  With only about 50% penetration there is still plenty of room for growth  With ecommerce penetration of 1.9% Russia is set for advertising growth despite already being a top digital advertiser Highlights – Why Google Should Acquire Yandex
  • 6. 5 CONFIDENTIAL Russia Is One Of The Few Markets Where Google Is Not Dominant Russia is one of the only top ten internet markets where Google is not a dominant search engine (a) Google has been able to compete in Russia but has not but has not managed to overtake Yandex Russian is a complex language and Yandex has a big head start in building brand equity and search results in Russia Only 5% of people in Russia speak English fluently especially outside of the major cities Yandex’s lead has held in Russia despite huge advertising resources dedicated to Russia by Google as well as the very successful introductions of Chrome and Android in Russia Google Market Share In Top 10 Internet MarketsDominant Search Engines Around The World (a) In Japan Yahoo has a partnership with Google to utilize Google’s search results. As such, actual Google market share is higher than stated. 98% 97% 96% 95% 95% 92% 67% 40% 22% 3.05% 0% 20% 40% 60% 80% 100% 120% India Brazil Indonesia Germany France United Kingdom United States Japan Russia China Sources:Bloomberg LP & Searchengineland
  • 7. 6 CONFIDENTIAL 64% 22% 8% 3% Yandex Google Mail.Ru Rambler Yandex is a Clear Leader in the Russian Internet Sector Yandex is the clear leader in Russian search and a strong player worldwide despite only being active on the Russian speaking internet and now in Turkey Yandex powers the paid search feature on Mail.ru so the site is not an actual competitor to Yandex Yandex’s share on mobile is over 50% on Android and 40% on iOS. The iOS share is expected to surge after Yandex’s partnership with Apple In 2012, Yandex’s audience exceeded the viewership of Russia’s most popular TV station Russia Search Engine Market Share (Q2 2013) 17.7 18.7 21.6 23.5 31.3 37 39.3 42.2 50.9 50.9 0 10 20 30 40 50 60 Avito.ru ucoz.ru Facebook Wikipedia Youtube Odnoklassniki.ru Google Vk.Com Yandex.Ru Mail.ru Nov 2012 Unique Visitors (MM) Sources :comScore 66.90% 18.10% 11.10% 2.60% 1.30% Google Sites Microsoft Sites Yahoo! Sites Ask Network AOL, Inc. U.S. Search Market Share (Oct 2013)
  • 8. 7 CONFIDENTIAL Yandex Firing On All Cylinders • In Q3 2013, Yandex grew 2.2% YOY in share of search on all platforms and 25% YOY growth in number of search result pages mostly from increased search intensity per user • Yandex’s share of the search market in Russia stands at 62% a growth of 1.5% YOY • Advertising clients have grown 24% YOY to 261,000 while ARPU grew 15% YOY • Paid clicks are growing at a rate of 50% YOY as of Q3 2013 • Revenue is growing at a rate of 35% to 38% according to Yandex, with Q3 2013 showing over 40% YOY growth Yandex is Growing Quickly • Yandex recently signed partnerships with very important partners like Mail.ru, Twitter, Apple, Cooliris, Rambler and Skrill, among others; The Mail.ru partnership has great terms with Yandex only paying through TAC costs • Mail.ru the hugely popular Russian portal recently announced that they would stop utilizing Google to power its own search engine further hurting Google’s position in Russia by using Yandex for paid search • These partnerships, especially with Google competitors like Apple and Twitter could be transformative for Yandex and certainly cement Yandex’sposition while the Mail.ru partnership cements Yandex’s #1 search position • By acquiring Yandex, Google nips these partnerships in the bud or takes them on, both of which would nullify any negative problems from the partnerships Yandex Partnerships Strengthen Company • Having launched Yandex Browser only a year ago Yandex now has about 6% total browser share in Russia • Even in Google’s own Chrome Yandex is dominant with 54.6% market share despite Google being the default browser in Chrome (meaning users have to consciously shift) • Yandex is progressing well in mobile with 15% of search traffic coming from mobile and 11% of search revenues • Yandex now has over 60% market share in Android (from 47% just a quarter ago) and 40% in iOS (from 30%) Yandex Doing Well In Areas Google Should Dominate • Yandex is trying to launch key unique products outside of search • Yandex recently announced a new cost per action model for Yandex.Market where Yandex will charge merchants 1% from every transaction made through the market (compared to 8-10% at eBay and others). Yandex will offer enhanced conversion of visitors into buyers through increased user experiences and enhanced credit card safety by having users store their credit card information in Yandex (which will also have obvious benefits for Yandex too) • Already 100 sites have already signed up and another 1,000 have expressed interest Yandex Is Introducing New Products
  • 9. 8 CONFIDENTIAL Russia is an important language market for Google • Russia’s online ad market is growing at about 30% YOY with the contextual market growing even quicker at 38% YOY; Many individual platforms are growing at even quicker rates • Russia is the largest TV advertising market in EMEA and will shortly be fifth largest in the world • Russia is one of the most dynamic markets in the world for mobile ad requests • Compared to the US Russia’s advertising market is in its infancy. Online advertising spending per user in the US is 15x the current amount spend in Russia • In the key mobile segment , spending is expected to grow 50% per year and is currently at 9% less than the US as a percent of total advertising spending • The Russian audience is the most active in Europe for video consumption which should lead to higher video ads Russia Is A Very Attractive Advertising Market • By 2020 Europe is expected to be Europe’s largest consumer market and the world’s fourth biggest overall; Demand for key consumer sectors is growing at 10-15% per year • The consumer already accounts for 2/3 of GDP and 80% of economic growth since 2004 • The middle class accounts for 55% of the population higher than China (21%), Brazil (30%) or India (11%); The number of people considered upper class (15%) is 3x that of Brazil • Russian users place an order on eBay every three seconds and total spending on eBay alone is $400 million a 54% growth rate YOY • Russia’s e-commerce market is highly fragmented with the top 10 retailers making up only 20% of the market. This is a good sign for advertising platforms like Yandex Huge Consumer Market • Eastern Europe is still the second lowest ad spender of any world region behind only the Middle East and Africa • Russia media spending is growing at 15% and will continue growing at double digit rates for a couple of years according to eMarketer; Total ad spending was up 13% YOY in 2012 • Russia is currently the 11th ranked country for advertising spending and is expected to reach 7th place by 2015 overtaking South Korea, Australia and France • With over 75 million internet users, Russia still has almost half its population not online. This compared to just 20% in the US not online and similar numbers in Europe where Russia is already the largest internet country • Large international online players like eBay, ASOS and Amazon have entered the Russian market recently which should help to drive advertising as these players spend to take share from established local players • The Russian-speaking audience includes about 85 million users today (in and out of Russia) and growing quickly Russia Still Has Plenty of Growth Left
  • 10. 9 CONFIDENTIAL Russia is An Important Country to Google 2012 Distribution of Visitors to Google.com2013 Percent of Visitors to Google Sites 31.50% 9.90% 3.30% 3.20% 2.80% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% United States India Russia Brazil Indonesia Source: Alexa 30.1 9.0 3.3 3.2 3.1 3.0 3.0 2.8 2.7 2.4 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 United States India Japan Brazil Russia United Kingdom China Germany Iran Italy Number of monthly active Google+ users 2Q 2012 (MM) 107 43 20 20 14 14 13 12 10 9 0 20 40 60 80 100 120 China India Brazil Indonesia Unted States Russia Mexico Vietnam Turkey Argentina Sources: Digital Media Ramblings and Company Filings
  • 11. 10 CONFIDENTIAL Recent Developments Have Only Added to Yandex’s Dominance A number of recent development could further enhance Yandex’s competitive position in the Russian Market Apple Inc.’s iOS 7 mobile operating system is expected to include Yandex as a default search engine option within Safari. This should be no surprise considering Apple’s rivalry with Google and that Yandex has been supplying local data for Apple Maps since September 2012 Mail.ru the hugely popular Russian portal recently announced that they would stop utilizing Google to power their own search engine further hurting Google’s position in Russia Mail.ru is testing Yandex.Direct, a contextual advertising service for its web sites. The partnership could potentially boost Yandex revenue by as much 10 percent according to Otkritie Capital Like Google Yandex recently launched its own browser to enhance search and display revenue Yandex recently signed a licensing deal with the browser Opera to share Yandex’s technology and utilize Opera browser capabilities Yandex’s browser now has around 8 million users in Russia or a 5.9% share On July 02, 2013 Yandex announced that it will carry Twitter data in all search results in a deal that is similar to a deal Google used to have with Twitter to carry twitter results in search feeds The deal gives Yandex a leg up on Google up in key social networking related results Yandex recently launched a dedicated mobile browser featuring a single box for URLs and searches as well as voice recognition and other features.  An app store similar to Google Play called Yandex.Store was recently launched in July 2013
  • 12. 11 CONFIDENTIAL Factor Advantage Notes Local Understanding Yandex •Having been involved in Russian search since 1989, Yandex has a clear language and cultural understanding vs. Google •Yandex has also developed applications specifically for local population Non-Search Services Yandex •Like Google, Yandex offers a lot of non-search services like Maps, Shopping, News, Mail and Payments •Yandex offered Mail, News and Payments before Google did and certainly before they offered a Russian version •In certain areas like Yandex.traffic and payments Yandex is ahead of Google in terms of quality •Yandex's services consistently rank above Google's in Russia except in areas where Google is clearly dominant such as Video Partnerships Yandex •Yandex has partnered with most of the more attractive partners including Mail.ru, Apple, Opera, Cooliris, Windows Phone, Skrill, Twitter, Rambler and many others giving Yandex control of not just Yandex but all the top players •These partnership also testify to the Yandex’s dominance in Russia and quality of the Company’s search results •Partners like Mail.ru and Twitter were formally Google partners Video Google •Google has almost twice as many video users in Russia as Yandex •YouTube is the clear leader worldwide in the rapidly growing video market including in Russia Mobile Google •Andriod is the leading operating system worldwide and in Russia; With Google controlling Android it has an inherent advantage on mobile •Google is one of the largest and most innovative mobile companies in the world and with mobile moving at a rapid pace Google will shortly be too far ahead of Yandex for Yandex to catch up •Yandex has been holding its own in mobile with innovative mobile applications and partnerships with Android competitors like Apple and Microsoft Browser Yandex •Crome is a strong competitor worldwide in both mobile and desktop •Yandex's recent browser as the partnership with Russia browser leader Opera puts in a strong position to compete against Android in Russia Yandex Vs. Google In Russia
  • 13. 12 CONFIDENTIAL Yandex Has Important Key Partnerships Yandex’s list of partners and advertisers is a who’s who of the Russian internet market Many of these partnerships such as Apple, Mail.ru, Twitter, Skrill and Cooliris greatly enhance the Yandex product and in the case of Apple and Twitter hurt Google’s Through partnerships with Mail.ru and Rambler, Yandex not only operates its own sites but assists in operating the other popular portals in Russia Partnerships and Advertising Partnerships Source: Yandex
  • 14. 13 CONFIDENTIAL Local Knowledge Is Important, Most Popular Sites Are Local Top E-Commerce Sites The vast majority of the largest companies in key categories (excluding searches and portals) are all Russian companies. This testifies to the importance of local knowledge in the Russian market 56% of consumers say that the ability to obtain information in their own language is more important than price Top Social Networks Top News Sites Top Offline Retailers & Daily Deal Sites Source: Yandex
  • 15. 14 CONFIDENTIAL Yandex Has The Leading Advertising Network In Russia Yandex offers advertisers a sophisticated service for placing ads on both search pages and millions of pages in its advertising network; Yandex’s ad network shows ads to over 37 million people daily Yandex’s advertiser count is growing quickly (24% YOY) having added 12,000 new advertisers in Q3 2013 Members of Yandex’s ad network include the top sites in Russia such as Mail.ru, Rambler, Odnoklassniki, livejournal.ru and many others Yandex believes there are over 1 million SME’s that could be serviced by Yandex’s advertising network Advertising experts are said to view Yandex’s traffic monetization platform as more efficient than Google’s platform due to the higher CPCs experienced by Yandex Yandex Number of Advertisers (Thousands) Sources: AKAR, Company Data & BofA Merrill Lynch Russia Online Advertising Market Shares 37% 39% 50% 52% 45% 47% 50% 15% 14% 14% 13% 63% 61% 50% 33% 40% 39% 37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2006 2007 2008 2009 2010 2011 2012 Yandex Mail.ru Other 144 159 174 179 193 202 213 226 239 261 41% 48% 43% 40% 34% 27% 22% 26% 24% 24% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 0 50 100 150 200 250 300 350 400 450 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Advertisers YOY Growth, %
  • 16. 15 CONFIDENTIAL 17,695 15,092 10,971 10,848 7,197 57% 15% 81% 20% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Yandex Weather Yandex News Map Makers Sites Mail.ru Ria.ru Total Unique Visitors % Growth 15,284 7,439 6,404 5,314 4,90018% 2% 27% 46% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Yandex Market Ozon.Ru Sites Svyaznoy Sites M.Video Wildberries.Ru Total Unique Visitors % Growth Top News/Weather Sites in RussiaTop Market Sites in Russia Yandex Is A Top Destination in Russia Source: Comscore Top Online Banking Sites in Russia 6,686 1,353 1,103 820 691 37% 21% 29% 0% 10% 20% 30% 40% 50% 60% 70% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Sberbank.Ru Tscbank.ru Vtb24.ru Rsb.ru Rencredit.ru Total Unique Visitors % Growth Yandex is the most important site in key categories such as banking, market sites and news/weather sites In key News and Weather categories Yandex has the top two places in Russia Yandex market has almost double the visitors of the largest competitor Sberbank is a partner and majority owner of Yandex.Money
  • 17. 16 CONFIDENTIAL Browser Share in Russia – Even In Chrome Yandex’s Share Grows Context Market Growth Vs. Yandex Context Revenue SERP and Paid Clicks GrowthEstimated Click-through Rate for Yandex Display Market Growth vs. Yandex Display Revenue Source: AKAR, Company Data and BofA Merrill Lynch
  • 18. 17 CONFIDENTIAL Russia is a Very Attractive Market Russia has the world’s eighth largest economy and seventh largest internet population Russia’s GDP per capita is estimated at $14,037 higher than Brazil ($11,339), China ($6,091) or India ($1,489) By 2016 GDP per capita is expected to reach $18,709, a growth of about 25% Having grown 60% YOY, Russia ranked second in Europe in terms of job creation (to the UK) in 2012 through FDI It is largely expected that Russia joining the WTO will have a positive effect on the Russian economy and FDI Already the largest in Europe, Russia’s internet audience is growing at one of the fastest rates of any large country in terms of both audience metrics and advertising metrics Contributors to Global Ad Growth 2012 – 2015 ($MM)Countries by GDP (USD $B) 15,685 8,227 5,960 3,400 2,613 2,435 2,253 2,015 2,013 1,842 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 US China Japan Germany France UK Brazil Russia Italy India $21,191 $13,039 $4,802 $4,157 $3,284 $3,263 $2,442 $2,179 $1,923 $1,874 $0 $5,000 $10,000 $15,000 $20,000 $25,000 USA China Argentina Indonesia Russia Japan Brazil South Korea UK India Source: ZenithOptimediaSource: WorldBank
  • 19. 18 CONFIDENTIAL Russia By The Numbers
  • 20. 19 CONFIDENTIAL Already An Attractive Market Russia is Poised For Breakout Growth Russia Mobile Internet Users 91.8 Million & Growing At Over About 20% a year Internet Market Growth 26% Per Year Till 2015 and 15% till 2016 Online Brand Advertising 63% Of Marketers Project An Increase in Amount For Online Ads Mobile Video Audience 39X Increase In Mobile Video In Past 3 Years Internet Audience 76.5 Million Internet Users; 50% Penetration Russia Ecommerce Market 44% CAGR For Ecommerce Until 2015 ($36B 4.5% of Retail)
  • 21. 20 CONFIDENTIAL English, 55% Russian, 6% German, 6% Japanese, 5% Spanish, 4% Chinese,4% French,4% English Russian German Japanese Spanish Chinese French Russia Is An Important Language Market For Google The Russian language is one of the most prevalent languages in the world especially on the world wide web Next to English, with about 85 million users, Russian is the most popular language on the world wide web and is so popular the Russian language internet was even given its own moniker of the “Runet” It is estimated that there are as many as 30 million Russians living outside Russia The .ru domain is the most popular country-code top level domain on the internet Russian is used on 89.8% of .ru sites and is used on 75% of sites in the former soviet union countries Yandex is the clear leader in Russian language searches for Russian language speakers 1,917 406 335 260 223 202 193 162 122 84 0 500 1,000 1,500 2,000 2,500 First Language Speakers by Language (MM)Internet Most Popular Languages Source: W3Techs.com
  • 22. 21 CONFIDENTIAL 22 26 35 38 41 61 62 68 77 86 95 103 112 121 15% 18% 25% 27% 29% 43% 43% 47% 54% 60% 67% 73% 79% 86% -30% -10% 10% 30% 50% 70% -10 10 30 50 70 90 110 130 150 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Number of Internet Users (MM) Penetration Russia’s Internet Population is Large and Growing Percentage of Individuals Using the Internet In Select Markets (%) 27 30 14 43 30 14 2 3 4 2 1 87 84 83 81 79 72 53 50 45 42 13 10% 9% 16% 5% 8% 15% 32% 27% 23% 30% 30% -40% -30% -20% -10% 0% 10% 20% 30% 40% 0 50 100 150 200 United Kingdom Germany France United States Japan Spain Russia Brazil Turkey China India 2000 2012 CAGR Russian Market By Number of Users 2005 - 2016(MM) Sources: eMarketer, RIA Novosti, Bloomberg LP, ITU, comScore, J’son & Partners and Ovum
  • 23. 22 CONFIDENTIAL Russia Is The Top Internet Market In Europe and 6th Largest Overall Top 10 Worldwide Internet Markets By Number of Users (MM) 2012 European Top Internet Markets By Number of Users (MM) 68 67.5 52.7 36.5 35.8 31.6 24.9 15.5 15.3 0 10 20 30 40 50 60 70 80 Russia France UnitedKingdom Turkey Italy Spain Poland Netherlands Ukraine 538 245 137 101 88 68 67 55 53 52 0 100 200 300 400 500 600 China * UnitedStates India Japan Brazil Russia Germany Indonesia UnitedKingdom France Source: Comscore; Note internet users differ widely depending on the source due to differences in estimation
  • 24. 23 CONFIDENTIAL 1,347 1,237 314 244 194 183 169 152 143 128 110 0.48% 1.27% 0.72% 0.66% 0.82% 2.02% 2.83% 1.27% 0.13% -0.28% 0.73% -15.00% -10.00% -5.00% 0.00% 5.00% 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 China India United States of America Indonesia Brazil Pakistan Nigeria Bangladesh Russia Japan Mexico Population Growth Rate Russia’s Population Gives It Room To Grow Top Countries By Population (MM) Sources: Capital IQ One of the reasons Russia is able to enter into the top markets for numerous categories while still maintaining room to grow is the size of the population is one of the world’s largest Few other countries have the population base of Russia to rely on and many of these such as Pakistan, Nigeria and Bangladesh do not currently have the infrastructure or GDP per capita needed to rank highly in various internet categories Despite having over 75 million internet users that still leaves almost half the population not online Many other countries such as China, India, US and Brazil also rank highly in important internet categories
  • 25. 24 CONFIDENTIAL Russia Is An Important Search Market Russian users are some of the most active in the world in terms of how often they search on computers Smartphones have yet to catch up to this with Russia being only moderately active in search as compared to other countries Russia is fifth in the world in terms of the total aggregate number of internet searches By 2017 Russia is expected to be 8th in the world in terms of total search advertising spending, a CAGR of 15% Frequency of Search on Mobile In Select CountriesFrequency of Search on Computer In Select Countries Source Google; Includes Smartphone Owners 90 83 85 69 84 92 79 76 9 15 12 27 12 7 18 20 0 20 40 60 80 100 120 Brazil China France Germany India Russia UK USA Daily Weekly Monthly Less than monthly 58 60 51 38 73 54 54 62 27 34 28 38 20 30 32 25 10 5 13 16 5 10 8 9 0 20 40 60 80 100 120 Brazil China France Germany India Russia UK USA Daily Weekly Monthly Less than monthly Top 5 Activities for Mobile Browsing 30% 31% 39% 40% 56% 30% 32% 37% 42% 51% 0% 10% 20% 30% 40% 50% 60% Entertainment News Weather News Social Networking Search Dec-11 Dec-12
  • 26. 25 CONFIDENTIAL Russia Is A Leader in Search Global Monthly Internet Searches (MM) 30,335 10,431 10,177 7,724 6,910 6,378 5,506 5,029 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 United States Brazil Japan United Kingdom Russian Federation Germany France Turkey Source: Comscore Russia Has a Substantial Share of Rising Google Search Terms In The Past 12 Months (MM) 500% 350% 140% 120% 90% 90% 70% 60% 60% 60% 0% 100% 200% 300% 400% 500% 600% Source: Google
  • 27. 26 CONFIDENTIAL Russia Is A World Search Leader May 2010 Monthly Internet Searches (MM) May 2013 Monthly Internet Searches (MM) 30,335 10,177 7,724 5,506 6,378 10,431 6,910 4,358 5,029 8% 2% 4% -2% -1% 27% 17% 5% 12% -40% -30% -20% -10% 0% 10% 20% 30% 40% -5,000 5,000 15,000 25,000 35,000 45,000 55,000 65,000 75,000 United States Japan United Kingdom France Germany Brazil RU Canada Turkey 16% 5% 4% 3% 3% 6% 4% 2% 3% Monthly Internet Searches CAGR % Total 24,415 9,595 6,841 5,930 6,651 5,035 4,295 3,800 3,591 -1,000 4,000 9,000 14,000 19,000 24,000 29,000 United States Japan United Kingdom France Germany Brazil RU Canada Turkey 17% 7% 5% 4% 5% 3% 3% 3% 2%% Total Source: Comscore
  • 28. 27 CONFIDENTIAL Russia’s Advertising Market is Increasingly Moving Toward Online Ads Total Russian Advertising Market ($MM) $7,771 $5,656 $6,777 $8,165 $9,235 $10,417 $11,719 $13,148 $14,620 $16,111 $17,593 $19,036 $20,406-27% 20% 20% 13% 13% 12% 12% 11% 10% 9% 8% 7% -90% -70% -50% -30% -10% 10% 30% $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Advertising Market (net) Growth Russian Advertising Market Compared to Other Countries (Online % of Total Advertising Spend) Sources: Magna Global, Zenith Optimedia,eMarketer, AKAR BofA Merrill Lynch and JP Morgan 37% 18% 20% 19% 21% 21% 19% 15% 4% 5% 45% 32% 30% 28% 25% 25% 23% 19% 9% 7% 0% 10% 20% 30% 40% 50% UK China Russia US France Germany Spain Italy India Brazil 2012 2015
  • 29. 28 CONFIDENTIAL TV Advertising Russian Advertising Market Per Capita $71 $41 $51 $63 $67 $74 $83 $93 $104 $114 $125 $135 $145 $0 $20 $40 $60 $80 $100 $120 $140 $160 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Advertising Spending Per Capita $3,649 $2,987 $3,435 $4,061 $4,439 $4,883 $5,371 $5,909 $6,499 $7,149 $7,793 $8,416 $9,005 47% 53% 51% 50% 48% 47% 46% 45% 44% 44% 44% 44% 44% -80% -60% -40% -20% 0% 20% 40% 60% $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TV Advertising % of total ad market Russian Advertising Market Sources: AKAR & BofA Merrill Lynch
  • 30. 29 CONFIDENTIAL Russia Advertising Market Traditional Vs. Online Russia Digital Advertising Market $462 $502 $831 $1,296 $1,745 $2,290 $2,935 $3,645 $4,454 $5,353 $6,327 $7,351 $8,394 $0 $2,000 $4,000 $6,000 $8,000 $10,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Display Advertising Context Advertising $7,771 $5,656 $4,517 $8,165 $9,235 $10,417 $11,719 $13,148 $14,620 $16,111 $17,593 $19,036 $20,406 $0 $5,000 $10,000 $15,000 $20,000 $25,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TV Advertising Display Advertising Context Advertising Other Media Russian Advertising Market Sources: AKAR & BofA Merrill Lynch
  • 31. 30 CONFIDENTIAL Russia Internet And Mobile Have Plenty of Room For Growth Rank Country Population (MM) GDP ($MM) Online Ad Spending ($MM) Mobile Ad Spending ($MM) Total Ad Spending ($MM) Mobile as % of Online Spending Mobile as % of Total Spending Online Ad Spending Per Capita Total Ad Spending Per Capita Online Ad Spending % of GDP Total Ad Spending % of GDP 1 United Kingdom 62 $2,418,671 $8,008 $803 $20,626 10.0% 3.9% $129 $332 0.33% 0.85% 2 Sweden 10 $535,557 $1,150 $46 $3,777 4.0% 1.2% $120 $395 0.21% 0.71% 3 Germany 82 $3,433,506 6449.607 $71 25256.45 1.1% 0.3% $79 $308 0.19% 0.74% 4 Japan 127 $5,050,523 9135.617 $2,074 51254.12 22.7% 4.0% $72 $403 0.18% 1.01% 5 United States 314 $15,984,100 $22,480 $7,290 $177,075 32.4% 4.1% $72 $563 0.14% 1.11% 6 France 64 $2,688,240 3367.414 $109 14360.57 3.2% 0.8% $53 $225 0.13% 0.53% 7 Spain 47 $1,308,640 $1,542 $61 $7,660 4.0% 0.8% $33 $162 0.12% 0.59% 8 Czech Republic 11 $177,089 $257 $3 $1,361 1.1% 0.2% $24 $130 0.14% 0.77% 9 Poland 39 $463,506 $851 $10 $3,102 1.2% 0.3% $22 $81 0.18% 0.67% 10 Hungary 10 $108,521 $205 $8 $773 4.1% 1.1% $21 $78 0.19% 0.71% 11 Brazil 194 $2,194,506 $2,819 $10 $22,644 0.4% 0.0% $15 $117 0.13% 1.03% 12 Russia 143 $1,930,883 $2,002 $34 $10,954 1.7% 0.3% $14 $77 0.10% 0.57% 14 China 1,360 $8,745,025 13611.61 $1,177 41630.52 8.6% 2.8% $10 $31 0.16% 0.48% 15 Turkey 76 $790,053 $399 $33 $3,319 8.3% 1.0% $5 $44 0.05% 0.42% 16 Ukraine 45 $188,223 $121 $6 $1,396 5.3% 0.5% $3 $31 0.06% 0.74% Online ad spending per capita for BRIC countries is well below levels in developed economies Mobile ad spending in Russia is below levels in more developed mobile smartphone markets like the U.S. and U.K. Russia accounts for about 43% of total Eastern Europe media ad spending and is expected to account for half of all spending in Eastern Europe by 2016 Yandex gets 15% of search traffic from mobile vs. 20% for Google and 30% - 40% for Baidu Source: Informa, KPCB, Bloomberg LP, Capital IQ& Zenith Optimedia
  • 32. 31 CONFIDENTIAL Russia has historically been a cash economy with about 89% of payments being cash payments  Part of this is cultural and part of it has to with infrastructure with ATM/POS penetration standing at 1/5 of the penetration achieved in the US Utilizing mobile and online payment methods has grown in popularity in Russia and is expected to continue growing at a very high rate in the years to come According to a survey by J’son & Partners Consulting, 44% of smartphone users and 60% of tablet users paid for goods or services the previous month before the survey using mobile methods With credit card penetration at less than 20% in Russia, services like Yandex.Money and others have a greater chance of adoption due to the higher value proposition against methods of payment (cash or bank based methods) Most Russians do have payment cards like debit cards but 50% of cards are only used for salary withdrawal and cash withdrawals on payday account for 85% of ATM transactions Unlike in developed economies, many services such as mobile operator payments are pre-pay rather than post- pay which accounts for high volumes of mobile payments, about $285 million in 2012 Mobile banking is also growing quickly, having grown 39% to 243 million. By 2017 mobile banking is expected to grow to $870 million a CAGR of 29% However, due to the low penetration of smartphones much of the current payment market is done through SMS with 43.4 million people using SMS-banking for about $630 million in total payments Russian Mobile and Online Money/Payment Market Source:eMarketer
  • 33. 32 CONFIDENTIAL Russia Is One Of The Top Video Markets In The World With nearly 60 million monthly viewers Russia is second in the world only to the US in terms of unique video viewers. Russia is first in Europe in terms of total audience having grown at 30% CAGR over the past three years Considering that Russia is also a huge market for illegal content the number of users is also actually underreported Only 5% of content downloaded in Russia is from legal sources and four out of five users pirate content New legislation to enforce IP rights should decrease these numbers and help the legal video market The number of video viewers is growing at 18% annually while the number of videos is growing at 16% annually Each user in Russia watches on average 156 videos per month at about eight minutes per video Thus far, the paid model for content has not been very successful in Russia. Only a limited number of viewers are ready to pay for content, while large amounts of content are available for free on ad-funded sites or via resources with pirated content, something expected to change with new legislation targeted such content Domestic content accounts for up to 45% of the available titles on average in Russia The funding market for online video is fluid in Russia with funding sources such as founders, VC and PE funds, and strategic investors having invested about $200 million in the Russian online video market since 2007 The online video advertising market is expected to grow at a CAGR of 34% to $143million by 2017 and some estimates have growth occurring at over 90% CAGR through 2015 Many major players are expected to enter Russia shortly such as Amazon (which applied to register the trademark “Amazon Instant Video”), Hulu and Netflix having recently visited Russia, a first step to possibly entering the country
  • 34. 33 CONFIDENTIAL Russia Video Timeline
  • 35. 34 CONFIDENTIAL Russia Is One Of The Top Video Markets In The World Split Of Available Video Content in Russia By Origin Russia, 45% UK, 5% USA, 40% Europe,10% Total Unique Viewers (MM) 195 59 46 40 38 28 22 0 50 100 150 200 250 USA Russia Germany France UK Italy Spain Number of videos per user and per month 349 324 228 195 187 182 157 0 50 100 150 200 250 300 350 400 USA UK Spain France Germany Italy Russia Source: comScore 3 20 55 98 20% 55% 73% 90% 5% 15% 25% 35% 45% 55% 65% 75% 85% 95% 0 20 40 60 80 100 120 140 160 2011 2012 2013 2014 Mobile Video Viewers (MM) % Mobile Internet Users Mobile Video Viewers
  • 36. 35 CONFIDENTIAL Russian Video Market Russian In-Stream Ad and Paid Content Market Broadband Penetration in Russia Will Drive VideoNb of video views per year (in billions) 10.22 15.33 25.92 33.91 44.05 61.83 83.78 110.85 143.11 0 20 40 60 80 100 120 140 160 2009 2010 2011 2012 2013 2014 2015 2016 2017 Russia Online Video Ad Spend($MM) $59 $96 $152 $233 $6 $20 $68 $112 $0 $50 $100 $150 $200 $250 $300 $350 $400 2012 2013 2014 2015 In-stream Ads Paid Content 41% 48% 54% 60% 64% 0% 10% 20% 30% 40% 50% 60% 70% 2011 2012 2013 2014 2015 106 118 144 174 209 248 292 0 50 100 150 200 250 300 350 2012 2013 2014 2015 2016 2017 2018 Source J’son partners, EWDN, comScore, Bloomberg LP & Tvigle
  • 37. 36 CONFIDENTIAL Still Plenty Of Room To Grow For Russian Video Market Compared to the U.S. Russia still has plenty of room for growth in online video At about 59 million viewers, Russia has an online penetration of about 76.6% of internet users and 41% of the total population vs. 85% of total internet users and 59% of the population in the U.S. At parity with the U.S., Russia would have another 6.45 million video users on a percent of internet user basis and another 25.37 million on a percent of total population basis Connected devices like smartphones and smart TVs are growing rapidly and already account for up to 50% of video views for many market players Ad spending in Russia also lags far behind the U.S. in terms of the total amount spent on online video spending. Even adjusted for the lower investment amount spent on TV ads in general this fact could still lead to a large increase in video ad spending According to Maxim Melnikov CEO of Media 3, “Five billion dollars previously devoted to TV advertising has already started to move toward online video advertising in line with increased internet video viewing” In addition, RTB for video to monetize inventory is set to emerge in Russia which should help kickstart video advertising in Russia Increased broadband and 3G/LTE coverage should significantly increase viewership opportunities in coming years
  • 38. 37 CONFIDENTIAL Still Plenty Of Room To Grow For Russian Market Russia Vs. U.S. Online Video (2012)Emergence of Video Ads In Russia $205.0 $6.0 $16.0 $150.0 $32.0 $0.6 $1.1 $27.0 6x 11x 15x 15x -10x -5x 0x 5x 10x 15x $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 TV Ad Spending Per Capita Online Video Ad Spending Per 1,000 Video Online Video Ad Spending Per Viewer Online Ad Spending Per Internet User USA Russia Gap 10.0% 0.6% 20.0% 2.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Online Video/Display Ad Market Online Video/Total Ad Market Russia USA Sources: EWDN, Global Insight, eMarketer, AKAR, ZenithOptimedia , J’son & Partners, AEGIS, Google, GPMD, IMHO, Mail.ru, Tvigle Russia Vs. U.S. Comparison (2012) (MM)Display Video Ad Spending Forecast ($MM) $576 $718 $859 $1,001 $43 $86 $137 $190 -$300 $200 $700 $1,200 $1,700 $2,200 2012 2013 2014 2015 Display Video Ads Mobile Display Video Ads 179 73 50 20 0 20 40 60 80 100 120 140 160 180 200 Online Video Viewers Mobile Video Viewers USA Russia
  • 39. 38 CONFIDENTIAL Smart TVs Expected To Drive Online Video Demand Russia is number three in the world in terms of smart TV sales with 800,000 TVs sold in 2012 or 30% of TV sales In 2018 this number is expected to reach 5 million devices a 40% annual growth rate for a total of 32 million total smart TVs in Russia or 31% of the total TV ownership in Russia This forecast is supported by the fact that compared to advanced markets Smart TV penetration is still negligible in Russia compared to more advanced markets at about 5% vs. 20% to 40% in advanced markets To support this growth in smart TV devices all major online video players have developed apps for smart TV viewership. In total there are 640 applications for smart TVs in 1H 2013 a 50% growth rate from the year before Still, only one in three owners of Smart TV devices use all the features of Smart TVs Online Video Consumption By Channel Web, 67% Mobile, 15% Smart TVs, 18% Smart TV Penetration (% of Total TV Devices 2012) 44% 18% 17% 14% 11% 11% 8% 5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% China South Korea India Brazil USA UK Germany Russia Source J’son partners, EWDN & Tvigle
  • 40. 39 CONFIDENTIAL Smart TVs Expected To Drive Online Video Demand Total TV Market In Russia 91 93 96 98 100 101 102 103 63% 65% 67% 69% 70% 71% 72% 73% 40% 45% 50% 55% 60% 65% 70% 75% 0 20 40 60 80 100 120 140 160 2011 2012 2013 2014 2015 2016 2017 2018 Total nb of TV in Russia (MMs) Penetration Smart TV Market In Russia 1.1 2.4 4.2 6.6 9.9 17.2 24.6 32.1 1% 3% 4% 7% 10% 17% 24% 31% -20% -10% 0% 10% 20% 30% 0 5 10 15 20 25 30 35 40 45 50 2011 2012 2013 2014 2015 2016 2017 2018 Smart TVs (MMs) Penetration Source J’son partners, EWDN & Tvigle
  • 41. 40 CONFIDENTIAL Russian Video Market Smartphone User Video Engagement 35.4 27.1 36.7 24.7 37.6 28.1 25.5 24.4 17.7 16.9 13.2 11.5 11.4 8.1 6.7 5 0 5 10 15 20 25 30 35 40 Russia India China Brazil USA UK France Germany Watched videos on a video sharing website Watched full episodes of TV programme online Usage of Video Platforms on Smartphone 89 80 78 73 64 76 79 44 37 35 60 14 40 5255 0 20 40 60 80 100 Brazil France Germany India Russia UK USA Google Sites Facebook Vkontakte.ru Comfort with mobile and online video is on par with the U.S. and ahead of major BRICs like Brazil and India Unlike in other countries where Google has a huge lead one other competitors, in Russia, Google is only slightly ahead of social network VKontakte which also has a significant video section, though much of it is pirated content Still, Russia is one of the top five traffic generating countries to YouTube Usage of Video Platforms on Computer 100.3 82.3 83.1 82.9 80.2 78 82.4 49.7 41.3 38.3 60.5 24.7 40.4 52.4 70.8 0 20 40 60 80 100 120 Brazil France Germany India Russia UK USA Google Sites Facebook Vkontakte.ru Source: Google
  • 42. 41 CONFIDENTIAL Mobile In Russia The mobile internet will be used by 92 million Russians at the end of 2013 a penetration of 65% The number of mobile visitors in Russia grew 51% in 2012 Better 3G and LTE coverage as well as the proliferation of cheaper smartphones and tablets are expected to drive further growth Unlike other markets where feature phones went the way of the dinosaur, in Russia 40.5 million people connect to the internet through feature phones, significantly more than smartphones or tablets Russia still has a lot of prepaid subs that do not have advanced services Feature phones represent about half the market in total and 35% of web access devices Even many smartphones in Russia are lower priced phones including lower priced Android models. These lower priced models are not used as much for internet as higher priced Android phones or iPhones This year more than three out of five of Russia’s web users are expected to go online via mobile this year. Among smartphone users mobile internet services are growing at 88% a year Russia has one of the highest percentages of mobile page views in Europe, only the UK has a higher share By 2017, more than nine out of ten web users will access the internet on mobile in Russia Many web users in Russia are leapfrogging PCs and going from no internet straight to mobile internet The number of users with one or more internet access points is expected to go from 49% in 2011 to 62% by the end of 2013 while those with only one access point are expected to decline from 49% to 38%
  • 43. 42 CONFIDENTIAL Russia is a Top Mobile Country Mobile Internet Penetration 2012 23% 85% 85% 83% 81% 77% 75% 65% 64% 55% 35% 19% 16% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% World Japan Spain Italy USA UK South Korea Germany France Russia Brazil Indonesia China India Monthly Mobile Internet Users Mobile Internet Use By Device (Monthly Basis) (MM) Smartphone, 22.5 Tablet,2.5 Feature Phones,40.5 60.5 77.4 91.8 103.9 114.6 43% 55% 65% 73% 81% 5% 15% 25% 35% 45% 55% 65% 75% 85% 0 20 40 60 80 100 120 140 160 2011 2012 2013 2014 2015 Monthly Mobile Internet Users (MM) Penetration Sources: Informa, ITU, & J’Son & Partners
  • 44. 43 CONFIDENTIAL Russia is a Top Mobile Country Device Share of Page Views Across European Countries 68% 92% 90% 90% 75% 91% 24% 5% 6% 7% 22% 6% 7% 3% 3% 4% 3% 2% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% UK France Germany Italy Russia Spain Tablet Mobile PC Prepaid As % Of Total Subscribers Across Countries Mobile Internet Use By Device (Monthly Basis) (MM) Smartphone, 22.5 Tablet,2.5 Feature Phones,40.5 74 67 65 46 23 17 13 1 7 32 23 28 75 76 78 91 17 0 10 24 2 6 5 7 0 20 40 60 80 100 Russia India Brazil China Germany UK USA France Prepaid: you pay in advance andtopup yourcredit whenused up Postpaid: contractwith a monthly bill Hybrid: a fixed monthlyfee withoptionto topup whenmonthly limit is reached Sources: comScore, Google & J'son & Partners
  • 45. 44 CONFIDENTIAL Tablets In Russia Tablet sales in Russia in the first half of 2013 increased by almost 239% to 2.6 million units for total revenue from tablet sales of about a billion dollars This compares to a decline in PC shipments of 37% for PCs and 45.3 for notebooks Unlike in most markets where Apple’s iPad is extremely strong, in Russia, Android holds the largest share at 65% vs. 49% in the worldwide market. Samsung holds largest share (25%) of the tablet market in Russia Much of this is due to the proliferation of low cost tablets priced at $100 or less Tablet penetration is expected to reach 12 million units by 2015 Tablets now account for 15% of total mobile internet devices in Russia Russia Tablet Market ShareTablet Sales In Russia (MM Of Units) IOS, 29% Andriod,65% Other,6% Sources: IDC & J’son Partners 1.3 3.5 8.2 12.7 16.1 0 2 4 6 8 10 12 14 16 18 2011 2012 2013 2014 2015
  • 46. 45 CONFIDENTIAL Smartphone Penetration is Well Below Expected Levels At 12% smartphone subscribers as a % of total subscribers, 36.2% total penetration and 27% of 2012 mobile smartphone sales, Russia is well below other markets. However, these factors are expected to grow significantly Data has been slow to catch up in Russia to other parts of the world. For instance, 4G penetration is only estimated at .3% and LTE subscribers just passed the 1 million user mark Wireless penetration in Russia is well above other markets leading to a reasonable expectation that smartphones subscribers will increase significantly, in line with income growth and the dropping prices of smartphones In 2013, 36% of all phones sold in Russia will be smartphones with an average cost of $285 vs. $350 today By 2015 smartphones are expected to more than double to 63 million units while LTE penetration is expected to be 10% in the same time period Sources: Google, J’son Partners & ITU Smartphone Penetration % Of Total Penetration Wireless Penetration 162 141 138 132 124 114 114 90 78 0 20 40 60 80 100 120 140 160 180 Russia Ukraine Germany Brazil United Kingdom France North America Turkey India 12.8 26.3 36.2 39.8 42.3 46.9 56.4 62.2 0 10 20 30 40 50 60 70 India Brazil Russia Germany France China USA UK
  • 47. 46 CONFIDENTIAL Smartphone Penetration is Well Below Expected Levels But Increasing Rank Country 2013E Smartphone Subs Total Subs Smartphone as % of Total Subs Smartphone Sub YOY Growth 1 China 354 1,221 29 31 2 USA 219 378 58 28 3 Japan 94 124 76 15 4 Brazil 70 304 23 28 5 India 67 1,117 6 52 6 UK 43 81 53 22 7 South Korea 38 57 67 18 8 Indonesia 36 327 11 34 9 France 33 72 46 27 10 Germany 32 110 29 29 11 Russia 30 250 12 38 12 Mexico 21 111 19 43 13 Saudi Arabia 21 55 38 36 14 Italy 21 91 23 25 15 Australia 20 33 60 27 Russia Mobile Purchase Prices Russian Smartphone Vs. Mobile Subscribers 30MM Smartphone Subscribers 250MM Mobile Subscribers 0 50 100 150 200 250 300 Smartphone Mobile Phone 1,493 1,532 2,107 2,879 2,568 2,507 3,483 4,337 3,498 8,599 8,786 11,442 11,934 9,431 9,262 11,778 11,697 8,639 $137 $125 $124 $136 $139 $136 $141 $164 $171 $336 $324 $321 $318 $314 $320 $317 $330 $328 $0 $50 $100 $150 $200 $250 $300 $350 $400 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 PricePerUnit UnitSales(000s) Smartphone Market Mobile Handset Market Price of Mobile Phone Price of Smartphone Russia Mobile Handset Sales By Quarter Source: MTS 37.40% 33.00% 16.60% 12.90% $45-$150 $150-$150 $300-$300 Above $450
  • 48. 47 CONFIDENTIAL Share of Smartphone Sales in Various MarketsPercent Of People Who Own Multiple Mobile Devices Smartphone Behavior Sources: J'son & Partners & Strategy Analytics Source: IDC Attitude Toward Mobile Marketing 51% 48% 36% 17% 16% 16% 11% 0% 10% 20% 30% 40% 50% 60% Russia Brazil China US South Korea UK India Mobile Purchase From Smartphone (Ever) 39.3 38.8 45.8 34 36 38 40 42 44 46 48 Russia UK USA 21 49 38 39 0 10 20 30 40 50 60 Used a mobile coupon to purchase a product in store Open to receiving mobile ads if freebies included Russia USA 12% 9% 7% 6% 6% 5% 17% 12% 10% 9% 8% 8% 12% 15% 15% 16% 16% 17% 59% 65% 68% 69% 70% 70% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015 2016 2017 Desktop PC Portable PC Tablet Smartphone
  • 49. 48 CONFIDENTIAL Russia is a Top Mobile Country Actions Taken after Noticing Ads By Smartphone Owners 23.9 16.7 22 4.6 5.8 7.9 6.1 13.4 4.3 18.2 6 8.9 44.5 19.3 13.2 14.3 4.6 5.5 7.3 6.5 8.3 5.3 15.5 7.3 6 62.2 0 10 20 30 40 50 60 70 Clicked on the ad Looked for more information (m) Looked for more information on (PC/T) Called the advertiser Called the advertiser Later Made a purchase in - store Made a purchase online (M) Made a purchase online (PC) Made a purchase online (TB) Visited website Went to the store Located the advertiser on a map None of these Russia USA Frequency of Mobile Purchase via Smartphone 4 12.1 42.2 41.6 3.6 14.8 41.9 39.7 9 10.7 40.4 39.9 0 5 10 15 20 25 30 35 40 45 Multiple times per day Once a day Few times a week Once a week Russia UK USA Source: Google
  • 50. 49 CONFIDENTIAL Russia is a Top Mobile Country Relevance Smartphone in Comparison to other Media Barriers to Mobile Purchase via Smartphone 52.1 16.4 84.5 69.2 50.6 78.2 35.6 24.9 82.9 69 54.8 70.2 0 10 20 30 40 50 60 70 80 90 Would rather give up TV than smartphone. Would rather give up desktop/ tablet PC than smartphone Don't leave the house without smartphone Smartphone provides me with relevant information Access information on smartphone, follow-up on other device Websites as easy to use as on other media Russia USA 24.3 29.3 27.8 30.1 22.8 11.8 25.4 16.4 5.1 22.8 9.1 27.2 22.1 39.6 39.6 24.7 9.2 21 11.3 9.5 8.8 13.2 0 5 10 15 20 25 30 35 40 45 Cannot see detailed product/service information Hard to compare prices and options Cannot trust credit card security on mobile device Screen size is too small Hard to type Information is not rich enough Takes too much time to open the web site page Mobile online access tend to be interrupted Battery life is short Not used to smartphone interface Other Russia USA Source: Google
  • 51. 50 CONFIDENTIAL Russia is a Top Mobile Country Usage of Smartphone in Purchase Journey Actions taken after Local Search 45.4 20.4 8.9 4.4 8.9 32.1 29.2 22.3 6.4 3.7 12.5 42.1 0 5 10 15 20 25 30 35 40 45 50 At beginning of shopping, looking for inspiration, ideas In the middle of my shopping, evaluating the products At end of my shopping / purchase After shopping process, writing reviews Throughout whole shopping Do not use my smartphone in these situations Russia USA 40.5 17 14.7 20.8 23.7 40.1 48.6 14.3 51.9 0 11.8 47.6 16.8 13.4 28.5 24.4 51.1 46.8 11 46.6 0.1 16.3 0 10 20 30 40 50 60 Called the business or service Read or wrote a review about a business or service Recommended a business or service to someone else Made a purchase from a business in- store Made a purchase from a business online Visited a business Visited the website of a business or service Marked or added a business or service to my favorites list Looked up business or service on a map or got directions Other Not taken any action Russia USA Source: Google
  • 52. 51 CONFIDENTIAL Russia is a Top Mobile Country Frequency of action after attention of advertising Frequency of Local Search on Smartphone 30.8 34.1 16.7 11.1 7.3 24.5 32.4 24.2 13.1 5.9 0 5 10 15 20 25 30 35 40 Daily Weekly Monthly Less than monthly Never Russia USA 13 21.2 22.1 15.1 28.7 6.3 15.2 17.7 16.3 44.6 0 5 10 15 20 25 30 35 40 45 50 Daily Weekly Monthly Less than monthly Never Russia USA 28.3 27 21.8 13.5 9.4 18.2 21.2 27.7 22.2 10.7 0 5 10 15 20 25 30 Daily Weekly Monthly Less than monthly Never Russia USA 12.5 17.7 18.1 16.5 35.2 9.2 14.8 20.6 15.3 40 0 5 10 15 20 25 30 35 40 45 Daily Weekly Monthly Less than monthly Never Russia USA Frequency of Noticing Ads on Smartphone Frequency of action after attention of TV advertising Source: Google
  • 53. 52 CONFIDENTIAL Share of Smartphone Sales in Various MarketsSmartphone Sales Forecast For Select Economies Smartphones Gaining Ground But Still Room For Growth 66% 69% 59% 56% 6% 29% 0% 10% 20% 30% 40% 50% 60% 70% 80% Great Britain Germany USA China India Russia Share of Smartphones in Total Mobile Sales Smartphones, 12.6MM Laptops, 7.0MM PC, 4.8MM Smartphones Laptops PC Sources: J'son & Partners & Strategy Analytics 239.8 125 26.5 18.8 17.2 15.7 28.7% 14.9% 3.2% 2.3% 2.1% 1.9% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 0 50 100 150 200 250 300 350 400 450 500 China U.S. India Russia Brazil Indonesia 2013 Shipments 2013 Market Share Sales of Various Devices in Russia 2012Russia is expected to be one of the largest markets for smartphone purchases in 2013  Smartphone sales far outpaced PC or laptop unit sales in 2012 and this trend is expected to continue Many Russians are purchasing a smartphone as a first and primary internet device Despite the growth in smartphones, Russia still has plenty of room to grow before it reaches the same percentage of total mobile sales as other markets
  • 54. 53 CONFIDENTIAL Smartphone Shipments To RussiaRussia Mobile Operating Systems Market Share Android has been quickly taking share from iOS phones in Russia where Apple is considered a luxury item Android now takes over 70% of new shipments (almost double last year) in Russia mostly in lower priced phones Unlike in the US, Nokia phones like the Windows phone are popular in Russia with Windows phone shipments equaling those of the iPhone in 1Q 2013 Major carriers in Russia recently stopped carrying the iPhone due, in part, to the required subsidization of the iPhone that Apple typically requests from carriers In a recent survey, just over 50% of respondents said that they prefer Android over other mobile operating systems. Another 25.3% voted for Windows Phone, 16.8% for iOS, and 7.4% for other options Android Operating System Is Strong In Russia 18.90% 36.50% 22.80% 21.80% IOS Andriod (& Linux) Nokia Other Sources: WapStart and Openstat
  • 55. 54 CONFIDENTIAL Russia is the 4th country by app downloads from Google Play and 5th For Apple app downloads Russia is the only country except the U.S. to be in the Top 5 for both iOS and Android apps Russia is the fastest growing of the top countries having jumped 6 spots in the rankings year over year Russia went from #9 to #4 on Android and #11 to # 5 on iOS since Q2 2012 Russia should experience even larger growth in Google Play downloads in future years due to the large increases in market share by Android vs. iOS Russia’s major operators have now stopped carrying the iPhone which should dent iOS app downloads Competitor app stores like the Yandex store could take downloads away from Google Play though Russia Is One Of The Top Countries In The World for Apps
  • 56. 55 CONFIDENTIAL Retail Market Estimates ($B)2012 Top Ten Luxury Goods Markets ($B) Russia’s retail market is currently valued at about $660-$670B in total sales (depending on the source) Russia is now Europe’s second largest retail market and is predicted to shortly become the largest By 2020, the number of households in Russia with annual disposable income above $100K is expected to triple Russia is 8th in the world in luxury spending and Russian tourists are fifth in spending worldwide (up 32% YOY) Russian tourists are second in the world in “shopping expenditures” accounting for 16% of all tax receipts submitted globally Russia contains 101 billionaires third only the U.S. and China both of which have much larger economies Moscow has the most billionaires in the world with a total of 79 and a collective net worth of $367B twice that of Hong Kong, 3x that of Sao Paulo and 4x that of Mumbai Russian Retail Market Overview $77 $32 $21 $19 $18 $14 $12 $10 $7 $6 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 USA Japan Italy France China UK Germany Russia Spain S. Korea $2,311 $3,390 $846 $659 $500 $4,208 $3,961 $1,877 $932 $768 $8,346 $4,470 $3,823 $1,482 $1,155 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 China U.S. India Russia Brazil 2012 2016 2022Sources: Bloomberg LP, Economist Intelligence Unit
  • 57. 56 CONFIDENTIAL Ecommerce Penetration (% of Total Retail Sales) 1.90% 4.80% 5.30% 5.70% 10.10% 10.20% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% Russia Germany France China US UK Russia’s ecommerce sector is expected to grow at 35% per year until 2015, reaching $36B or4.5% of total retail sales in 2015 with an additional increase to $72B by 2020 (one of the largest ecommerce markets in Europe) or 7% of retail sales. In the long term Russia could be a $150 billion ecommerce market In 2012 ecommerce sales were $12B or about 1.9% of Russia’s $670B total retail market Today at 1.5% ecommerce penetration Russia is well below other countries such as the U.S. and the UK at about 10% and even China and Brazil at about 5%. Both the U.S. and the U.K. reached 2% penetration in 2003 and 2005 respectively The number of Russian consumers reporting recent online purchased increased 93% between 2011 and 2012 Russian Ecommerce Market Set to Explode Ecommerce Estimates Sources: Euromonitor & Morgan Stanley
  • 58. 57 CONFIDENTIAL Russian ecommerce companies have an estimated market share of about 90% in the Russian market showing the significant barriers to entry in the Russian language market About 22 million Russians made 80 million orders of physical goods (220,000 per day) in 2012 However, many Russians spend a significant amount abroad both in trips and online Between 2011 and 2012 Russians received over 30 million packages from abroad, 70% from foreign e-stores valued at total spending of $2.5 billion Russians spent $43 billion on outbound tourism in 2012 and over $52 billion in spending while abroad Russian Ecommerce Shoppers Prefer Local Sites Top European Retail Sites (MM Unique Visitors) 123,524 54,057 33,068 28,293 26,939 21,634 18,951 18,899 17,922 17,572 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 1% 1% 1% 2% 2% 2% 3% 3% 3% 5% 6% 8% 25% 0% 5% 10% 15% 20% 25% 30% Slando.ru Wikimart.ru E5.ru Amazon.com Sapato.ru Molotok.ru Yandexmarket.ru KupiVIP.ru MVideo.ru Bigilon.ru Avito.ru ebay.com Ozon.ru Shoppers Favorite Places To Buy Online (%) Sources: AlphaWise, comScore & Morgan Stanley Research
  • 59. 58 CONFIDENTIAL Russians are new to ecommerce with 48% having their first ecommerce transaction in the last two years (vs. 10% in the U.S.) and only 16% having bought products online for over six years (vs. 62% in the U.S. Only 63% buy physical goods online at all vs. 85% in the U.S. The average number of online purchases is 10 times per year for consumers vs. 15 for the U.S. Many factors have held back growth in ecommerce. For instance, cash on delivery represents about 60% of online transactions because of the low penetration of credit cards compared to other markets Delivery is also laden with problems which is why only 19% of Russians cite it as a benefit of online shopping Yandex is a huge beneficiary of any growth in ecommerce with 87% of consumers using search engines to research purchases and 81% using search to compare prices About 40% of commercial searches started at Yandex.Market Russia’s ecommerce market is highly fragmented with the top 10 retailers making up only 20% of the market. This is a good sign for advertising platforms like Yandex Total Past 12 Months (Online Shoppers) Regular (1 Month) Google 38% 38% 36% Yandex 56% 59% 61% Other 6% 4% 35 Yandex % of eCommerce Search 58 49 32 23 12 11 0 20 40 60 80 Cash of Delivery Web Money Bank Card Bank Transfer SMS Payment Terminal Online Method of Payment Russian Ecommerce Market Set to Explode – Yandex Well Positioned Sources: PWC, AlphaWise & Morgan Stanley Research
  • 60. 59 CONFIDENTIAL According, to a survey by Thinktank L2 and New York Times, most major brands in its Digital IQ index still do not have a proper local presence online in Russia Only 25% of companies have pages in Russian while only 21% have local Facebook pages Only 50% of the top 10 most searched brands on Google have translated local sites Only 5% have Russian language mobile sites for mobile customers 34% of brands do not support local in Russia with even those sites mostly lacking in local content, product, and pricing info that is localized In a survey, 72% of consumers said they would be more likely to buy a product with information in their own language. As such, it is predictable that most dominant companies selling to the Russian market are local Russians search for local brands 24% more than non-translated sites Only about 20% of searches in Russia are in English yet less than 45% of brands fail to reach the top three search results on Google or Yandex for Russian brand keywords due to low investment in local SEO Global brand sites in Russia have an average load time of over 10.5 seconds almost 3x load time in the U.S. and 1.22x locally hosted sites Only 20% of brands offer Yandex.Money or Cash On Delivery methods of payment despite the popularity of COD in Russia and the low penetration of credit cards in Russia Local Is Important – Foreign Brands Have A Way To Go In Russia
  • 61. 60 CONFIDENTIAL Local Is Important – Foreign Brands Have A Way To Go In Russia More than a third of the brands in L2’s survey never sent a marketing email to any of the BRI country consumer accounts. Less than 20% of welcome emails and only 10% of marketing emails received were in Russian Only 52% of brands offer a Russian language web form for customer service while only 30% offer a Toll Free Number with Russian language support and only one site offers live chat in Russian With many Russians buying things from abroad due to infrastructure concerns and fear of counterfeits (estimated to be almost 30% in major retail sectors) it is vital for international companies to provide local support features These sites will eventually catch up and offer key local support in key markets such as Russia. Once this occurs it will drive online commerce growth and could also give Google an edge as these international brands are already major advertisers with Google Russian Sites Offering Select Features 25% 69% 24% 27% 75% 35% 35% 31% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% Local Language Russian Language Store Locator Prices In Local Currency Local Customer Service Lists Location Info Links From Product Page Geolocation Provides Directions Live Chat in Local Language Source: L2 Think Tank
  • 62. 61 CONFIDENTIAL Local Is Important – Foreign Brands Have A Way To Go In Russia Average Number of Searches in Brazil and Russia % of BRI Facing Sites Offering Ecommerce Russian Mobile Site Optimization % of BRI Facing Sites With Translated Content 34% 66% With Without 27% 73% With Without 51% 27% 21% US/Global Site Only No Mobile Site Russian Mobile Site Source: L2 Think Tank
  • 63. 62 CONFIDENTIAL Site In Top 3, 56% Site Not In Top 3, 44% Local Is Important – Foreign Brands Have A Way To Go In Russia Mobile App Investments By Top Brands Mobile Optimized Sites 14% 14% 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% iOS Android Symbian 43% 32% 25% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% No Mobile Site Mobile Site - Information Only Mobile Site with Commerce Yandex Brands With Russian URLs SEO PerformanceGoogle Brands With Russian URLs SEO Performance Source: L2 Think Tank & J'son & Partners Site In Top 3, 57% Site Not In Top 3, 43%
  • 64. 63 CONFIDENTIAL 2014E Social Networking Users (MM)Percent of People Who Use Social Networking Sites Russia ranks third on the top 10 list of countries where social media use is most prevalent Other surveys have put total percent of people using social networks at as high as 73% Perception of social networks has significantly increased in the past few years. In 2010, only 52% of Russians responded positively to questions about their use of social networks. Today, that number is over 82% Despite having the 7th most popular social networking site worldwide (VK.com), Russia still ranks as the 6th most important country for Google + Russians spend 12.8 hours a month on social networks or over twice the next country in terms of average hours per visitor spent on social networking 52 50 50 49 49 40 40 39 38 35 33 29 9 30 30 17 9 36 24 8 15 21 42 22 21 42 51 25 38 56 0 20 40 60 80 100 120 Britain U.S. Russia Czech Republic Spain Poland Brazil France Italy Turkey Yes No No Internet 525 283 184 110 75 56 39 37 0 100 200 300 400 500 600 China India United States Brazil Russia Japan Germany United Kingdom Source: Pew Research Center Source: eMarketer Russia Is An Important Country For Social Networking
  • 65. 64 CONFIDENTIAL Countries Who Accessed A Social Network On Mobile 59.9 57.8 53.8 49.5 42.2 40.4 36.8 36.7 0 10 20 30 40 50 60 70 Russia USA UK China Germany France India Brazil Source: Socialbakers Source: Google Russia Is An Important Country For Social Networking Facebook CPCs Across Countries $0.73 $0.75 $0.78 $0.78 $0.81 $0.82 $1.05 $1.08 $1.25 $1.26 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 American Samoa New Zealand Nigeria Switzerland United Kingdom Norway United States Australia Japan Russia Top 5 Russian Social Networks By Unique VisitorsHours Per Month By Typical Internet User 49.218 37.78 17.67 7.768 5.259 6.9 30.2 20.5 368.4 306.7 0 20 40 60 80 Vk.com Odn Mail.RU - My World Facebook.com Twitter Average Minutes Per Visitor6.6 6.3 5.6 4.6 4.3 0 1 2 3 4 5 6 7 Russia Brazil Canada UK US
  • 66. 65 CONFIDENTIAL Russia is a huge gaming market In 2012, Russian-speaking Internet users across the CIS (excluding Ukraine) spent a whopping 40.8 billion rubles ($1.3 billion) on online games, a growth of 22% YOY The mobile game market in Russia will grow from $392 million in 2012 to an estimated $707 million in 201 a CAGR of 13% The number of mobile game players is also expected to increase from 38.6 million at the end of 2012 to 65.1 million in 2016 a CAGR of 11% Russia is the number 2 gaming market in the world behind the U.S. Active video game players and payersOnline game spending in Russia and Neighboring Countries in 2012 $318MM $195MM $87MM $12MM $246MM $366MM Social Games PC Games Mobile Games Casual Games Console Games MMORPG Source: Mail.ru & Newzoo 145.0 38.0 36.0 35.0 31.0 24.0 16.0 15.0 8.0 4.0 63.0 20.0 24.0 17.0 16.0 10.0 9.0 6.0 3.0 2.0 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 Active Players Active Payers
  • 67. 66 CONFIDENTIAL Does Acquisition Meet Google’s Criteria Criteria Meets Criteria? Notes Toothbrush Test People use Yandex multiple times a day Solving a User Problem Yandex solves the same user problem as Google does, arguably better, in the Russian language (at least according to users) Important to One of Main Product Areas Search is a main product area of Google. Buying Yandex will increase search share especially in Russia. Technology and partnerships could also be complementary to Google Strong Management Team The employees at Yandex were first movers in search and have successfully competed against Google despite having a lot less resources and manpower Management Team That Will Stay With Google Yandex has been a strong competitor of Google’s in Russia. It is unknown if the team at Yandex would want to work for Google The Yandex acquisition meets most of Google’s acquisition criteria (as described in public documents). The big question mark is if the team at Yandex would move over to Google. This could be addressed in a term sheet though
  • 68. Merger Overview
  • 69. 68 CONFIDENTIAL Combined Strengths And Values Highly Regarded Leadership Industry Search Technology Intense User Focus Focus and Strength In Mobile Innovative and Entrepreneurial Spirit Global Focus With Local Knowledge
  • 70. 69 CONFIDENTIAL Transaction Rationale • Transaction immediately gives Google an unassailable leadership position in a key internet, advertising and commerce market • In the critical mobile area, the combined company will have the ability to enhance the value proposition of mobile through Google’s market leading developments while also having the ability to monetize mobile, something few companies do as well as Google • There are significant cross selling opportunities for Google in Russia. For instance, Russia is one of the few places where Facebook is not dominant which presents an opportunity for Google+ especially considering what a strong social country Russia is Strategic • Highly complementary integration of assets between the two firms including customers, products and technologies • Significant distribution and cost synergies between the two firms Operational • Compelling PF financial profile that is immediately accretive to Google with few synergies required • Including synergies and the growth potential of Russia, Google could be getting Yandex for a decent price while also acquiring the future possible successes (free options) that go above and beyond forecasted financial results Financial • Customers benefit from the combination of Yandex’s local market expertise and Google’s industry leading and quickly advancing products • Yandex has the largest advertising network in Russia, a significant asset for Google in Russia and beyond Customers • Yandex’s team rivals Google in terms of time within the search industry • Google acquires a significant stable of technology talent and IP that will be useful in worldwide while also increasing the attraction to future talent in Eastern Europe Talent and IP • Yandex has partnership deals with the most important companies in Russia, as well as major competitors to Google such as Apple. Taking advantage of these partnerships or neutralizing them is important for Google Partnerships
  • 71. 70 CONFIDENTIAL Pro Forma Financials Revenues $47,353 $1,242 $48,595 LTM 2013 Google Yandex Combined 2.56% % Combined Gross Profit $34,439 $923 $35,362 2.61% EBITDA $21,145 $561 $21,706 2.58% EBIT $17,092 $433 $17,525 2.47% Net Income $14,857 $378 $15,235 2.48% Cash Flow $10,743 $289 $11,032 2.62% Total Assets $105,068 $1,487 $106,555 1.40%
  • 72. 71 CONFIDENTIAL Transaction Transaction Structure Expected Sources Of Funding  Google acquires 100% Of Yandex for equity consideration of $17 billion  Premium of 35% to prior day closing price of $37.79  Purchase price of $17.044 billion, subject to working capital and other adjustments  Consideration of 75% Cash and 25% Equity  Theoretical Exchange ratio of .049x with 4.261 million Google shares issued  Transaction expected to be financed with cash on hand from GOOG and YNDX as well as common shares of GOOG PF Financials  With synergies Google can expect cash ongoing EBITDA of $22,018 million and revenue of $48.781 million Expected Timing  Expected to close by the end of the fourth quarter of 2013 Transaction Structure Synergies  Numerous opportunities for pre-tax synergies of about $311 million Conditions to Closing  Subject to due diligence, shareholder approval and regulatory approvals in the US and Russia Management & Employee Teams  Google will attempt to retain key members of Yandex management and key employee teams
  • 73. 72 CONFIDENTIAL Expected run- rate benefitsLevers Drivers of efficiencies • With the combination Yandex and Google will offer an even more compelling platform for advertisers and partners in Russia and beyond • There will be numerous cross selling opportunities as well as the ability for Yandex advertisers to utilize other Google services or enter into other markets with Google Revenue Enhancements $186.3 million or 15% of Yandex Revenue Product Development Total Pre-Tax Synergies Synergies expected to be accretive to both margins and Adjusted EPS $310.9 million Synergies Summary General and Administrative Costs & COGS • While Google will clearly need to keep the core development capabilities at Yandex to support local products there will be numerous areas of overlap and inefficiencies which can be eliminated through a merger • Efficiencies from pooling of resources and infrastructure (production, support, general support, middle management, facilities, IT, etc.) • COGS will see lower synergy levels due to increased efficiencies from scale $53.8 million or 30% of Yandex R&D Spending $70.8 million or 30% of Yandex G&A and 15% of COGS
  • 74. 73 CONFIDENTIAL Merger Summary (1) (1) Does not include foregone interest income Transaction Assumptions Sources Amount Current share price $37.79 Cash For Expenses $25.6 Offer price premium 35.0% Cash Purchase Price 75.0% $12,783.0 Offer price per share $51.02 Stock issued 25.0% $4,261.0 YNDX diluted shares outstanding $334.1 Total Sources $17,069.5 Offer Value $17,044.0 + Debt $0.0 Uses‡ Amount + Preferred $0.0 Purchase of equity $17,044.0 + Noncontrolling interest $0.0 Transaction expenses 0.1% 5 $25.6 - Cash & equivalents ($368.4) Total Uses $17,069.5 Transaction Value† $16,675.6 ‡ Assuming no financing fees. Simplifying training assumption. Purchase Price Allocation Transaction Multiples LTM Offer Value $17,044.0 Transaction Value / PF 2013 Sales 11.68x Less: Net identifiable assets of target ($1,105.9) Transaction Value / PF 2013 EBITDA 19.1x Excess purchase price for allocation $15,938.1 Offer Value PEG 0.8x Less: Fixed asset write-up ($1,593.8) Less: Indefinite life intangibles write-up ($2,390.7) Exchange Ratio Calculation Less: Definite life intangibles write-up ($1,912.6) Offer price per share $51.02 Plus: Deferred tax liability $1,179.4 Google Inc. share price $1,036.24 Goodwill Created $11,220.4 Exchange ratio§ 0.049x § Theoretical assuming 100% stock † Balance sheet data converted to USD at a rate of 0.0309 USD / RUB as of the filing date 30-Sep-13.
  • 75. 74 CONFIDENTIAL 2013E Pro-Forma GAAP Income Statement (1) Pro Forma Google Yandex Increase Decrease Combined Net Revenues $47,352.6 $1,242.0 $186.3 $48,780.9 Cost Of Goods Sold 12,914.1 319.0 (16.0) 13,217.2 Gross Profit 34,438.5 923.0 186.3 16.0 35,563.8 Selling General & Admin Exp. 10,175.3 191.8 (57.5) 10,309.5 R & D Exp. 6,365.9 179.3 (53.8) 6,491.4 Total Operating Expenses 16,541.2 371.0 (111.3) 16,800.9 Ongoing EBITDA $17,897.3 $552.0 $18,762.9 D&A 4,053.5 149.0 286.9 0.0 4,489.4 EBIT 13,843.8 403.0 14,273.5 Other Income (Expense) 657.6 85.0 742.6 Pre-Tax Income 14,501.4 488.0 15,016.1 Income Tax Expense 2,386.0 113.0 62.7 (57.4) 2,504.3 Discontinued Operations 711.0 711.0 Net Income $12,826.4 $375.0 $13,222.7 Diluted EPS $37.85 $1.11 $38.55 Weighted Avg. Diluted Shares Out. 338.9 339.0 4.1 343.0 2013E Adjustments (1) Does not include foregone interest income
  • 76. 75 CONFIDENTIAL 2013E Pro-Forma Cash Income Statement (1) Pro Forma Google Yandex Increase Decrease Combined Net Revenues $47,352.6 $1,242.0 $186.3 $48,780.9 Cost Of Goods Sold 12,914.1 319.0 (16.0) 13,217.2 Gross Profit 34,438.5 923.0 186.3 16.0 35,563.8 Selling General & Admin Exp. 6,926.7 182.8 (54.8) 7,054.6 R & D Exp. 6,365.9 179.3 (53.8) 6,491.4 Total Operating Expenses 13,292.6 362.0 (108.6) 13,546.0 Ongoing EBITDA $21,145.9 $561.0 $22,017.8 D&A 4,053.5 128.0 4,181.5 EBIT 17,092.4 433.0 17,836.3 Other Income (Expense) 740.6 49.0 789.6 Pre-Tax Income 17,833.0 482.0 18,625.9 Income Tax Expense 2,976.5 104.0 62.2 3,142.7 Net Income $14,856.5 $378.0 $15,483.2 Diluted EPS $43.84 $1.12 $45.14 Weighted Avg. Diluted Shares Out. 338.9 339.0 4.1 343.0 2013E Adjustments (1) Does not include foregone interest income
  • 77. 76 CONFIDENTIAL 2013E Pro-Forma GAAP Balance Statement Acquirer Target Adjustment Pro Forma GOOG YNDX (Decrease) Increase Combined Cash $54,432 $370 ($12,809) $41,993 Other current assets $12,429 $185 $12,614 PP&E $12,912 $247 $1,594 $14,752 Goodwill $11,396 $23 ($23) $11,220 $22,616 Other intangibles $6,558 $10 $4,303 $10,871 Other long-term assets $3,455 $516 $3,971 Total Assets $101,182 $1,349 $106,817 Current liabilities $9,118 $204 $9,322 Debt $8,200 $0 $0 $8,200 Other liabilities $5,012 $17 $1,179 $6,208 Preferred stock $0 $0 $0 Noncontrolling interest $0 $0 $0 Common equity to parent $78,852 $1,129 ($1,154) $4,261 $83,087 Total Liabilities & Equity $101,182 $1,349 $106,817
  • 78. 77 CONFIDENTIAL Net Income Merger Build Up (1) Cash Net Income Build Up GAAP Net Income Build Up $378 $627 $186 $16 $109 $62 $0 $100 $200 $300 $400 $500 $600 $700 $800 Standalone 2013E Revenue Synergies COGS Synergies Expense Synergies Tax PF 2013E (1) Does not include foregone interest income $375 $396 $186 $16 $111 $5 $287 $0 $100 $200 $300 $400 $500 $600 $700 $800 Standalone 2013E Revenue Synergies COGS Synergies Expense Synergies Tax Amortization PF 2013E
  • 79. 78 CONFIDENTIAL Net Income Merger Build Up (1) Cash EPS Accretion Dilution ($) GAAP EPS Accretion Dilution ($) (1) Includes foregone interest income. $0.94 $0.91 $0.87 $0.83 $0.79 $0.76 $0.72 $1.08 $1.06 $1.04 $1.02 $1.00 $0.98 $0.95 $1.26 $1.24 $1.22 $1.19 $1.17 $1.15 $1.12 ($0.10) $0.10 $0.30 $0.50 $0.70 $0.90 $1.10 $1.30 $1.50 20% 25% 30% 35% 40% 45% 50% Offer Premium 2013 2014 2015 $0.41 $0.35 $0.29 $0.23 $0.17 $0.11 $0.05 $0.64 $0.58 $0.51 $0.45 $0.39 $0.33 $0.26 $0.82 $0.76 $0.69 $0.63 $0.56 $0.49 $0.43 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 20% 25% 30% 35% 40% 45% 50% Offer Premium 2013 2014 2015
  • 80. 79 CONFIDENTIAL Market Cap ($MM) Revenue ($MM) EBITDA($MM) 97% 3% Google Yandex 97% 3% Google Yandex Free Cash Flow($MM) Net Income ($MM) Total Assets ($MM) 95% 5% Google Yandex Contribution Analysis 97% 3% Google Yandex 98% 2% Google Yandex 99% 1% Google Yandex
  • 81. 80 CONFIDENTIAL Summary Yandex Competitor Multiple Valuation LTM EBITDA Margin 2013 PEG 12% 28% 25% 45% 33% 31% 44% 31% 43% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% LNKD SOHU YHOO BIDU A035420 GOOG MAIL Median YNDX 2.8x 6.4x 1.6x 1.5x 1.8x 1.4x 0.8x 1.6x 1.0x 0.8x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x LNKD SOHU YHOO BIDU A035420 GOOG MAIL Median YNDX YNDX - PF Sources: Capital IQ & Company Filings STOCK PERFORMANCE 2013E VALUATION MULTIPLES 2014E VALUATION MULTIPLES LTM OTHER Last Close % of 52 Market Revenue Company Name Price Week High Cap TEV TEV/REV P/E PEG TEV/REV P/E PEG Growth Margin COMPS LinkedIn Corporation $247.14 96.0% $29,034 $28,161 18.6x NM 2.8x 13.1x NM 2.0x 65.6% 12.1% Sohu.com Inc. $67.89 77.8% $2,599 $2,088 1.5x NM 6.4x 1.3x 22.7x 1.1x 29.6% 28.1% Yahoo! Inc. $33.17 94.6% $33,843 $32,186 7.2x 22.6x 1.6x 7.1x 19.8x 1.4x (4.1%) 24.9% Baidu, Inc. $10.55 6.3% $55,758 $52,340 10.3x 31.8x 1.5x 7.8x 25.4x 1.2x 40.7% 45.0% Naver Corporation $593.24 91.7% $17,689 $16,559 7.0x 40.5x 1.8x 5.5x 30.0x 1.4x 16.3% 32.7% Google Inc. $1,036.24 99.6% $346,195 $298,596 5.1x 23.4x 1.4x 4.3x 19.9x 1.2x 23.8% 30.7% Mail.ru Group $37.63 93.8% $7,849 $7,636 9.0x 20.1x 0.8x 7.5x 21.1x 0.8x 32.2% 44.3% Mean 8.4x 27.7x 2.3x 6.6x 23.2x 1.3x 29.2% 31.1% Median 7.2x 23.4x 1.6x 7.1x 21.9x 1.2x 29.6% 30.7% Yandex N.V. $37.79 90.0% $12,314 $11,946 9.6x 32.0x 1.0x 7.6x 26.1x 0.8x 37.3% 43.0% Yandex N.V. - PF GAAP $51.02 121.4% $16,996 $16,627 11.6x 44.1x 1.3x 9.4x 34.4x 1.0x 37.3% 43.0% Yandex N.V. - Cash $51.02 121.4% $16,996 $16,627 11.6x 27.6x 0.8x 9.4x 23.9x 0.7x 37.3% 43.0% EBITDA
  • 82. 81 CONFIDENTIAL DCF - WACC 8 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 0 2 4 6 8 10 12 14 Assumptions Bottom-Up Beta Calculation Levered Total Mkt. Val. Debt/ Unlevered Peer Group Tax Rate (for Bottom-Up Beta) 21.0% Ticker Name Beta Debt Equity Equity Beta(2) Risk-Free Rate of Return (Rf)(1) 1.32% LNKD LinkedIn Corporation 1.575 $0.0 $28,581.8 0.0% 1.575 Market Return (Rm) 7.6% SOHU Sohu.com Inc. 1.112 $323.0 $3,121.7 10.3% 1.028 Country Premium 2.3% YHOO Yahoo! Inc. 0.865 $49.0 $33,752.2 0.1% 0.864 YNDX Tax Rate 20.0% BIDU Baidu, Inc. 1.627 $1,921.2 $56,432.6 3.4% 1.585 MAIL Mail.ru Group 1.251 $0.0 $8,210.2 0.0% 1.251 WACC GOOG Google Inc. 0.875 $8,200.0 $342,694.7 2.4% 0.859 A035420 Naver Corporation 0.467 $271.2 $17,341.5 1.6% 0.461 Market Risk Premium (Rm - Rf) 6.2% Multiplied by: YNDX Bottom-Up Beta 1.089 Average 1.110 1.089 Adjusted Market Risk Premium 6.8% Add: Risk-Free Rate of Return (Rf)(1) 1.3% WACC Sensitivity Analysis Add: Country Premium 2.3% Cost of Equity 10.4% YNDX Cost of Equity Multiplied by: YNDX E/(D+P+E) 100.0% E/(D+P+E) # 8.50% 9.25% 10.00% 10.75% 11.50% 12.25% 13.00% Cost of Equity Portion 10.4% 100.00% # 8.5% # 9.3% # 10.0% # 10.8% # 11.5% # 12.3% # 13.0% YNDX Cost of Debt (Rd) 15.0% 95.00% # 8.7% # 9.4% # 10.1% # 10.8% # 11.5% # 12.2% # 13.0% YNDX Tax Rate 20.0% 90.00% # 8.9% # 9.5% # 10.2% # 10.9% # 11.6% # 12.2% # 12.9% After-Tax Cost of Debt 12.0% 85.00% # 9.0% # 9.7% # 10.3% # 10.9% # 11.6% # 12.2% # 12.9% Multiplied by: YNDX D/(D+P+E) 0.0% 80.00% # 9.2% # 9.8% # 10.4% # 11.0% # 11.6% # 12.2% # 12.8% Cost of Debt Portion 0.0% 75.00% # 9.4% # 9.9% # 10.5% # 11.1% # 11.6% # 12.2% # 12.8% WACC 10.4% 70.00% # 9.6% # 10.1% # 10.6% # 11.1% # 11.7% # 12.2% # 12.7% Sources: Capital IQ & Company Filings
  • 83. 82 CONFIDENTIAL DCF - Valuation 8 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 0 2 4 6 8 10 12 14 (1) Assumes 43 days remain in 2013; Mid-Period Convention for annual cash flows; Terminal value cash flow occurs at December 31, 2017. Terminal value equals present value of 2017 EBITDA of $1,203.0 * 13.0x Terminal Forward EBITDA Multiple. (2) Implied Perpetual Growth Rate of FCF = [(Terminal EBITDA)*(Terminal EBITDA Multiple)*(WACC) - (Terminal Year FCF)] / [(Terminal EBITDA)*(Terminal EBITDA Multiple) + (Terminal Year FCF)] Fiscal Year Ending December CAGR 2008 2009 2010 2011 2012 | 2013E 2014E 2015E 2016E 2017E 2013-2017 Total Revenue 259.0 289.8 409.5 624.1 941.9 | 1,242.0 1,552.0 1,905.0 2,320.0 2,798.0 22.5% Annual Growth 11.9% 41.3% 52.4% 50.9% | 31.9% 25.0% 22.7% 21.8% 23.0% EBITDA 124.8 117.8 196.7 277.5 406.2 | 561.0 685.0 846.0 1,025.0 1,203.0 21.0% Annual Growth (5.5%) 66.9% 41.1% 46.4% | 38.1% 22.1% 23.5% 21.2% 26.0% Margin 48.2% 40.7% 48.0% 44.5% 43.1% | 45.2% 44.1% 44.4% 44.2% 47.0% EBIT 104.4 87.6 158.0 219.1 309.6 | 433.0 534.0 666.0 809.0 988.0 22.9% Margin 40.3% 30.2% 38.6% 35.1% 32.9% | 34.9% 34.4% 35.0% 34.9% 35.3% Less: Income Taxes 20.0% (20.9) (17.5) (31.6) (43.8) (61.9) | (104.0) (106.8) (133.2) (161.8) (197.6) Unlevered Net Income 83.6 70.1 126.4 175.3 247.6 | 329.0 427.2 532.8 647.2 790.4 24.5% Plus: Depreciation and Amortization 20.3 30.3 38.7 58.4 96.6 | 128.0 151.0 180.0 216.0 215.0 Less: Capital Expenditure (45.3) (32.8) (70.5) (172.3) (130.4) | (155.3) (192.3) (218.9) (233.8) (335.8) 21.3% Less: Increase in Working Capital 8.1 1.0 17.2 (6.1) 1.1 | 1.4 1.8 2.2 2.7 3.2 22.5% Unlevered Free Cash Flow 66.7 68.5 111.8 55.3 214.9 | 303.2 387.7 496.1 632.0 672.8 22.1% Present Value of Equity DCF Assumptions % of TEV % of MVE PV of 2013 Free Cash Flow Stub(1) 35.5 0.3% 0.3% Weighted Average Cost of Capital 10.35% PV of 2014-2017 Free Cash Flows(1) 1,747.2 14.3% 13.9% PV of Terminal Value(1) 10,423.3 85.4% 82.7% Terminal EBITDA Multiple 13.0x Enterprise Value 12,206.0 100.0% 96.8% Less: Implied Perp. Growth Rate of Unlevered Free Cash Flow(2) 5.8% Total Debt 0.0 0.0% Preferred Stock 0.0 0.0% Tax Rate 20.0% Minority Interest 0.0 0.0% Plus: Cash and Equivalents 397.2 3.2% Equity Value 12,603.2 100.0% (USD in millions, except per share data)
  • 84. 83 CONFIDENTIAL DCF - Sensativity 8 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 0 2 4 6 8 10 12 14 Discounted Present Value of Terminal Value Present Value of Enterprise Value YNDX CF EBITDA Exit Multiple EBITDA Exit Multiple WACC 2013-2017 11.0x 12.0x 13.0x 14.0x 15.0x 11.0x 12.0x 13.0x 14.0x 15.0x 8.35% 1,855.8 9,509.6 10,374.1 11,238.7 12,103.2 12,967.7 11,365.4 12,229.9 13,094.4 13,958.9 14,823.5 9.35% 1,818.6 9,156.6 9,989.0 10,821.4 11,653.9 12,486.3 10,975.2 11,807.7 12,640.1 13,472.5 14,304.9 10.35% 1,782.7 + 8,819.7 9,621.5 10,423.3 11,225.1 12,026.9 = 10,602.5 11,404.2 12,206.0 13,007.8 13,809.6 11.35% 1,748.0 8,498.1 9,270.7 10,043.2 10,815.8 11,588.3 10,246.1 11,018.7 11,791.3 12,563.8 13,336.4 12.35% 1,714.5 8,191.0 8,935.6 9,680.2 10,424.9 11,169.5 9,905.4 10,650.1 11,394.7 12,139.3 12,884.0 Net Debt(1) Present Value of Equity Equity Value per Share YNDX at EBITDA Exit Multiple EBITDA Exit Multiple WACC 12/31/12 11.0x 12.0x 13.0x 14.0x 15.0x 11.0x 12.0x 13.0x 14.0x 15.0x 8.35% (397.2) 11,762.6 12,627.1 13,491.6 14,356.1 15,220.6 Divided 35.33 37.92 40.52 43.12 45.71 9.35% (397.2) 11,372.4 12,204.8 13,037.2 13,869.7 14,702.1 By 34.16 36.66 39.16 41.66 44.16 10.35% - (397.2) = 10,999.6 11,801.4 12,603.2 13,405.0 14,206.8 333.0 33.04 35.44 37.85 40.26 42.67 11.35% (397.2) 10,643.3 11,415.9 12,188.4 12,961.0 13,733.5 Shrs 31.97 34.29 36.61 38.93 41.25 12.35% (397.2) 10,302.6 11,047.2 11,791.9 12,536.5 13,281.1 = 30.94 33.18 35.42 37.65 39.89 Implied Perpetual Growth Rate of FCF Premium/(Discount) to Current Price per Share YNDX EBITDA Exit Multiple EBITDA Exit Multiple WACC 11.0x 12.0x 13.0x 14.0x 15.0x 11.0x 12.0x 13.0x 14.0x 15.0x 8.35% 3.1% 3.5% 3.9% 4.2% 4.5% (13.4%) (7.0%) (0.7%) 5.7% 12.1% 9.35% 4.1% 4.5% 4.8% 5.2% 5.4% (16.3%) (10.1%) (4.0%) 2.1% 8.3% 10.35% => 5.0% 5.4% 5.8% 6.1% 6.4% (19.0%) (13.1%) (7.2%) (1.3%) 4.6% 11.35% 6.0% 6.4% 6.8% 7.1% 7.4% (21.6%) (15.9%) (10.3%) (4.6%) 1.1% 12.35% 6.9% 7.4% 7.7% 8.0% 8.3% (24.1%) (18.7%) (13.2%) (7.7%) (2.2%) (1) Equals Total Debt plus Preferred plus Minority Interest Less Cash and Equivalents. (USD in millions, except per share data)
  • 85. 84 CONFIDENTIAL Yandex Ownership Concentration Name % O/S Position Position Chg Position Chg % Volozh, Arkady 9.97 32,546,735 (25,655,386) (44.08)% OppenheimerFunds, Inc. 6.50 21,223,122 2,131,762 11.17 % Thornburg Investment Management, Inc. 5.90 19,250,139 765,014 4.14 % Morgan Stanley Investment Management Inc. 5.26 17,173,867 95,450 0.56 % Ivanov, Vladimir 3.44 11,218,884 (13,318,884) (54.28)% Comgest S.A. 2.58 8,433,126 (619,000) (6.84)% Capital Research and Management Company 2.50 8,165,000 248,567 3.14 % BlackRock, Inc. 2.19 7,138,412 4,483,797 168.91 % Fidelity Investments 2.12 6,918,167 (2,756,875) (28.49)% Capital Group International Inc. 1.58 5,168,600 (4,060,920) (44.00)% Eton Park Capital Management, L.P. 1.38 4,500,000 2,500,000 125.00 % Lazard Asset Management LLC 1.38 4,491,985 (305,202) (6.36)% Wellington Management Company, LLP 1.38 4,489,488 (1,988,562) (30.70)% UFG Private Equity 1.08 3,515,186 (2,000,000) (36.26)% William Blair Investment Management 0.97 3,181,481 1,563,343 96.61 % Institutional Ownership By Style 62% 33% 4% 1% GARP Growth Blend Value 52.52 65.55 71.16 73.99 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Top 20 Top 50 Top 100 All Source: Capital IQ
  • 86. 85 CONFIDENTIAL Yandex Stock Chart Source: Factset Research Services Inc. Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Source: FactSet Prices Yandex NV Class A (YNDX) Price (USD) Volume (Thousands) Volume Yandex NV Class A
  • 87. 86 CONFIDENTIAL Yandex and Peer Stock Chart Source: Factset Research Services Inc. Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 80 100 120 140 160 180 200 220 240 Source: FactSet Prices Yandex NV Class A vs. Peers Indexed Price Performance Price (Indexed to 100) Yandex NV Class A Google Inc. Class A Yahoo! Inc. Mail.ru Group Ltd. Sponsored GDR RegS Baidu, Inc. Sponsored ADR Class A NAVER Corp.
  • 88. Yandex Needs Google
  • 89. 88 CONFIDENTIAL As Much As Google Needs Yandex, Yandex Needs Google More I think it’s always a mistake to assume that technology will be static. So, I think certainly over the long term, we’re going to have new kinds of devices and ways of interacting with computing and the Internet. We’re obviously excited about Google Glass and new ways of interacting with hardware and new types of hardware. With any technological change you probably overestimate the short-term and underestimate the long-term. We’re really excited about making those investments and making sure we’re positioned to the future. – Larry Page CEO of Google While Yandex is innovating in core search areas, they are not innovating at nearly the pace that Google is In key difficult areas like mobile (both hardware and android), wearables and big data Google is innovating at a much faster pace than rivals and gobbling up share as a result The pace of innovation has accelerated at a blistering pace in the past few years and shows no sign of slowing in the coming years Yandex is not even in areas of possible huge innovations such as wearables and phone hardware Google is creating an unstoppable ecosystem with key incentives in wearables, hardware, driverless cars and big data, among other initiatives that will be extremely difficult to replicate if Google obtains a large lead (like Apple with the iPhone) With Google spending almost $9 billion per year on R&D and acquisitions, it is hard to see how Yandex will be able to compete in 10 or 20 years if Google is successful with any of its world changing products (like Glass) or incrementally improves core products in a way that others would have a lot of trouble replicating
  • 90. 89 CONFIDENTIAL Things Are Changing At An Accelerating Pace On August 5, 2013 Jeff Bezos announced the acquisition of the Washington Post for $250 million The Washington Post is one of the most iconic publications of the past 100 years Yet due to the digital innovation related to news consumption the company that broke the Watergate scandal went for only $250 million For reference two other companies, Tumblr and Instagram were sold for over $1 billion despite being in existence for only a short term before being acquired This shows the increasing pace at which new technologies are displacing existing market leaders
  • 91. 90 CONFIDENTIAL Companies Not Around In 2000 Have Created Major Industry Disruptions The below companies are disrupting business models at a blistering never before seen pace: The below one-time dominant companies failed to get in front of future trends and paid the price:
  • 92. 91 CONFIDENTIAL Yandex Is Hoping The Future Will Be Like The Past: Not Likely With this information would you stake your companies future on tomorrow being like today? Yandex Is Compared to Google, Yandex has not been innovating at nearly the same pace as its search competitor. Yandex is assuming that the world in which it came of age in will continue By staying a smaller company while not pursuing innovation at nearly the same pace as Google Yandex is making the implicit bet that the future will be much like the past a bet that may seem unwise in hindsight If any of Google’s major innovations, for which it spends over $9 billion a year (in R&D and acquisitions), are a major success it will greatly enhance Google’s position at the expense of major competitors like Yandex Already, major successes like Android, YouTube, Google+ and Chrome have greatly enhanced Google’s competitive position, especially in key mobile markets Products like Glass, Google Now, self driving cars, Moto X, Google’s version of cookies and others have the potential to create major disruptions in Google’s favor. This would put Google far enough ahead of competitors to present a major problem to those competitors By not taking on major but riskier innovations Yandex is implicitly betting that the landscape will not change too much a tricky assumption for anyone who watched once dominant companies fall to innovative forces
  • 93. 92 CONFIDENTIAL Why Yandex Needs Google Ecosystem Online & Mobile Video Glass Mobile Phone Hardware Social Network (Google+) Smart watch Driverless Cars Chrome Hardware AdID Google Cloud
  • 94. 93 CONFIDENTIAL 2 20 80 200 250 350 600 700 18 160 250 400 425 500 650 800 0 200 400 600 800 1000 March 2009 December 2009 August 2010 May 2011 July2011 October 2011 June 2012 January 2013 Android iOS Mobile is Exploding Sources: StatCounter Global Stats, Apple, Google, Flurry, Cisco, News Reports and Kleiner Perkins Caufield & Byers Global Mobile Traffic As % of Total Internet Traffic Installed Base of Computing Products Source: Credit Suisse and Company Data Available Apps (000s)Mobile Consumer Internet Traffic (PB Per Month) 684 1,239 2,223 3,774 6,026 9,131 0 2,000 4,000 6,000 8,000 10,000 2012 2013 2014 2015 2016 2017
  • 95. 94 CONFIDENTIAL Mobile Summary Source: Google and Nielsen
  • 96. 95 CONFIDENTIAL Mobile Is Growing Rapidly Mobile A Larger Part of World Traffic 1/7 Of Global Internet Traffic & Growing Quickly Mobile A Larger Part of World Traffic 217 New Users Every Minute Smartphones Are Now Indispensable 67% of Users Access The Internet Every Day From a Smartphone App Revenue Is Exploding $25 Billion In Revenue From Mobile Apps Larger Share of Digital Consumption 1 of Every 3 Minutes Spent on Digital Media Mobile Visits Trouncing Desktop 10x Growth In Visits For Mobile Vs. Desktop From 2012 to 2013
  • 97. 96 CONFIDENTIAL Increasingly e-Commerce is Mobile U.S. Retail Mcommerce Sales By Device 2011 - 2016 Sources: eMarketer & Baymard $5 $14 $24 $34 $46 $61 $8 $10 $13 $17 $20 $24 $14 $25 $38 $52 $68 $87 $0 $20 $40 $60 $80 $100 2011 2012 2013 2014 2015 2016 Tablet Smartphone Other Total Mobile Spending Amount Distribution $1-20, 38% $21-100, 30% $101-$250, 15% $250+, 17% mCommerce Spending Per Smartphone/Tablet $43 $70 $106 $135 $157 $176 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 2010 2011 2012 2013 2014 2015 mCommerce Per Smartphone/Tablet
  • 98. 97 CONFIDENTIAL Increasingly e-Commerce is Mobile
  • 99. 98 CONFIDENTIAL Increasingly e-Commerce is Mobile Percentage of e-Commerce Spending From Mobile (Tablet and Phone) Sources: Comscore,Baymard & eMarketer 2% 3% 3% 6% 6% 8% 9% 8% 9% 10% 11% 11% 9% 0% 2% 4% 6% 8% 10% 12% Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Mobile Shoppers & Buyers (MM) Mobile Spending Amount Distribution 68 95 118 140 159 175 33 53 73 89 105 120 38% 52% 62% 72% 79% 85% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 50 100 150 200 250 300 2011 2012 2013 2014 2015 2016 Mobile Shoppers Mobile Buyers % of Digital Shoppers $1-20, 38% $21-100, 30% $101-$250, 15% $250+, 17%
  • 100. 99 CONFIDENTIAL Share Of Time Spent Per DayUS Internet Minutes by Device Since the first iPhone was introduced in 2007, mobile smartphones and tablets have rapidly become a hugely important medium for users and advertisers. As Google itself says: Smartphones are the backbone of our daily media use. They are the devices used most throughout the day and serve as the most common starting point for activities across multiple screens. Smartphone penetration has risen to 56%. About 67% of those with smartphones access the internet every day on it, usually never leaving home without it By the end of 2013, tablet sales are expected to surpass PC sales for the first time According to Cisco, total global data carried over smartphones will surpass laptops and netbooks in 2013 Mobile accounts for 27% - 32% of retailer traffic and 60% of millennial shoppers shop on mobile Mobile Is Rapidly Overtaking Desktop 4% 7% 13% 19% 22% 23% 21% 19%4% 4% 4% 5% 41% 40% 39% 37% 15% 14% 13% 12%8% 7% 5% 5%7% 6% 4% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2011 2012 2013 Other Offline Print Radio TV Other Digital Desktop/Laptop Mobile (Non-Voice) 47% 12% 41% Desktop Tablet Smartphone Source:Comscore excluding online video viewing minutes, & eMarketer
  • 101. 100 CONFIDENTIAL Mobile Is Rapidly Overtaking Desktop Source:IDC & J'son & Partners Consulting Global Tablet Apps Market ($MM) Worldwide Smart Connected Device Forecast $2,000 $23,700 $0 $5,000 $10,000 $15,000 $20,000 $25,000 2012 2016 Time Spent Online By Platform and Content Type 76% 68% 68% 62% 62% 56% 54% 50% 50% 49% 36% 33% 20% 18% 8% 16% 29% 12% 31% 31% 28% 40% 39% 32% 35% 55% 58% 64% 48% 77% 8% 3% 20% 7% 7% 16% 6% 11% 18% 16% 9% 9% 16% 34% 15% 0% 20% 40% 60% 80% 100% Automotive Business/Finance TV News/Information Sports Food Health Entertainment Lifestyles Retail Weather Social Media Technology Games Radio PC Smartphone Tablet 12% 9% 7% 6% 6% 5% 17% 12% 10% 9% 8% 8% 12% 15% 15% 16% 16% 17% 59% 65% 68% 69% 70% 70% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015 2016 2017 Desktop PC Portable PC Tablet Smartphone
  • 102. 101 CONFIDENTIAL Mobile Has All The Making of An Advertising Superstar # Times Typical User Checks Phone Per Day Sources: eMarketer, Nielsen & GlobalWebIndex 23 22 18 13 12 9 8 8 6 5 3 3 14 0 5 10 15 20 25 Messaging Voice Call Checking Time Music Gaming Social Media Camera Alarm News & Alerts Calender Web Search Other Q2 2013 YOY Retail Spending Growth By Channel 5% 16% 24% 0% 5% 10% 15% 20% 25% 30% Total Discretionary Retail e-Commerce Mobile Commerce Marketers Planned Spending Shifts in 2013 69% 70% 64% 23% 19% 13% 20% 29% 24% 50% 48% 20% 11% 1% 12% 27% 33% 67% 0% 20% 40% 60% 80% 100% Mobile Ads Social Media Ads Video Ads Rich Media Ads Display Ads Connected TV/IPTV Increase Stay Same Decrease/Don't Use
  • 103. 102 CONFIDENTIAL U.S. Digital Ad Spending By ChannelMobile Search Ad Spending Mobile is becoming more and more important as it takes share from desktop Global mobile ad revenue is expected to increase at a CAGR of 50% to $28.5 billion in 2017 This represents an increase from 1.7% of total ad spending in 2012 to 5% in 2015 and 9.5% of digital ads to 51% in 2017 Desktop peaks in 2014 and declines thereafter, while mobile grows at a 33% CAGR in the same timeframe Increases of over 30% for smartphones and 180% for tablets are helping to drive growth According to eMarketer, in 2013 U.S. consumers will spend more time on mobile than online through the desktop Mobile Becoming More Important Source:eMarketer $0.7 $2.0 $3.6 $5.6 $7.9 $10.3 $12.9 4% 11% 18% 26% 34% 42% 51% -5% 5% 15% 25% 35% 45% 55% $0 $5 $10 $15 $20 $25 2011 2012 2013 2014 2015 2016 2017 Mobile Search Ad Spending % Digital Search Ad Spending $30 $32 $34 $35 $35 $34 $33 $2 $4 $8 $12 $17 $22 $28 5% 13% 22% 33% 47% 65% 86% -120% -70% -20% 30% 80% $0 $10 $20 $30 $40 $50 $60 $70 $80 2011 2012 2013 2014 2015 2016 2017 Desktop Mobile Mobile % of Desktop
  • 104. 103 CONFIDENTIAL Mobile Still Just In The First Inning % of Time Spent in Media vs. % of Advertising Spending – U.S. Sources: eMarketer, IDC & ABI Research Despite a huge shift in time spent toward mobile advertising dollars have been slow to follow This is estimated to be changing quickly now as innovation accelerates in the mobile sector The attractiveness of mobile for advertisers is growing quickly as mobile designers have leveraged location information, gestures and UI advancements to make mobile advertising offerings more compelling Despite innovations, there are still huge gaps between the rapid adoption of mobile and the advertising budgets given to mobile Smartphone penetration still lags behind global mobile subscribers 13% 5% 39% 25% 13% 9% 21% 39% 20% 3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Radio Print TV Internet Mobile $20 Billion+ Opportunity Smartphone vs. Feature Shipments 1,164 1,168 1,290 1,221 1,012 151 173 305 494 724 11% 13% 19% 29% 42% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 100 300 500 700 900 1,100 1,300 1,500 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 Feature Phone Shipments Smartphone Shipments Smartphone % Of Total Shipments
  • 105. 104 CONFIDENTIAL Mobile Is Increasingly Important To Technology Companies Minutes Spent On Mobile Vs. Desktop For Top Internet Companies (MM) Source: Comscore Traffic and Revenue From Mobile As % Of Total 80% 50% 55% 38% 33% 22.50% 20% 40% 35% 33% 20% 66% 50% 41% 27% 25% 20% 13% 27% 20% 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Pandora Groupon Facebook OpenTable Google eBay Paypal Zynga Tripadvisor Linkedin Netflix % Traffic From Mobile % of Revenue From Mobile 91,047 43,361 21,987 9,473 6,579 4,794 3,177 1,846 930 716 295 47,989 57,550 980 34,396 3,048 1,024 3,628 10,411 131 3,890 988 0 20,000 40,000 60,000 80,000 100,000 Facebook Google Pandora Yahoo Amazon Netflix eBay AOL Groupon Tumblr Linkedin Mobile + App (MM) Desktop (MM)
  • 106. 105 CONFIDENTIAL Amount Spent on Purchase After SearchMade Purchase After Search Post Search Activity On Mobile Much Stronger Than Desktop 59% 78% 77% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% PC/Laptop Mobile Phone Tablet 46% 46% 38% 22% 25% 22% 26% 21% 32% 5% 8% 7% 0% 20% 40% 60% 80% 100% 120% PC/Laptop Mobile Phone Tablet $1-$49 $50-$99 $100-$499 $500+ Post-Search Activity For Those With A Successful Search 36% 29% 12% 11% 10% 7% 48% 20% 19% 11% 14% 13% 32% 31% 19% 16% 12% 21% 0% 10% 20% 30% 40% 50% 60% Visited the business (in store) Contacted business over the telephone Performed additional research online Planned to contact business in the future Contacted business online Performed additional research offline PC/Laptop Mobile Phone Tablet Source: Comscore
  • 107. 106 CONFIDENTIAL Tablet Summary – Android Still Has Room For Improvement Tablets Are Pervasive 1 in 4 Adults Own a Tablet Tablet Preference Of Affluent ($150K+) 60% of These Own an iPad vs. 26% vs. Android and 13% for Fire iPad Worldwide Shipment Market Share 43.5% Of Shipped Tablets Were iPads in Q4 2012 Conversions Are Higher For Tablets 2.54% ConversionRate for Tablets Vs. .96% for Smartphones and 2.56% for PC Tablet Owners Purchase More Apps Tablet Owners Purchase More Goods $34 Is The Amount The Average Tablet Owners Spends on Apps 43% Of Tablet OwnersHave Purchased A Physical Good vs. 27% On Smartphone
  • 108. 107 CONFIDENTIAL Retail Conversion Rates December 2012U.S. Ad Costs CPMs By Platform Mobile is a much more difficult market than desktop as advertisers still have not paid up for mobile Many factors have contributed to the lower rates including a smaller screen size making advertising more obtrusive, the lack of cookies on mobile, the prevalence of “fat finger clicks” and many other factors  This is expected to change as mobile becomes more efficient and many types of advertising such as Facebook’s in stream ads and location based ads have shown themselves to be extremely efficient and profitable Russia has even lower rates of conversion and CPC than the U.S. making it even harder to monetize mobile in Russia. In addition, Android, which is very popular in Russia, typically has even lower CTR and CPC rates With low smartphone penetration and low advertising rates, Yandex will have difficulty making money on mobile in the near term thus decreasing the ability to significantly invest in mobile like Google has Mobile Is Much Harder Than Desktop 3.30% 2.20% 0.70% 0.20% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% Traditional Computer Tablet Smartphone Other Mobile Source: Adobe DigitalSource: Source MagnaGlobal As of January 2013 $51.00 $29.00 $15.00 $4.70 $4.42 $1.31 $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 Newspaper Broadcast TV Magazines Desktop iPad Mobile
  • 109. 108 CONFIDENTIAL RTB Demand By DeviceAverage CPMs By Device Mobile Is Much Harder Than Desktop $0.52 $0.57 $0.80 $0.62 $0.69 $1.04 $0.94 $1.02 $1.40 $0.59 $0.66 $0.99 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 Oct Nov Dec Andriod iPhone iPad Andriod Tablet 4.00 4.20 5.00 5.30 0.00 1.00 2.00 3.00 4.00 5.00 6.00 Andriod iPhone iPad Andriod Tablet CTR Rate By Device 2.50% 2.20% 1.70% 1.10% 1.00% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% iPad iPod Touch iPhone Android Phone Android Tablet Device %of Mobie Internet Average CTR Average CPC Apple iPad 22.6% 0.21% $0.16 Apple iPhone 11.7% 0.50% $0.10 Samsung Various 1.5% 0.38% $0.07 Nokia Various 6.4% 0.17% $0.06 Mobile Phone Brands Key Statistics - Russia Source: WapStart Source: J'son & Partner s & MoPub
  • 110. 109 CONFIDENTIAL Many factors are more important than ever on mobile vs. what has traditionally worked elsewhere According to Forrester, two thirds found mobile ads annoying, higher than TV or desktop Only 12% find them engaging, 14% think they're relevant and 17% think they're interesting Most PC users automatically look for ads in the right margin of the screen but mobile is too small (on average 10x smaller) for this leaving many mobile users confused when ads pop up in unexpected places Due to the on the go nature of mobile, more difficult feature rich content is what will grab users attention Combining display with mobile video advertising has been shown to boost engagement by 365% Targeting is especially important on mobile with interest and location advertising receiving positive reviews 49% and 43% were open to these type of ads respectively; Data heavy companies like Google are vital for mobile ads Mobile Much Harder Than Desktop Source: MediaMind
  • 111. 110 CONFIDENTIAL 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 Q1 '09 Q2 '09 Q3 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Android iOS Microsoft RIM Bada Symbian Google is the King of Mobile Google has activated 900 million Android devices worldwide and they are linking up 1.5 million devices every day Google is hugely dominate on smartphones with 5 of the top 6 apps on iOS and Android Google is even more dominant on Android with 6 of the top 10 and all of the top 3 apps Google Maps is the most actively used smartphone app in the world though still behind Facebook in total reach Market Share of Shipments By Smartphone OS Source: Gartner & GlobalWebIndex 79% 66% 54% 54% 48% 46% 42% 41% 38% 32% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Facebook Google Maps Google Play Google Search Gmail YouTube Pandora Radio iTunes Cooliris Yahoo! Messenger Top Mobile Apps by Reach of Smartphone Audience Source: ComScore Mobile December 2012 Global Smartphone Users That Used App Last Month
  • 112. 111 CONFIDENTIAL Google Summary Google Search Traffic Dominates 2 Million Search Queries Every Minute Google Analytics 15 Million Sites On Google Analytics Google Apps Used By Students 20 Million Students Using Google Apps For Education Android Apps 53 Apps Per AndroidDevice Activated Ad Sense Popularity and Earnings 2 Million AdSense Publishers Earning $7 Billion Gmail Used By Huge Number of Users 425 Million Users Use Gmail Chrome Users 750 Million Chrome Users Cumulative Android App Installs 48 Billion Total Android App Installs
  • 113. 112 CONFIDENTIAL Google is the King of Mobile - Android Sources: Strategy Analytics, Google & IDC Q3 2013 Smartphone Market Share 81.3 13.4 4.1 1.0 Android iOS Windows Phone BlackBerry OS 2013 Tablet Market Share iOS, 46% Android, 49% Windows, 7% iOS Android Windows Daily Activations of Android Devices (000s) 200 300 350 450 500 550 700 850 900 1,000 1,300 1,400 0 200 400 600 800 1,000 1,200 1,400 1,600 Aug 2010 Dec 2010 Feb 2011 May 2011 Jun 2011 Jul 2011 Dec 2011 Feb 2012 Jun 2012 July 2012 Sept 2012 Mar 2013 The global platform war has been steadily won by Android over Apple’s iOS Today, 80% of devices are running Android and Android is also overtaking iOS in former strongholds like tablets Android is becoming the default language on new devices like smartwatches, fridges and other new devices Google Play has caught up to ITunes in terms of total apps in the store
  • 114. 113 CONFIDENTIAL 35% 24% 19% 17% 16% 14% 11% 10% 9% 25% 23% 18% 17% 10% 16% 10% 10% 10% 0% 5% 10% 15% 20% 25% 30% 35% 40% Google Maps Facebook Mapquest Bing Apple Maps Yahoo Yellow Book Citysearch Yelp Mobile Phone Tablet Google is the King of Mobile - Google Maps While hard to pick one app that is most important to Google’s dominance on mobile, Maps definitely qualifies Maps is the most used local search product on mobile and the most downloaded app behind Facebook Map viewing is the most heavily mobile centric product of all with 84% of time being on mobile vs. desktop Google has significantly improved its Maps product by adding local discovery features and acquiring Waze, among other enhancements. Ads and local discovery were also recently added to Maps Maps is also probably one of the most difficult to replicate product by competitors. Apple recently tried to use its own Maps offering with iOS 6. The results were embarrassing to say the least as the switch simply highlighted just how dominate Google was in mapping compared to competitors like Apple after users basically revolted Applications Used For Local Search Source: New Media Trend Watch & comScore Time Spent On Map Sites (MM) 1,406 1,217 897 4,355 239 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 February 2010 February 2013 Tablet Smartphone Desktop
  • 115. 114 CONFIDENTIAL Why Maps Are Important Many believe that search was to desktop, maps is for mobile. This is because most most search on smartphones are on the go which will likely end up needing a map at some point  Like search Google Maps powers much of maps on other sites through placement of Google’s technology on other sites. Thus Google Maps is literally everywhere collecting data and building the product further Further the advertising potential for maps is immense with local being one of the most important and fastest growing ad categories recently “What search is for the Web, maps are for mobile,” - Waze CEO Noam Bardin “We no longer live in the algorithmic, keyword-based world that Google rose to prominence in,” - Michael Boland, senior analyst at BIA/Kelsey We see the Google Maps product with its recent enhancements as a central part of the company’s opportunity to tap those Local ad dollars. The combination of Google’s reach, targeting capabilities, and collection of local business information positions the Company well to capture a portion of the $100B+ Local ad market as it migrates online.” - RBC capital markets analyst Mark Mahaney “I don’t think anyone can compete right now. They’re so far ahead and have so much momentum that any competitors that creep up, they’ll buy and take them off the table. But right now, there’s a lot more search happening in maps and on mobile than advertising going into this space. There’s no lack of inventory if you consider the supply and demand, which means that we haven’t even seen what they can do yet.” - Michael Boland, senior analyst at BIA/Kelsey “I think the future of Maps is taking the information about a current question as well as the things about you that you’ve told us to bring you information much faster than ever before. Part of that might be telling you things you didn’t know, like the fact that there might be an accident on the highway, and you might need to leave your house sooner to get to work on time. Extending that further means perhaps hinting at things and recommending things that you didn’t necessarily search for.” – Google Maps product manager Bernie Seefeld Source: Buzzfeed
  • 116. 115 CONFIDENTIAL Google is the King of Mobile - Google Maps & Waze In June, 2013, Google announced that it had bought Waze, a social mapping start-up that features real-time traffic data provided by a huge community of users to help drivers find the fastest route to a destination, for over a billion dollars Launched in 2007, Waze now has almost 50 million users and is growing rapidly In 2012, 36 million users in 110 countries shared 90 million user reports (including traffic and road condition alerts) and made 500 million edits. Waze’s social approach also led to about 70% of system-detected map problems being solved by Waze’s users over a 30-day period and almost all user-reported problems fixed in a week Integrating Waze into Google Maps allowed users to now see live traffic reports posted by Waze users in both Waze and Google Maps Waze has permission from many of its users to passively capture location data from its users 24 hours a day (long as the app is open), data Google can effectively use for other services Google also added important features to Waze such as native Google search within the app and native Google street and satellite views within Waze, which should increase accuracy By acquiring Waze Google acquired a hugely dedicated community of users, added key functionality to Maps such as accidents, police presence, blocked roads etc. and most importantly put itself even further ahead of companies like Apple and Yandex, probably far enough that neither company can ever catch Google in the hugely important map category
  • 117. 116 CONFIDENTIAL $10.6 $10.9 $11.1 $10.9 $10.3 $0.6 $1.9 $3.3 $5.1 $7.1 $0 $2 $4 $6 $8 $10 $12 2011 2012 2013 2014 2015 Desktop Mobile Google Net Advertising Search Revenue ($MM) Sources: Company Filings, Capital IQ & eMarketer Google Display Revenue ($MM) $1.5 $1.9 $2.4 $3.0 $3.6 $0.1 $0.3 $0.7 $1.2 $2.2 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 2011 2012 2013 2014 2015 Desktop Mobile 2013E Global Net Mobile Internet Ad Revenue Share Google, 55.97% Facebook, 12.90% Pandora, 2.50% Twitter, 1.95% YP, 2.39% Other, 24.2900% Sources: Company Filings and eMarketer Google Gross Mobile Revenue $2.8 $7.5 $13.4 $18.7 $25.6 $3.0 $8.1 $14.0 $21.0 $28.4 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 2011 2012 2013E 2014E 2015E Mobile Ad Revenue Total Mobile Revenue Sources: BofA Merrill Lynch and Company Filings How Dominant is Google?
  • 118. 117 CONFIDENTIAL How Dominant is Google? Unique Searchers (000's) Number of Searches (MM)Global Unique Visitors (MM) 1,209.60 867.9 830.9 718.6 505.9 401.2 0.00 200.00 400.00 600.00 800.00 1,000.00 1,200.00 1,400.00 Google Inc Microsoft Corp Facebook.com Yahoo! Inc Wikimedia Amazon.com Inc 12,477 2,101 3,350 474 249 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Google Inc Yahoo! Inc Microsoft Corp IAC/InterActiveCorp AOL Inc Search Result Pages (M) 14,034 2,782 4,134 542 310 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Google Inc Yahoo! Inc Microsoft Corp IAC/InterActiveCorp AOL Inc 205,195 114,413 110,055 65,873 26,249 0 50,000 100,000 150,000 200,000 250,000 Google Inc Yahoo! Inc Microsoft Corp IAC/InterActiveCorp AOL Inc Source: comScore
  • 119. 118 CONFIDENTIAL Net Digital Ad Revenue Share Worldwide (% of total digital ad revenues) Net Mobile Internet Ad Revenue Share Worldwide (% of total digital ad revenues) 32.1% 31.5% 32.8% 3.7% 4.1% 5.4% 54.4% 54.8% 52.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 2011 2012 2013 Google Facebook Yahoo! Microsoft IAC AOL Amazon Twitter Pandora LinkedIn Other 38.11% 52.36% 53.17% 5.35% 15.80% 55.58% 34.33% 23.82% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% 2011 2012 2013 Google Facebook Pandora YP Twitter Milliennial Media Other Source: eMarketer How Dominant is Google?
  • 120. 119 CONFIDENTIAL Wearables are expected to be a huge market in coming years Already wearables are a $3 - $5 billion market and this is expected to grow to a $42 billion market in the next 3-5 years (assuming 15%/25% attach rates to Smartphone installed base)/shipments and $100 ASPs Google’s biggest play in wearables is Google Glass which many experts see as being the game changer in the wearable space With the acquisition of Motorola, Google gained a viable smart watch product in addition to Google Glass and rumors have it Google is also working on its own watch Google’s Android will power key products such as Samsung’s watch and most other non-apple products There are huge applications for a wearables revolution such as deeper user engagement with the world around the user through constant usage, medical monitoring, e-commerce, location based services benefiting from the always at attention nature of wearables and big data evolution from a service that is always on and always used Products like Glass and watches, enhance the practicality of always on services by enabling low battery consumption during this process (vs. the current services which eat battery life) The always on always being used nature of products like Glass will finally skew the trade off of user’s weariness of advertiser tracking vs. the utility obtained by always on services and will enhance other services For instance, when looking at a place of businesses Glass could show an ad based on what you are looking at or when looking at something in another country translate the text for the user Wearables Are a Game Changer for Google
  • 121. 120 CONFIDENTIAL For Mobility, Gaming and AR – Need a New Device 1983 1980s Email – 1972 Text msg – 1992 Internet www – 1995 Cloud connected apps from AR to gaming 1994 to now 1990 2000 2012 Smart Glasses
  • 122. 121 CONFIDENTIAL Google Glass – Welcome To The New World Google debuted Google Glass publicly in April 2012 on Google + Google offered developers and some select others an opportunity to buy an “Explorer Edition” of Glass for $1,500 which sold out on huge demand Recently, Google rolled out the #ifihadglass campaign which created a tremendous amount of buzz, making Glass one of the most hotly anticipated products of recent memory Google Glass is a “when,” not “if,” product - Sarah Rotman Epps is a Senior Analyst at Forrester Research I will never live a day of my life from now on without it (or a competitor). It's that significant. - Robert Scoble "The idea of having the Internet with you all the time, being able to see, literally to be able to have the Internet in your field of vision ... and to be able to talk to it, it basically just wraps you in all the information you would ever need all the time. I think people are going find they feel, basically, naked and lonely, when they don't have this at some point.“ - Marc Andreessen This is a platform so new, so unlike anything before, that we can’t guess what the killer services will be. But, believe me, they’re coming. The best ideas for the Glass platform will come from entrepreneurs — they always do.” - John Doerr KPCB Unlike most hardware products, Google has been very transparent about Glass which will likely lead to a much better product experience out of the gate since it has allowed Google to gather priceless information about users and their needs/preferences before launching Glass Google Glass is still an early stage product but it already has expert reviewers exclaiming that it is will be the next iPhone, Facebook, app store and internet rolled into one thereby launching a new wearable craze Glass is also the columniation of Google’s strategy to have what the user needs just appear when the user needs it rather than actually having to search for it as you interact with the world. This way of doing things is obviously best for advertisers too Many new products such as Google Now and Field Trip show this future strategy in motion
  • 123. 122 CONFIDENTIAL Google Glass – Welcome To The New World Google glass is expected to be selling 21 million units annually by 2018 and could generate a cumulative $29 billion in sales by 2019 In 2014, adoption is expected to accelerate 250% as Glass becomes available to the public with as many as 800,000 units selling by that time (by some estimates) Thos estimate could be on the low side if sales follow very successful consumer product launches like the iPhone or iPad If sales follow those uber successful products the total sales could reach and exceed 21 million unit a year much quicker such as the 2 years it took the iPhone In anticipation of a Glass success, Google Ventures, Andreessen Horowitz, and Kleiner Perkins Caufield & Byers recently teamed up to form the Glass Collective to provide financing and support to entrepreneurs shaping the future through Glass Interest in Glass is so high that many who have received Glass to date report to feeling like celebrities Even the famous Marc Andresson felt he received too much attention for his Google Glass saying, “It’s like driving a ’67 Corvette. Like, it’s a great way to get people to come up and talk to you on the street. I need to live in the world where everybody has one, and then I’ll wear it all the time.”
  • 124. 123 CONFIDENTIAL Google Glass Applications While much has been made about Glass as a sought after consumer products it could be an even better enterprise product for Google especially at the current price for Glass There are numerous applications that Glass could fulfill: Doctors could use Glass to collaborate with colleagues and/or teach others during surgery or consultations EMS personnel could also use it for treating people while not in a hospital Companies could utilize Glass to make sure inventory is not stolen as well as quickly log inventory bar codes Reporters could use Glass to capture moments without the use of a camera crew that takes time to set up Cooks could use Glass to cook without looking at their smartphones Runners and bikers could use Glass to get information while out on these activities All of these applications could be the push the enterprise needs to switch to Google and Google related products like Google Apps, Android phones/tablets and Google Docs, much like Apple lead many firms to switch to other products in the Apple ecosystem like Macs.
  • 125. 124 CONFIDENTIAL Google Glass – Welcome To The New World iPhone Quarterly Unit Sales (MM)Units Sold In 90 Days After Commercial Launch (M) Sources: eMarketer & BI Intelligence 3,000 1,000 350 0 500 1,000 1,500 2,000 2,500 3,000 3,500 iPad iPhone DVD Player Glass Projected Sales At Various Price Points ($MM)Google Glass Unit Sales (M) 831 2,469 3,740 10,620 21,149 0 5,000 10,000 15,000 20,000 25,000 2014 2015 2016 2017 2018 $707 $1,972 $2,805 $7,423 $13,218 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 2014 2015 2016 2017 2018 0.3 1.1 2.3 1.7 0.7 6.9 4.4 3.8 5.2 7.4 8.7 8.8 8.4 14.1 16.2 18.720.3 17.1 37.035.1 26.026.9 47.8 37.4 31.2 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13
  • 126. 125 CONFIDENTIAL Google Glass – Welcome To The New World Should Glass be successful it will be a huge boon to Google’s products since they will be standard on Google’s hardware and will likely be the service that works best on Glass Google will provide the native search functionality, videos through YouTube, notifications through Google Now, social networking functionality through Google +, mapping through Google Maps, messaging through Hangouts and many other Google services that will be native on Glass Google Glass could also finally give users the reason they need to switch to Google + over other more dominant social networks. For instance, Google + will initially be the only place you can use Hangout video chat directly with friends while Google while they can easily see what the other user is looking at The potential for Glass is limitless including, live updates for travel, translation you look at and/or hear foreign language text, location reviews and product deals as you walk, real-time information on every person you meet and almost instantaneous video and pictures for any situation that you never would have had time to capture before
  • 127. 126 CONFIDENTIAL Benefits to Google From Google Glass • Hardware is the missing piece to the ecosystem war with Apple • Apple’s ecosystem is a key reason why Apple has a over a 90% retention rate on their customers as all Apple products work seamlessly with each other (and only with each other) • This product could also finally give users a strong enough reason to switch over from the Apple ecosystem Gives Google A Complete Ecosystem • One of the biggest knocks on the Android system has always been the fragmented nature of the market which leads to an inconsistent developer environment and user experience • Android lets OEMs like Samsung and HTC customize the platform for their hardware • By comparison an Apple experience is exactly the same on similar devices • By controlling the hardware Google has full control of the Google user experience, so users can experience a “pure Google platform” the way it was supposed to be experienced while also giving developers a consistent development environment Gives Google Control Over The User Experience • Google Glass could also finally give users the reason they need to switch to Google + from other more dominant social networks. For instance, Google + will initially be the only place you can use Hangout video chat directly with friends while they can easily see what the other user is looking at Could Finally Give Google Dominance in Social Networking • Google will be the first (and likely the best because of their huge head start) application provider on Glass. Google will provide the default search, video entertainment, mapping, social networking for Glass (among other services) • Google will be able to perfectly optimize their services for Glass as well as promptly display the services on Glass itself • Should Glass be successful it will be a huge boon to Google’s products since they will be standard on Google’s hardware and will likely be the service that works best on Glass Huge Services Opportunity
  • 128. 127 CONFIDENTIAL Russia Is A Great Market For Premium Priced “Cool” Gadgets iPhones in Russia cost between $900 and $1,000 vs. an average global price of $581 for the iPhone and $436 for the iPad. The price is also a huge premium over the average price of $168 for a mobile phone In the U.S. prices for phones are between $100 and $200 due to carrier subsidies In Russia carriers do not subsidize (or in many cases even sell) the iPhone so consumers must purchase it from the Apple store or through other means It is unlikely Russians will experience sticker shock at the price of Glass, especially if it is the cool new product out there Moscow has more billionaires than any other city in the world and aspirational luxury (which at this point Glass would definitely be) is one of the top sectors in the Russian economy  Overseas Russian tourist are notorious for their spending habits Russians are the second biggest spending foreign group of spenders in European countries and make up the biggest spending non-resident group in Dubai In a report by Euromonitor Russians and those from Turkmenistan were the two emerging countries most likely to spend their money on luxuries like cars, stereos, vacation packages, jewelry etc. All these factors make Russia an ideal initial target for a premium priced status symbol product like Glass
  • 129. 128 CONFIDENTIAL Russia Already Overcame Privacy Concerns For Key Consumer Product One huge problem with Glass already has been the obvious privacy concerns inherent within Glass In a survey by BI intelligence, 53% of respondents said they would not be comfortable if someone they were interacting with was wearing glass  In another survey by Northwestern’s Medill School of Journalism, about privacy was the most cited concern about Glass behind it being distracting (an addressable issue) and the price (which will change) Lawmakers have already started looking into privacy issues around Glass and some businesses have banned the use of Glass within their establishment By contrast Russians have already come to grips with this privacy trade-off from the tremendously popular and always recording dash camera that most Russians have on their cars Russians utilize these cameras for a variety of reasons including: A corrupt traffic police that 32% called the most corrupt institution in Russia The prevalence of pedestrian and driver scams where injuries or other damage is claimed for money The dangerous nature of roads with 25.2 traffic fatalities per 100K people vs. 13.9 per 100K in the US High rates of road rage fights where video evidence is the only evidence courts really accept These have all made dash cams a must have for Russians Dash cams are always on and like Glass those being filmed do not necessarily know they are being filmed making it much more likely that from both an acceptance perspective and from a legal perspective Google may find a welcoming environment for Glass in Russia while privacy concerns still linger
  • 130. 129 CONFIDENTIAL Moto X – A Strong Phone Hardware Competitor In August 2013, Google unveiled the Moto X, the first significant hardware introduction by Motorola that includes Google technology since being acquired This device is meant to showcase the pure Google experience at its best without any changes from OEMs  The phone aims to make key Google services such as maps, mail, search and others as easy to access as possible with the best performance of any phone The hardware includes some key game changing features: Touchless Control: The Moto X features Google Now front and center. Google Now, Google’s answer to Apple’s Siri, will do things like answer voice queries, give recommendations, place calls, schedule appointments and find things based on voice inputs. It will also alert you to things you did not even look for such as that your flight is delayed or that you need to leave now to make a meeting because of traffic Active Display: Active Display is a low energy consumption system that will provide notifications and the time of day without having to wake up the phone Quick Capture Photos: All a user has to do is shake their wrist and the phone will automatically open to the camera with a full screen shutter (touch anywhere). This allows user to get from pocket to picture in a one and a half seconds, half the time of competitors. This type of feature has made services like Snapchat popular
  • 131. 130 CONFIDENTIAL Moto X – A Strong Phone Hardware Competitor Always On But Without Burning Battery: The Moto X is always on doing things like listening for Google Now from your voice only (which will wake up the phone) or a flick of the wrist. This potentially consumes a lot of battery so Motorola created a unique system with eight processing cores for the phone. These cores all do different things. For instance, one core does nothing but listen for the words “Google Now” allowing the other cores to sleep Hands Free Authentication: Motorola will sell plastic tokens that will allow users to get into their phone without a password if the token is within a few feet. There will also be password free safe zones like a user’s house or car
  • 132. 131 CONFIDENTIAL Smartwatch Both Google and Motorola are developing smart watches based on the Android platform Google recently acquired WIMM an android based smartphone maker and has integrated it with the Android team WIMM did not just make a watch but also opened up its watch platform to developers so they could let third-party developers build “micro apps” to provide functionality The Google Now notification platform would work very well on a new smart watch The global watch industry will generate $60 billion in sales in 2013 with gross margins of about 60% It is estimated that there will be 1.2 million smart watches shipped in 2013 Based on estimates around Apple’s rumored iWatch the incremental revenue from a watch to Google could be $10 to $15 billion. The implications of an always on, always connected smart watch are immense Google is rumored to be shortly releasing a smartwatch with Google Now
  • 133. 132 CONFIDENTIAL Online Video Is Increasing Important Video Is A Huge % Of Internet Traffic 90% Of All Internet Traffic By 2015 From 51% Today Content Views Are Increasing Prevalent Video Streaming Services Catching On Over 50% of U.S. Persons subscribed or used a video streaming service Online Video Is Increasingly Prevalent 77% of Global Consumers Watch Online VideoOnline Video Overtaking Cable 31.1 Million Netflix Subscribers Making Netflix The Most Watched Cable Network In The U.S. Conversion Are Higher With Video Ads Conversions Increase65% When a Site Has Video Video 90% Other 10% 456.6 Million Content Videos Watched
  • 134. 133 CONFIDENTIAL According to AOL CEO Tim Armstrong, almost 90% of online video has come from taking share from other types of internet marketing dollars rather than from taking share away from areas like the $70 billion TV ad market Partnerships with firms like Mediaocean, Nielsen and others are expected to help start to shift advertising dollars to online video advertising from TV advertising which would lead to huge unforecasted gains While ad revenue has not yet caught up U.S. video ad views rose 40% to a record 13.26 billion in April 2013 with 85% of U.S. internet users watching online video Online Video Advertising Still Has A Way To Go Source:eMarketer & Bloomberg LP $779 $865 $258 $193 $117 $34 $21 $21 $24 $22 $2,142 $1,734 $787 $684 $424 $143 $103 $89 $75 $49 22% 15% 25% 29% 29% 33% 37% 34% 26% 17% -25% -15% -5% 5% 15% 25% 35% 45% $0 $500 $1,000 $1,500 $2,000 $2,500 China Japan Germany UK France Russia India Poland Turkey Brazil 2012 2017 CAGR Top Video Advertising Countries 2017E ($MM) $5,956 $16,096 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 2012 2017 Global Video Ads 2017E ($MM) 72% 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% % BuyersWho Increased Spending Average % TV Budget Shifted to Digital Online Video Spending Summary
  • 135. 134 CONFIDENTIAL Mobile Video Ad Spending Mobile video is one of the few types of mobile content that is able to be monetized consistently and gets premium advertising rates from advertisers of about 10x a regular mobile ad on a CPM basis U.S. mobile video ad spending is expected to more than double to $518 million in 2013 compared to a 77% increase in all mobile ads. By 2017 mobile video ads are expected to surge 1,000% to $2.7 billion Mobile video is expected to make up 25% of the total $8 billion digital video ad spending by 2016. Mobile video will be the fastest growing advertising medium, rising at a 62% CAGR from 2012 through 2017 vs. 25% for all online video and 4% for TV ads YouTube's mobile ad sales have tripled in the past six months to $350 million as more users view video on smartphones and tablets Mobile Video Becoming More Important Source:eMarketer $244 $518 $925 $1,456 $2,089 $2,685 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 2012 2013 2014 2015 2016 2017 Monthly Video Minutes On Mobile Per Active User 339 656 0 100 200 300 400 500 600 700 2009 2012 Sources: ABI Research, Flurry Analytics and Comscore
  • 136. 135 CONFIDENTIAL 2.40% 2.30% 3.60% 5.20% 6.20% 1.30% 1.60% 1.40% 1.90% 2.40% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 iOS Android Many users are now using mobile not just as discovery devices for watching on larger screens but as exclusive discovery and viewing devices, especially for tablets The number of people who watch video on their smartphone has doubled in one year from 20% of owners to 41% of owners 79% of smartphone users watch video and 24% do so at least once a day 40% of YouTube videos are now coming from mobile devices By 2016 about 110 million Americans will view online video on mobile or 20% of the population. Other countries like Russia will likely follow the U.S trend as the smartphone trend intensifies Mobile Video Becoming More Important Source FreeWheel & Ooyala Mobile Video Monetization % of Video Ad Views Mobile Share of Time Spent Watching Online Video 4.32% 5.70% 4.20% 4.50% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Jan' 2013 March 2013 Tablet Mobile
  • 137. 136 CONFIDENTIAL YouTube Is A Dominant Force In Online and Mobile Video YouTube Has a Huge User Base 1 Billion Unique Visitors Each Month YouTube Content is Growing 100 Hours Of Content Uploaded A Minute Mobile Video Exploding 1B Views a Day 25% of Global Watch Time; #1 Mobile Viewing Site YouTube Reach Rivals Any Cable Network 6 Billion Hours Watched Every Month Huge Content Creation Community 1 Million ContentCreators From Over 30 Countries Making Money; Hundreds making 6 figures YouTube Is Dominant in Russia 51 million Russians Watch Videos On YouTube
  • 138. 137 CONFIDENTIAL YouTube is the clear market leader with 12% of total ad world videos, 32% of total world audience minutes and 29% of all world videos viewed In the minute it takes to read this page 100 hours of video will have been uploaded to YouTube Venture capitalist Mark Suster recently argued that YouTube is like the Walmart of video giving content creator no choice but to build a brand on the platform despite the 45% of revenue that YouTube commands. YouTube today accounts for 17.11% of nightly internet traffic in North America, second behind Netflix at 32.25% More than a billion unique visitors visit YouTube every month to watch over 6 billion hours of video This is almost an hour for every person on earth and 50% more than last year There are now more than a million creators on YouTube from over 30 countries around the world Despite Youtube’s clear dominance worldwide, in Russia Youtube faces a significant rival from social network VKontakte which also has a significant video section Having launched in 2007, YouTube is also extremely dominant in Russia with a viewership that is almost twice the next competitor Russia is among the top five traffic generating countries for YouTube Google Rules The Video Market
  • 139. 138 CONFIDENTIAL You Tube Connections – Gen C
  • 140. 139 CONFIDENTIAL Google Rules The Video Market Sources:Comscore & eMarketer Total Video Audience Minutes (MM) 79,478 11,635 4,861 3,155 3,300 1,774 1,948 1,943 2,012 32% 5% 2% 1% 1% 1% 1% 1% 1% -30% -20% -10% 0% 10% 20% 30% 40% -10,000 10,000 30,000 50,000 70,000 90,000 110,000 Google NETFLIX Hulu Yahoo! Sites AOL Microsoft Viacom VEVO CBS 18,980 1,955 2,385 1,445 2,208 2,390 1,482 1,443 821 29% 3% 4% 2% 3% 4% 2% 2% 1% -30% -20% -10% 0% 10% 20% 30% 40% 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 Google Hulu BrightRoll AOL ADAP.TV LiveRail Specific Media TubeMogul Microsoft Number of Videos viewed - Content (M) Ranking of Russian Online Video Players (1) 54 34 16 15 9 9 6 6 6 5 69 24 7 5 11 3 3 3 8 14 0 10 20 30 40 50 60 70 80 Audience Videos Per Viewer 3,740 791 106 81 104 30 16 20 46 76 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Total Video Streams On Selected Sites In Russia (1) (1) Note: Although not mentioned in the above rating, Vkontakte.ru (VK.com) has been historically the largest video resource after YouTube. Its popularity was due to the considerable amount of content, including illegal content,.
  • 141. 140 CONFIDENTIAL Driverless Cars Five years ago Google started manufacturing an autonomous car capable of fulfilling the human transportation capabilities of a traditional car An autonomous car is capable of sensing its environment and navigating without human input freeing humans up to do other things when in the car Google is already on its third model (GX3200) and can now get up to 750 miles of travel on a single charge, or about 48 hours in standby and drive on roads Uber recently announced they would buy 2,500 cars to be used in their fleet A successful Google car would have a number of very positive effects for Google: It would enhance Google’s brand image inside and outside of technology It would free up drivers to do other things like use Google’s services. Americans on average spend 18.5 hours a week in a car, that’s a lot of time With cars becoming increasingly complex (they now contain 20 to 70 computers per vehicle) this would be yet another device that Google can feed its services into, enhance current services with and maybe open to developers, all of which greatly enhances Google’s ecosystem Data from the car could be used to make Google’s services work better in cars, enhance advertising campaigns or provide data to other Google products
  • 142. 141 CONFIDENTIAL Google Now Google Now is an intelligent personal assistant built into Google’s search application The application uses a natural language user interface to answer questions, make recommendations and generally help manage a user’s day by providing the right information at just the right time Now allows a user to stay on top of what’s happening in life every day, including what a user needs to do, where a user needs to go, what is going on locally and how to get around Google Now was named the “Innovation of the Year” for 2012 In addition, to the standalone functionality of Now, the feature is even more useful for the type of always on devices Google is now focused on including the Moto X, Glass and a Smartwatch For instance, imagine a watch or glass app that automatically reminded you that you wanted to buy something at a store you are next to, that a package arrived, that it is going to rain so take an umbrella or that your next meeting left already and with traffic you need to leave now, all without needing to reach for the phone or activate search Even better, all the information Google needs for this type of service does not need to be entered in or worse learned, Google already has all this information from current services used by most phone users. Very few companies have this data
  • 143. 142 CONFIDENTIAL  Google introduced Google App Engine for building and hosting web and mobile apps on Google’s cloud in 2004 Like most cloud services Google’s cloud offering involves numerous servers joined together to create a giant machine that can handle tasks like storing data, running web sites and tackling analytical tasks Software developers, companies and governments rent these services because they are cheaper than creating their own Google has been very successful in their cloud offering with over 3 million apps deployed to Google’s cloud The service has experienced some major wins such as mobile photo sharing service snap chat with 350MM photos per day and a collaboration with Red Hat to enable on-premise App Engine deployments Google is expected to generate about $900 million in revenue this year from these services up 195% YOY Google’s cloud services are said to cost about 50% less than products for the competition Google’s apps for business suite has experienced great success as well especially with education and government markets and in the international market. Expanded integration into Google+, Maps and Chromebooks are expected to add to adoption for Google Apps Google Apps directly competes with Microsoft’s office suite thereby helping Google’s position against a key rival Google Cloud
  • 144. 143 CONFIDENTIAL New Advertising Initiative – Enhanced Campaigns Recognizing the increasingly new multi screen environment we are now in Google recently rolled out Enhanced Campaigns to allow businesses to run a single advertisement campaign across multiple devices. This is expected to make it easier to reach people across all devices with the right ads, based on their specific location, time of day and device type Businesses can now target users in certain locations, on certain devices, on certain days and at certain times of the day all at various prices For example, a business could, using bid adjustments, pay 25 cents higher if a user is within half a mile, 20 cents lower for all searches after a certain time and 30 cents higher for tablet searches. This lets advertisers take advantage of the increasing differences among devices and times/locations Advertisers can also customize their ad for various platforms so an ad can look different on mobile vs. desktop This is designed both to help advertisers and to push them toward mobile advertising Advertisers will be able to utilize powerful tools for new campaigns such as cross-device analytics Along with the campaigns Google introduced a free mobile ad conversion measurement tool to allow advertisers to track the duration of calls from customers So far Google has noted that feedback has been very positive and that the new system was driving more frequent bids on mobile keywords. Should this be successful, it will hopefully drive advertisers to mobile and drive mobile ad rates up by optimizing mobile advertising and associated analytics
  • 145. 144 CONFIDENTIAL Google Is Becoming A Top Social Networking Company Too Google has very quietly become both the second and third largest social networks (Google+ and YouTube) by percent of global internet users logging in at least once a month in Q1 2013 Google+ now has 360 million active users up 33% from 269 million last year However, Google still has a way to go with only 135 million actively posting to Google+ pages Google+ is gaining traction as Google has pushed the integration of Google+ with other super popular services like Search, YouTube, Maps, Android and others. This has made Google+ integral to social media and search campaigns, especially for those who are looking for social search features Google now links social network page results to search results giving brands a good reason to integrate Google+ into existing marketing strategies or SEO Users can now share a lot of content through Google+ straight from other hugely popular Google pages thereby (hopefully) greatly increasing the depth of content and usage of Google+ Google is also heavily pushing the Hangout feature of Google+ and the rise of Google+ will greatly help cement Hangouts as a key service for things like Glass, YouTube and Android Unlike rivals Facebook and Twitter, Google+ is an add-on that is intended to be both a great service and to make other services better using your social data. This differentiation will likely become more and more important as rivals come under even more pressure to generate revenue (after going public) to the dismay of users “It’s [Google+] a way for Google to get to know our users. Who they have relationships with. We give them the ability to share. That layer, that spine, that backbone, is intended to help us make search, Maps, YouTube, Gmail, etc. better. That’s the real point of Google+” - David Glazer, Director of engineering for the Google+ platform
  • 146. 145 CONFIDENTIAL Google Is Becoming A Top Social Networking Company Too Platform Monthly Active Users Monthly Unique Users - Mobile Monthly Unique Users -PC % Growth in Active Users - PC % Growth in Postings - PC % Growth in Postings - PC % Growth in Brand Engagement- PC 359.9 Million 20 million 28 million 27.5% 100% 75% 63% 701.5Million 99 million 142.1million 33.4% -2% -2% 6% 296.6 Million 29 million 34 million 40.1% 8% 40% 18% Growth In Traffic to Select Social Network Sites (a) Activities, such as visits, are enhanced by inclusion of integration with other services such as Gmail. Source: Google, comScore Trendstream & GWI -7% 19% 46% 23% -5%-7% 32% 39% 30% -2% -13% 26% 23% 17% 3% -20% -10% 0% 10% 20% 30% 40% 50% Facebook Linkedin Google Plus Tumblr Pinterest Oct-13 Sep-13 Aug-13
  • 147. 146 CONFIDENTIAL Social Network ID That Social Network Users Worldwide Prefer for Social Sign-In 39% 42% 44% 45% 48% 54% 49% 46% 46% 45% 30% 29% 30% 31% 30% 25% 31% 34% 34% 33% 12% 11% 10% 9% 8% 7% 7% 7% 7% 7%8% 8% 8% 9% 9% 10% 7% 6% 6% 7%5% 4% 4% 3% 3% 2% 2% 1% 1% 2% 6% 6% 4% 4% 3% 3% 4% 7% 6% 7% 0% 10% 20% 30% 40% 50% 60% Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Facebook Google Yahoo! Twitter Microsoft Other Source: Google & Janrain Google Is Becoming A Top Social Networking Company Too Content Marketing Tactics Used By B2C Content – Google+ Is Strong In B2B and B2C 84% 84% 78% 70% 69% 63% 61% 43% 88% 78% 76% 72% 72% 65% 61% 46% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Social Media Articles On Your Website E-newsletters Videos Blogs In-person Events Articles On Other Websites Mobile Content 2012 2013
  • 148. 147 CONFIDENTIAL Minutes Per Visitor 391 299 197 105 112 73 97 374 311 186 117 95 84 90 369 303 188 117 95 95 86 0 50 100 150 200 250 300 350 400 450 Facebook Google Sites Yahoo Sites Microsoft Sites Tumblr ESPN Aol Aug-13 Sep-13 Oct-13 Source: comScore Minutes Per Visitor By Category 352.7 363.5 329.7 252.4 144.4 101.4 250.7 357.2 321.8 270.3 125.9 100.8 357 349.3 326.5 259.4 127.9 107.8 0 50 100 150 200 250 300 350 400 Services Social Networking Portals Entertainment Games News/Information Aug-13 Sep-13 Oct-13 Google Still Lags Facebook In Time Spent On Important Category
  • 149. 148 CONFIDENTIAL With Google+, Google Is Strong In Important Mobile Categories Users Who Shared Photos (MM) 239 178 108 60 104 24 104 207 60 0 50 100 150 200 250 300 Phone PC Tablet Facebook Twitter Google+ Source: Google, Trendstream & GWI Share of Time Spent By Platform For Selected Content Categories 8% 14% 22% 31% 35% 54% 61% 62% 75% 92% 86% 78% 69% 65% 46% 39% 38% 25% 0% 20% 40% 60% 80% 100% 120% Photos Maps Games Weather Social Networking Retail Business/Finance News/Information Portals Desktop Mobile Various Activities Across Social Networks (MM) (a) 860 778 702 472 602 1,134 359 182 477 351 297 175 0 200 400 600 800 1,000 1,200 Account Ownership Visit Last Month (PC) Active Last Month Post (Text Update) Facebook Google+ Twitter
  • 150. 149 CONFIDENTIAL Chrome Hardware Overview In 2011 Google started selling Chromebooks, a moderately priced laptop running Google’s Chrome OS, a Linux based operating system running Google Chrome as a browser Unlike traditional computers the Chromebook is designed to run mostly online with limited offline usage Chromebooks are now available in over 8,000 locations worldwide and are used in 20% of school districts in the U.S. Google recently rolled out a partnership with Best Buy to showcase Chromebooks, Chromecast and other devices under the One Google Branded design InfoWorld called Chromebook, “the most successful Linux desktop/laptop seen to date” Google recently launched Chromebook 11 a 2 pound $279 version that can be charged with a micro USD and can also charge Android phones Launched in late 2013, Google launched Chromecast a $35 digital media streaming adapter that allows a user to seamlessly (one click) stream entertainment content from apps such as Netflix, Hulu , Pandora etc., control the TV through a phone/tablet and pickup where they last left off from another device all while still doing other tasks on the initial device Chromecast also allows a user to mirror content of an open Chrome browser on a TV After announcement, the devices quickly sold out and have been in high demand since
  • 151. 150 CONFIDENTIAL AdID Overview In September 2013, Google announced a plan to possibly replace what are known as cookies by developing Google’s own anonymous identifier for each individual user to be utilized for advertising, or AdID. This would replace third-party cookies as the way advertisers track people's Internet browsing activity for marketing purposes Cookies are small text files stored on a user’s computer. Web servers use these cookies to pass information to your web browser when you visit Internet sites Cookies basically help track users activities and data, information that is very useful to advertisers By creating its own AdID, Google could force advertisers to turn to Google to get information about people's shopping habits and preferences rather than tracking users themselves. This could protect users from nefarious advertisers but will also give Google a lot more power in the advertising market In addition, Google is likely to give users more control over how information is stored and used than the current cookie system does Many advertisers might be open to this arrangement because it could create a more detailed profile of users and fix the problem of cookies placed on websites having to use different code making tracking difficult Apple has already introduced its own ad identifiers in iOS and Firefox, Safari and Internet Explorer either to automatically block cookies or make it very easy to do so Many speculate that having an AdID will also make advertising across devices (mobile, desktop, tablet etc.) easier If Google is successful with their AdID it will give Google more power in the advertising industry
  • 152. 151 CONFIDENTIAL Why This Leads to Google’s Dominance • The always on nature Glass, Mobile, Moto X, etc. means a company like the Google of the future will know everything about the user such as as where they are now, what they are doing, what their schedule normally is and a ton of other data that most companies simply will not have • Innovations like Google Now and Glass enhance the value trade off between having to provide Google with more data (at the expense of privacy) and getting important results as a user (i.e. great offers, flight time reminders) to the point that many will be much more likely to consent to having Google gather data, thereby allowing Google to gather more and better data • New Products and key innovations mean a lot more time interacting with Google’s products which equals a lot more data for Google to both make the user experience better and enhance ad delivery capabilities New Innovations Mean A Lot More Data And Better Ads • Google’s services on newly innovative products will have Google as the default on products like Glass and Moto X leading to increased adoption of Google services and thus better products as more people use them. Google’s products being top notch means users will keep using the default • For completely new areas like smart watches and Glass Google’s products will also have a heavy lead in technology against competitors not already offered on wearables as Google is able to innovate with a larger user base Enhances Google’s Already Leading Market Position in Key Services • Google’s mobile dominance and products like YouTube and Google Now are playing into key trends like increased consumption of video, increased interaction between our phones and daily life and the multi- screen demands of users Key Products Are The Future • By focusing on various pieces of hardware and utilizing Google Now as a driving force, Google will be able to give customers a seamless simple market leading experience across various devices • Like Apple, many of these products seek to lock in users into Google. You are unlikely to switch from Google or its products when you have apps from Google Play, daily reliance on a now learned Google Now, TV preferences through Chromecast, a synced experience on your Google Glass, etc. All these items serve to lock users into the Google experience so that switching would be a disaster. Like any system as you interact more and more with it daily it learns more and more and becomes more useful and integral to a user’s day to day life Will Give Google an Apple like Ecosystem
  • 153. 152 CONFIDENTIAL Why This Leads to Google’s Dominance - Developers Developers Developers!! One of the major reasons why many of these new products matter is the ecosystem it creates for developers Having a phone, a watch, Google Glass and a game changing app like Now means developers could have a simple standard ecosystem to code for rather than the fragmented mess some developers refer to as the “the matrix of pain,” for the difficulty Android apps present In past years Apple products were the cool and exciting products to code for, it is not hard to imagine a world in which developers work on apps not just for phones and tablets but also for glasses, watches and cars, all areas Google is at the forefront of. By getting developers to develop for these they are likely to also develop for Android phones and tablets as compliments to these other apps or because their teams are Android based If Glass is the huge success it is shaping up to be it is not hard to imagine a world where apps are Glass first (like iOS first today) because Glass will be the must have application for wealthier consumers (like the iPad is now) By taking control of the hardware for phones, Glass, a watch and cars, Google will be able to offer developers an enhanced streamlined experience that is uniform and updated as new version are released This trend has already started with many developers already only supporting advanced versions of the Google experience, leaving other partners who do not quickly update out in the cold (i.e. Samsung, HTC etc.) Other services such as YouTube, Google Now and Maps simply enhance the Android experience leading to more users and thus a huge market that is impossible for developers to ignore as Android is the dominant OS All these things could finally help solve the major problem of developer’s seaming to prefer iOS over Android which is one of the last major positives of iOS based phones/tablets over Android
  • 154. 153 CONFIDENTIAL Do Developers Prefer iOS? Despite an 80% share of shipments for Android phones and 1.5MM devices activated per day, many developers still seemingly prefer iOS to Android The vast majority of apps are launched on iOS first with many never making the jump to Android including some of the most popular apps like Vine, Mailbox, Tinder and Nike According to a study by Canalys, only 32 of top 50 free iOS applications were in the Google Play store and only 29 of the top 50 paid apps on iOS were in the Google Play Store The numbers are even worse on tablets where 30% of the top 50 paid free iPad apps are not available on Android while 50% of top iPad apps were either unavailable or not optimized on Android iOS seems to have more developers with 235K developers vs. 150K for Android In hugely important enterprise market, more than 70% of developers are focused on iOS and 62% of enterprise customers deployed an iOS device Sample Apps That Were iOS First or Never Made It To Android
  • 155. 154 CONFIDENTIAL Why Do Developers Prefer iOS? Developing on iOS is limited to a very small range of devices and operating systems, about 6 -8 devices/operating systems at one time By contrast there are about 12,000 different Android devices on 8 different Android versions that are still in use. These devices/systems have a huge range of screen sizes, processing capabilities, customization options and OEM interfaces which makes development much more difficult for a developer on Android Within 24 hours of releasing iOS 7 to users Apple already had a higher adoption rate for its latest OS than Android has had cumulatively for Jelly Bean. This is partially due to the ease of upgrading everyone at once vs. waiting for manufacturers to roll out updates gradually For instance, in designing the right UI a developer has to design a UI to be optimized on various OEM UIs (Samsung TouchWhizz etc.) and to be optimized on a huge number of different screen sizes , amoung other fragmentation issues that a developer does not have to deal with when developing for iOS In addition, it would be almost impossible to buy even a fraction of the devices for Android in order to test/optimize an app, making a much buggier performance on some devices a near certainty This makes it necessary for Android app makers to take more time going to market, hire larger development teams of better developers and spend more time and money supporting and fixing their existing app In a recent example of this, BBC claimed that it took 3x as many developers for their Android app vs. iOS When hugely popular Temple Run launched an app on Android, within 12 hours of release they had 1,200 e- mails complaining that the app didn’t work on the user’s device despite the app supporting 707 devices
  • 156. 155 CONFIDENTIAL iOS Operating System Fragmentation Why Do Developers Prefer iOS? Cont. Android Operating System Fragmentation iOS 6, 94% iOS 5, 5% Earlier iOS, 1% Version 4.2, 5.60% Version 4.1, 32.30% Version 4.0, 23.30% Version 3.2, 0.10% Version 2.3, 34.10% Version 2.2, 3.10% Earlier, 3.20% Sources: Apple, Vision Mobile, Canalys & OpenSignal Revenue Distribution By Platform 11% 20% 27% 20% 55% 54% 45% 61% 34% 26% 29% 19% 0% 20% 40% 60% 80% 100% iOS Android HTML5 Windows Phone Not Interested In Money Below Poverty Level Above Poverty Line NetMarketShare Mobile OS Usage, Q1 2013 Android, 24.90% iOS, 61% Other, 13.70%
  • 157. 156 CONFIDENTIAL Android Fragmentation Visualized Source: OpenSignal
  • 158. 157 CONFIDENTIAL Andriod, 20% Other, 6% iOS, 74% Share Of Download Revenue From Mobile Apps Share Of Downloads of Mobile Apps Source: Canalys Another major concern is revenues. Apple’s store has historically generated 74% of mobile app revenues vs. 20% for Android, though recent data has shown this is starting to change This is even more impressive considering that iOS made up only 40% of all app downloads, which is be expected since iOS share has dramatically declined compared to Android While Apple paid out $5 billion last year Google is estimated to have paid out only $900 million to developers For $1 spent on Google Play, $2.45 is spent on iOS apps a fact that likely this has a lot to do with the user base About 54% of iOS developers break even vs. only 47% on Android Android users also browse the web less, spend less inside apps and consume less paid content such as magazines Andriod, 51% Other, 9% iOS, 40% Why Do Developers Prefer iOS? Cont.
  • 159. 158 CONFIDENTIAL With Android Share At 80% Android Developers Are Already Jumping In $5,200 $4,700 $3,600 $2,900 $1,200 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 iOS Android Windows Phone HTML 5 Blackberry 10 Average Developer Revenue Per Month New App Projects Mobile Developers' Main Platform 70% 68% 64% 63% 62% 53% 49% 30% 32% 36% 37% 38% 47% 51% 0% 20% 40% 60% 80% 100% 120% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 iOS Android 34% 33% 17% 5% 4% 7% Android iOS HTML5 Windows Blackberry Other Source: VisionMobile, Developers Economics, Flurry 2013, BII Estimates, Blackberry World New Reports and Company Filings Cumulative App Downloads Since 2008
  • 160. Yandex Overview
  • 161. 160 CONFIDENTIAL Yandex Overview Yandex is known as the “Google of Russia” for the way it dominants the Russian market Yandex’s history dates back more than 20 years when the company’s first search technologies were developed by the company’s founders while working at the company Arkadia The word “Yandex” was invented by the company’s two principal founders in 1993, Ilya Segalovich, Chief Technology Officer of Yandex, and Arkady Volozh, Yandex’s CEO. The full name originally stood for “Yet Another iNDEX” In 1997 (oddly enough the same year BackRub became Google), Yandex.ru search engine was launched on September 23, 1997, within 3 years it was the largest search system in Russia In 1998, the company displayed the first contextual banner ad which became the primary business model for the company and other internet companies Today Google is known as the “Google of Russia” with the number one search position in Russia every year since it gained that position a decade ago As of December 2012, Yandex handled 4.84 billion requests a month making it the fourth largest search engine in the world ahead of Bing and behind Bidu, Yahoo and Google. Yandex had 74.4 million users in December 2012 Yandex is the top growing major search engine with growth of 27.8% in search queries Source: Comscore
  • 162. 161 CONFIDENTIAL 2002: Breakeven point achieved in Q3 2004: Proprietary anti-spam software introduced 1993: Founding team joins ComptTek Yandex History 1997: Yandex.ru website is launched 2003: Fact extraction technology in Yandex.News 2000: Incorporation of Yandex 1998: The first contextual banner is displayed 1989 2012 1989: Founding team starts developing Yandex search technology 2005: Launch of Yandex advertising network 2007: Purchase of Yandex.Money Today There are Four Major Players in Russian Search: 2008: Introduction of Yandex.Traffic 2009: MatrixNet breakthrough search technology 2010: Yandex.com is launched 2011: Yandex went public on NASDAQ in May 2011 2011: Yandex launches Yandex.com.tr in Turkey tailored specifically to web users of Turkey 2012: Yandex releases its own browser designed to facilitate easy and safe navigation
  • 163. 162 CONFIDENTIAL Yandex Is Search and So Much More
  • 164. 163 CONFIDENTIAL Yandex Internet Portal
  • 165. 164 CONFIDENTIAL Search Suggestions It’s not about instant autocomplete ( but of course, we have it too) It’s about suggestions in SERP, based on the semantic of topic, not on the frequency of search.
  • 166. 165 CONFIDENTIAL Yandex Islands Recently introduced, Yandex Islands is a new feature that adds interactive snippets of text and context embedded into search results Interactive snippets let those searching to get the result they want directly from the search results such as booking a flight, getting concert tickets, finding the weather or buying a product, without going to a page itself The idea for Islands is to provide users with a results set that has more options and details for drilling down into search result websites In theory this search functionality would allow the entire transaction to be conducted without leaving a search page. If the user does go to the site to complete a transaction (as most sites will require at least initially) the information from the search will be prefilled into forms The new feature also includes the basic and rich snips featured to the right as options within Island search results Islands is available across all devices — computers, tablets and smartphones, where it will likely be especially valuable as mobile users are click weary due to slower loading time and the on the go nature of searches
  • 167. 166 CONFIDENTIAL Yandex Islands Cont.
  • 168. 167 CONFIDENTIAL Yandex Raspissanie : Meta-search for transport
  • 169. 168 CONFIDENTIAL Yandex Personalized Search Like Google Yadex’s most important product is still the core search product Yandex recently launched a new search platform, implementing personalized search for users in Russia, Ukraine, Belarus and Kazakhstan. This change is supposed to improve the quality of search 75% - 80% Yandex search users will receive results according to their interests, which will be determined based on "their online behavior including their search history, clicks on search results and their language preferences” The new version significantly improves on the previous version which operated by primarily on looking at a user’s search history within the previous few weeks/months. Now, the personalization happens within seconds and is based on the current search session The search uses a real-time data processing system, which processes more than 10 terabytes of data a day, at up to 500 megabytes per second, continuously correcting its knowledge of users’ needs This change to Yandex’s algorithm means it can offer personalized search results to searchers that have never used Yandex before
  • 170. 169 CONFIDENTIAL Yandex Advertising Network High quality, manually moderated partner sites A single display ad placement on Yandex brings 15.4 million unique views daily Yandex recently launched real time bidding for key services like weather, jobs, mail, news, maps, auto and others Minimum daily audience of 30k visitors per site Excludes “made for advertising” sites which can be prolific in Runet Yadnex recently launched image ads for the advertising network. The images supported include 150 to 5000X5000 pixel images in GIF, PNG or JPG file types in sizes up to 10MB Early adopters reported 60-400% increase in CTR, lower CPC and better ROI
  • 171. 170 CONFIDENTIAL Launched in 2001, Yandex.Direct is an automated, auction-based system for placement of text-based advertising Launched in Russia before Google or Begun launched their platforms Yandex.Direct recently started powering paid search results for Mail.ru the other hugely popular internet destination in Russia In Yandex’s guaranteed placement ad program the company recently moved advertisements from the right side to the bottom of the page. This has resulted in CTRs that were 2.5 times higher Yandex.Direct
  • 172. 171 CONFIDENTIAL Yandex.Direct Network Three types of display advertising are currently offered: Wide Audience For instance, Yandex Home Page One of the most visited page on Russian Internet Top advertisers in Russia are here (i.e. Honda, Nokia, Coke and HP) Affinity For instance, Yandex “What’s on Guide” Top guide to cultural entertainment in Moscow and St. Petersburg Over 3M unique visitors per week Contextual For instance, Yandex Search Engine Broad contextual targeting Large content sites can also be targeted
  • 173. 172 CONFIDENTIAL Yandex.Direct Network Ads on the Yandex network of partner websites provides a broader audience for Yandex Advertisers and provides enhanced monetization prospects for network partners through targeted contextual and/or search advertising Contextual Advertising – Network Partners Search Advertising Served by Yandex based on the content of the third-party website and/or the user’s search history Served by Yandex based on natural search results
  • 174. 173 CONFIDENTIAL Yandex Maps
  • 175. 174 CONFIDENTIAL Yandex Taxi In October 2011, Yandex launched a Taxi Search Service to help users avoid having to call many different taxi services to find and book a ride Yandex.Taxi sends request for booking a cab to all taxi services that are partners and thereby accelerates the process of finding a cab for travelers Yandex.Taxi checks on the taxis available with partners and sends the booking request for a cab that is closest to the client. Upon the confirmation of booking, the client can keep track of their taxi via the city map to know where exactly is it and estimate the time it will take to reach them Partners for the taxi service are generally charged a fixed fee (about 5% according to Lenta.ru) to partners that found customers via Yandex.Taxi The taxi service now has launched in 6 cities including Moscow and St. Petersburg As of June 2013, Yandex.Taxi processed 1 million orders since the beginning of the year, which is 5.5x more than during a comparable period a year ago The ability to pay directly from a bank card using Yandex Money in a cab (even without the card on you) was recently introduced in 2013
  • 176. 175 CONFIDENTIAL Yandex Traffic Yandex.Traffic gathers information from different sources, analyses this data and maps results on the city’s map on Yandex Maps For larger cities it also calculates congestion for routes on a scale from 1 to 10 Yandex is able to do this by asking users to activate a “Send traffic information” option in Yandex.Maps or Yandex.Navigator. Once activated, the user, through GPS, starts sending their geographic coordinates, direction and speed to the automated analytical system of the Yandex.Traffic service The analytics system is able to determine vital traffic information using the movements (or lack thereof) of cars sending information All information sent from each mobile device is non-personal – there is nothing that could possibly betray any specific information about the user or the car and information must be aggregated for it to be truly useful Drivers can also inform the service about traffic accidents, road works or other events that can cause congestion by marking it on the map Yandex estimates that an average Moscow driver using the service saves over 55 hours per year in traffic jams
  • 177. 176 CONFIDENTIAL Yandex.Market Yandex.Market is a convenient and easy to use system to select a product and a place to buy it, compare models and prices, find out more detailed information about a product, read reviews or search for a product according to specification or with the help of the intelligent Guru system  More than 5,000 active online and "brick-and-mortar" retailers can be found on Yandex.Market each providing up to date information on their products and prices. In aggregate Yandex hosts 8,400 vendors, 12,600 e-shops and 51 million offers With 17 million users monthly Yandex.Market is the number 1 shopping destination in Russia with 16.2% of the total market; About 40% of Russian online shoppers use Yandex.Market at some point Recently, Yandex has been trying to change Yandex.Market from a price comparison site into a marketplace platform by introducing checkout functionality Yandex recently announced an initiative for Yandex.Market. Users will now be able to complete a purchase directly from the Yandex.Market site. Merchants will now pay about 1% on a cost per action basis (rather than CPC). Yandex feels this price is attractive as other platforms, such as eBay, charge 8-10% (excluding a listing fee) Yandex feels that this approach will closely align Yandex’s interest with e-commerce participants A major benfit of the platform will be that users will be able to store their information in their Yandex accounts and use it for a number of different services/stores, to make repeat purchases or to buy on mobile, a major benefit as things shift to mobile. Further, users are probably more likely to trust Yandex with their information than less well-known sites
  • 178. 177 CONFIDENTIAL Yandex.Market At the moment Yandex is testing the new version of Yandex.Market with the market open to merchants so they can do testing and development work using Yandex’s open APIs. The platform is expected to open to consumers in November 2013 Already 100 merchant partners have signed up and 1,000 others have expressed strong interest Seasonal offers Online shopping video guide Selection of popular brands
  • 179. 178 CONFIDENTIAL Yandex Browser Yandex launched a dedicated desktop browser built using Chromium open source technology in October 2012 Yandex’s browser now has 8 million users The browser ties urls and searches into a single box (“Smartbox”) which automatically utilizes Yandex search for anything typed into the box Also features, integrated translation: selecting any text shows a popup button which, when pressed, shows a translation of the text to Russian using Lingvo The main revenue source of the browser is from search ads and Yandex has no other monetization plans Outside of Russia the browser uses Google (English) and Bidu (Chinese)
  • 180. 179 CONFIDENTIAL Yandex Browser Browser utilizes turbo technology for faster browsing File downloads utilize Kaspersky Lab for virus protection and also utilizes cloud based safe browsing technology Bookmarks in the online browser will automatically be in the mobile browser as well Yandex’s browser has been successful in driving search traffic to Yandex sites and services Source LiveIInternet.ru weekly results
  • 181. 180 CONFIDENTIAL Yandex Mobile Browser and Website Yandex ‘s recently released mobile browser, in both Russian and English, is designed from the ground up to closely integrate the search engine and the web surfing experience, making browsing on a touch screen device easy and intuitive  Built on WebKit (Blink on Android) features a combined Yandex powered search and address bar located at the bottom of the screen (called “Smartbox”), just above the keyboard, voice recognition features and more The browser also features turbo, licensed from Opera (the browser company) to make searches faster when one has a slow connection Yandex mobile is one of the most visited sites in Russia Yandex’s Mobile Portal is 10% of their general search audience and 3% of paid clicks Yandex mobile CTR is 40% higher than desktop
  • 182. 181 CONFIDENTIAL Yandex Browser Now For Smartphone and Tablet Need a photo or an article from Wikipedia - get to the right website instantly Search for filling station or a café – see it right on a map Makes Mobile Search Easier Surf search results and specific websites simultaneously Allows to quickly switch between bookmarks Makes Mobile Search Easier
  • 183. 182 CONFIDENTIAL Wide Range of Banner Ad Options Available 182
  • 184. 183 CONFIDENTIAL Yandex App Store In February 2013, Yandex launched their own freely downloadable app store The interface looks and feels very much like Google Play utilizing the Halo standards in Google Play and the dark theme of the Amazon Appstore The store features Kaspersky anti-virus protection and automatic app updates The browser company Opera provides the backend and most current apps Yandex’s app store is one of the largest alternative app stores for Android Currently, there are over 50K apps in the store Most apps are free but there is also paid content available utilizing mobile bills, credit cards or Yandex.Money Yandex.Store is a white-box offering, letting vendors like Russian telecom company MegaFon offer their own branding and customizations on top the standard store Other OEM partners include 3Q, Explay, Oppo, PocketBook, Qumo, teXet and Wexler Many speculate that the store is targeted at the lower end of the OEM and carrier market that feel ignored by Google or are more price sensitive
  • 185. 184 CONFIDENTIAL Yandex Shell Yandex.Shell is a Facebook Home like free intuitive 3D interface for Android™-based smartphones and tablets The Yandex.Shell UI Engine is written completely in the native C++ code to take advantage of every CPU/GPU tick and includes technology to minimize power consumption Yandex.Shell is a successor to SPB Shell — the top-selling mobile interface application, which kept its leading sales position from 2007 to 2012 The shell features 3D animation, as well as more useful features like the ability to hide apps from the drawer and resize the home screen grid Since, February 2012, it has been downloaded over 1 million times and is also utilized by many OEMs to further customize the phone’s stock software in order to create more customized experience The shell comes preinstalled on operator branded smartphones by large Russian OEMs like MTS and Megafone as well as Avea in Turkey
  • 186. 185 CONFIDENTIAL Yandex.Disk Yandex.Disk is Yandex’s file storage service offering 10GB storage to consumers for free Users can store files online and access them from computers, tablets, and smartphones. Users can view and launch files directly from the Web, from a Windows or Mac client, or from a Yandex.Mail app on iOS, Android or Windows devices Mobile integration includes the ability to easy upload scanned documents and photos from a phone Files can be shared with family, colleagues or friends from the site or with links. Users can control who has access to files at any time. There are also collaboration features so a user can collaborate with others in real time (in real-time) The platform can be intergraded into other software through Yandex’s API
  • 187. 186 CONFIDENTIAL Yandex.Music Yandex.Music is Yandex’s music streaming music service offered on both desktop and mobile Service syncs with Yandex.Disk to allow users to listen to audio tracks stored on the service The app also enables users to access the entire online catalogue of the service, which contains 12 million songs, on 1.2 million albums from 600,000 artists at a cost up to $6.40 (199 rubles) per month Additional features include music recognition, a song suggestions engine, and a “radio” function that lets listeners fine-tune their playlists using genre and language filters. It also lets users download songs to phone memory for offline listening With the launch of an Android app in May 2013, the music service is now the only legal music streaming service in Russia with both a desktop, iOS and Android service For licensing reasons the service is only available in Russia, Ukraine, Belarus and Kazakhstan
  • 188. 187 CONFIDENTIAL Yandex.Money is the largest electronic payment system in Russia offering easy, safe and reliable methods of paying for purchases online As of early 2013, the system had over 13 million accounts Every day, the system adds more than 9,000 new accounts to its user base of more than 14 million (as of July 2013) and handles over 120,000 payments According to TNS, Yandex.Money is Russia's best known payment service, with 84% of the Russian population having heard of it, while 17% make payments with Yandex.Money at least once in six months. Currently, Yandex.Money is accepted in over 20,000 internet stores in Russia, Ukraine, Belarus and Kazakhstan On July 4, 2013, Yandex and Sberbank of Russia OJSC announced the completion of their joint venture for electronic money solutions. Under the terms of the deal, Sberbank acquired 75% interest (minus one ruble) of the service for approximately $60M Sberbank of Russia is the largest bank in Russia and holds almost one third of aggregate Russian banking sector assets  Beginning in June 2013, Sberbank has waived its commission for Yandex.Money top-ups from bank cards at ATMs and payment terminals Yandex.Money
  • 189. 188 CONFIDENTIAL Yandex Position in Mobile Yandex holds about 61% share on Android devices in Russia despite prominent placement of Google native applications in Android. In fact, users have to choose Yandex as a search engine on Android Yandex feels that growth on Android is driven by wide availability of their browser and social applications and Yandex users upgrading from legacy platforms to Android and wanting to use Yandex because they are familiar with it and have used it previously  Yandex maps powers Apple’s native mapping product on IOS devices in Russian speaking countries Yandex expects to launch their own browser on iphone and Android tablets next month which should help drive growth. In addition, Yandex is featured prominently on iOS 7 which should lead to greater share in iOS 7
  • 190. 189 CONFIDENTIAL Yandex Acquires KinoPoisk Yandex recently announced the acquisition of KinoPoisk a movie search site for an undisclosed price though the price was not expected to be large relative to Yandex’s size Yandex will keep KinoPoisk under its own name and brand while integrating management into Yandex  KinoPoisk is the largest and most comprehensive rational English website dedicated to movies, TV shows and celebrities The site is both a a large repository of factual information about movies, such as actors directors, quotes, summaries and the most influential and trusted brand in movie reviews KinoPoisk features 100 million users ratings and 3 million viewer ratings added every month The site is Russia's 16th largest web property overall and has a worldwide audience of 18.6 million users By acquiring the site, Yandex hopes to arise the quality of search for video and movies This is part of a strategy at Yandex to build a better presence in online video and related advertising both areas here Yandex is weak, especially compared to Google Yandex will also likely further monetize the site through display ads and by integrating ticket purchases into Yandex Island search
  • 191. 190 CONFIDENTIAL Mail Yandex' second most popular service with more than six million people checking and send emails. Monthly audience of 28.6 million Yandex Services News First news service in Russia that automatically processes and systemizes news stories. Monthly audience of 20.4 million Maps Provides maps of more than 130 cities and towns in Russia and 60 cities in other CIS countries. Monthly audience of 24.3 million Weather Detailed weather forecast for 2,600 cities in approximately 200 countries worldwide. Monthly audience of 21.7 million Music Users can listen to 3.5 million licensed recordings including songs and entire albums from both Russian and foreign artists. Monthly audience of 2.5 million Afisha Is a source of up-to-date and detailed information about all types of events around Russia and other CIS countries. Monthly audience of 3.8 million Fotki Service that offers unlimited photo uploads and storage. Users can edit and print their shots and sharet hem to friends. Monthly audience of 8.8 million Jobs Job vacancy aggregator with more than 500,000 job vacancies from over 100,000 employers Monthly audience of 5+ million
  • 192. 191 CONFIDENTIAL TV Includes all the main Russian channels as well as dozens of regional and satellite channels. Monthly audience of 3.64 million Autos Collects information about cars on the Russian market, as well as classified ads published on Russian motoring websites. Monthly audience of 3.3 million Yandex Services Dictionaries First news service in Russia that automatically processes and systemizes news stories. Monthly audience of 20.4 million Market Provides users with a convenient and easy to use system to select a product and buy it. Monthly audience of 18.8 million Timetables Information service that provides flight and train and bus schedules. Monthly audience of 7.2 million Amenities Helps users search for the best savings or loan deals online. Users can compare offers from a large number of banks. Monthly audience of 590,000 Realty Ad aggregator for buying, selling, and renting real estates. Only ads from reliable sources are published. Monthly audience of 2 million Video Lets users search for video clips. Users can add clips to their playlist or upload their own. Currently indexes over 150 million videos . Monthly audience of 8.2 million
  • 193. 192 CONFIDENTIAL Playbill Yandex Playbill allows users to search for events, movies and other lesurie activies. Playbill features reviews as well Metro Features maps of all metro systems in Russia and Ukraine and allows passengers to plan their travel routes and calculate travel times Yandex Services People Offers free web page creation and hosting as well as file storage and document, music, video and photo sharing. Monthly audience of 18.3 million Moi Krug Leading social network for professionals in Russia with Linkedin like functionality. Monthly audience of over 1 million My Ya & Blogs My Ya is a blogging and social networking platform. Yandex also hosts a service called Blogs similar to Blogger People's Map Yandex Personalized Maps is a user-generated map service allowing users to draw maps of places familiar to them using mapdrawing and scaling software Translate An online computer translation service for web pages and texts Games Yandex Games is a collection of online games by different authors brought together on one aggregated site
  • 194. 193 CONFIDENTIAL Share of Russian Search Market
  • 195. 194 CONFIDENTIAL Turkey – Yandex’s First International Market Yandex.Turkey Front Page Turkey – Launched Services News Yandex.Bar Web Search Video Images Maps Traffic News Translate Weather Time Cloud storage Mozilla Firefox Internet Explorer Opera Yandex. Internet Mail Mobile services & applications Metrica Webmaster Search for websites Yandex.XML Services for webmasters Weather Maps, traffic and panoramic street images In September 2011, Russia launched its first International Market in Tukey  From about nothing Yandex now has about 3% market share in the market In one year visitors to their Turkish site rose 10x to about a million average daily visitors  Yandex has strong brand regocniation in Turkey with 84% of people saying they had heard of Yandex Yandex has been using Turkey to introduce key products that are unique to the market, many times before they are introduced in Russia. For instance, they launched Navigator there and it now has the highest number of downloads in the app store
  • 196. 195 CONFIDENTIAL Arkady Volozh, Principal founder of Yandex, Chief Executive Officer and a director Arkady Volozh is the principal founder of Yandex and has been Chief Executive Officer and a director since 2000. A serial entrepreneur with a background in computer science, Mr. Volozh co-founded several successful IT enterprises, including InfiNet Wireless, a Russian provider of wireless networking technology, and CompTek International, one of the largest distributors of network and telecom equipment in Russia. In 2000, Arkady left his position as CEO at CompTek International to become the CEO of Yandex. Mr. Volozh started working on search in 1989, which led to him establishing Arkadia Company in 1990, a company developing search software. His early achievements include the development of electronic search for use in patents, Russian classical literature and the Bible. Mr. Volozh holds a degree in applied mathematics from the Gubkin Institute of Oil and Gas. Ilya Segalovich, Co-founders, Chief Technology Officer and a director (In Memoriam) Ilya Segalovich is one of Yandex's co-founders and has been Chief Technology Officer and a director since 2000. He began his career working on information retrieval technologies in 1990 at Arkadia Company, where he headed Arkadia’s software team. From 1993 to 2000, he led the retrieval systems department for CompTek International. In 2000 Ilya Segalovich left CompTek International to become the CTO of Yandex. IIya helped create the National Corpus of Russian Language (Ruscorpora) and ROMIP, the Russian Information Retrieval Evaluation Seminar. He also co-founded and supports Maria's Children Art Rehabilitation Center for orphans and children with special needs. Mr. Segalovich received a degree in geophysics from the S. Ordzhonikidze Moscow Geologic Exploration Institute. Elena Kolmanovskaya, Co-Founder, Consultant Elena Kolmanovskaya is one of Yandex's co-founders and has served in the role of the company's Editor-in-Chief from the moment it was established in 2000 to 2012. Before Yandex, Elena worked at CompTek International where she focused on development and promotion of information retrieval technologies. Prior to that, she worked as a programmer at East Coast Sheet Metal Corp., as an analyst for Pragma, and as a software engineer at the All-Russia Petroleum Research Exploration Institute (VNIGNI). Elena is the author of numerous publications on internet technologies. She has a degree in Applied Mathematics from the Gubkin Institute of Oil and Gas. Currently, she serves as a consultant at Yandex. Alexander Shulgin, Chief Financial Officer Alexander Shulgin joined Yandex as the Chief Financial Officer in May 2010. A finance professional with 13 years of experience in FMCG industry, Alexander worked in different finance positions in Coca-Cola Hellenic from 1997 till 2007. In 2007 he was appointed Country Chief Financial Officer of Coca-Cola Hellenic Russia. Alexander has a degree in Management from Rostov-on-Don State University. Management
  • 197. 196 CONFIDENTIAL Management Eugene Lomize, Head of Monetisation Eugene Lomize is Head of Monetisation at Yandex. He joined the company in 2000 as a project manager and was responsible for launching a number of popular services, including Yandex.Catalog, Yandex.Dictionaries and the Yandex Advertising Network. Eugene has degrees in Chemistry and History from Moscow State University. Alexei Tretiakov, Vice President, Commerce Alexey Tretyakov, VP Commerce, is involved in the company’s strategic planning being responsible for new business models and new markets development. Previously, from 2003 to 2012, he was in charge of the company's sales strategy and operations as the Chief Commercial Officer. Alexey has been part of the Yandex team since 2000. Lev Gleizer, Commercial Director Lev has been actively involved in advertising since 1996. He is a member of the expert committee of the Russian Association of Communication Agencies (RACA). Lev was at the very beginning of online advertising in Russia co-founding in 1999 one of the country’s first full-cycle advertising agencies, Manifest. In 2000, he founded AdWatch, one of Russia’s most successful and influential advertising agencies, which he ran for seven years. After MediaSelling – another agency he founded in 2007 – first partnered with and then joined Yandex in 2008, Lev took charge of the company’s display advertising products. In 2012 Lev Gleizer was appointed Commercial Director of Yandex. Bernard Lukey, Executive Director, Yandex Europe AG Bernard joined Yandex in January 2012 to help create and run Yandex Europe AG, the company’s European sales office based in Lucerne, Switzerland. Prior to Yandex, Bernard served, from 2005 to 2011, as Chief Executive Officer of one of Russia's largest online stores, OZON.ru. Earlier in his career, from 2000 to 2002, Bernard held a position of Marketing Director at Yandex LLC. Bernard has been able to successfully apply his international business experience in the fast-paced Russian economy since 1996, when he came to Russia to manage marketing at Nestlé Food LLC and, later, at the private equity firm Baring Vostok Capital Partners. Bernard holds an MA degree in Political Sciences from Lausanne University and is an Advisory Board member of the Jean Monnet Foundation for Europe. Bernard Lukey, Executive Director, Yandex Europe AG Bernard joined Yandex in January 2012 to help create and run Yandex Europe AG, the company’s European sales office based in Lucerne, Switzerland. Prior to Yandex, Bernard served, from 2005 to 2011, as Chief Executive Officer of one of Russia's largest online stores, OZON.ru. Earlier in his career, from 2000 to 2002, Bernard held a position of Marketing Director at Yandex LLC. Bernard has been able to successfully apply his international business experience in the fast-paced Russian economy since 1996, when he came to Russia to manage marketing at Nestlé Food LLC and, later, at the private equity firm Baring Vostok Capital Partners. Bernard holds an MA degree in Political Sciences from Lausanne University and is an Advisory Board member of the Jean Monnet Foundation for Europe.
  • 198. 197 CONFIDENTIAL Adjusted Net Income Key Financials Capex Revenues (1) 1) Adjusted Revenues are recognized net of VAT, discounts and commissions, but gross of TAC 2 Adjusted EBITDA, Adjusted Net Income, are non-GAAP financial measures. 3 Translated using the exchange rate in force at end of period. $ figures shown in charts expressed in millions 4 Figures have been restated to exclude Yandex.Money capex for all periods. Capex as % of Revenue excludes Yandex.Money from numerator and denominator $173 $259 $290 $409 $624 $942 $524 $391 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2007 2008 2009 2010 2011 2012 1H 2013 1H 2012 $97 $130 $125 $202 $288 $430 $238 $168 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 2007 2008 2009 2010 2011 2012 1H 2013 1H 2012 $64 $85 $75 $130 $187 $287 $109 $169 $0 $50 $100 $150 $200 $250 $300 $350 2007 2008 2009 2010 2011 2012 1H 2013 1H 2012 $33 $44 $32 $70 $172 $130 $44 $48 19% 17% 11% 17% 28% 14% 11% 9% 0% 5% 10% 15% 20% 25% 30% $0 $50 $100 $150 $200 $250 $300 $350 $400 2007 2008 2009 2010 2011 2012 1H 2013 1H 2012 Capex As % Of Revenue Adjusted EBITDA
  • 199. 198 CONFIDENTIAL Yandex Revenue Breakdown (1) (2) $163 $160 $169 $200 $210 $233 $290 $258 $280 $0 $50 $100 $150 $200 $250 $300 $350 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 O&O Text Based Revenue Partner Text-Based Revenue Display Revenue Other Revenue (1) Net of Discounts and Commissions, but gross of TAC. (2) Items may not total 100% due to rounding. Growth In Paid Clicks and CPC, % Key Statistics
  • 200. 199 CONFIDENTIAL Operational Metrics Headcount By GAAP Cost Category $6 $6 $7 $7 $9 $11 $10 $10 $11 $11 $12 $12 $13 $13 $33 $33 $38 $43 $50 $58 $54 $58 $62 $59 $62 $67 $70 $72$23 $22 $25 $28 $35 $39 $34 $36 $40 $37 $42 $45 $45 $47 $63 $62 $71 $78 $94 $108 $98 $103 $114 $107 $116 $124 $128 $131 26% 21% 21% 19% 26% 22% 19% 17% 24% 20% 18% 18% 21% 20% -2% 3% 8% 13% 18% 23% 28% -$10 $40 $90 $140 $190 $240 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Cost of Sales Product Development SG&A Personnel costs as % of Revenue
  • 201. 200 CONFIDENTIAL 8% 9% 13% 14% 18% 12% 10% 8% 11% 19% 20% 3% 17% 38% 15% 8% 14% 18% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2011 1Q 12 2Q 12 3Q 12 4Q 12 2012 1Q 13 2Q 13 3Q 13 Cost Per Development Personnel (% YOY) Total opex/employee (% YOY) Cost Summary Cost Per Development and Opex Per Employee Growth Sources: BofA Merrill Lynch and Company Filings RD Costs and Headcount Growth 51% 47% 40% 31% 31% 37% 25% 30% 42% 39% 25% 16% 14% 14% 14% 19% 24% 22% 0% 10% 20% 30% 40% 50% 60% 2011 1Q 12 2Q 12 3Q 12 4Q 12 2012 1Q 13 2Q 13 3Q 13 RD Cost (% YOY) Growth In Headcount (% YOY)
  • 202. 201 CONFIDENTIAL Traffic Acquisition Costs Personnel Breakdown by GAAP Cost Category $19 $23 $25 $31 $34 $35 $39 $47 $42 $45 14% 14% 16% 16% 17% 17% 17% 16% 16% 16% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% $10 $20 $30 $40 $50 $60 $70 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Distribution TAC Partner TAC % of Revenue Partner TAC Distribution TAC $10 $13 $16 $21 $22 $22 $26 $31 $26 $27 62% 63% 64% 64% 64% 64% 63% 63% 63% 63% 0% 10% 20% 30% 40% 50% 60% 70% 80% $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Partner TAC % of O&O Text-Based Revenue $9 $10 $9 $10 $11 $13 $13 $16 $16 $18 8% 8% 8% 8% 8% 8% 8% 8% 8% 9% 0% 2% 4% 6% 8% 10% $0 $5 $10 $15 $20 $25 $30 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Distribution TAC % of Revenue Sources: Capital IQ & Company Filings
  • 203. Appendix
  • 204. 203 CONFIDENTIAL $4,181 $4,058 $2,999 $3,172 $1,384 $1,276 $1,351 $1,012 $11,124 $5,513 $5,091 $4,350 $2,884 $2,789 $2,173 $2,048 22% 6% 11% 7% 16% 17% 10% 15% -25 -15 -5% 5% 15% 25% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 China UK Japan Germany Brazil Australia France Russia 2012 2017 CAGR $38,419 $10,677 $8,524 $7,297 $6,044 $2,459 $2,461 $3,230 $1,696 $64,034 $25,978 $13,960 $9,750 $8,648 $5,418 $5,013 $4,654 $3,407 11% 19% 10% 6% 7% 17% 15% 8% 15% -2 -1 -5 5% 15 25 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 North America China Japan UK Germany Brazil Australia France Russia 2012 2017 CAGR Russia Is A Growing Leader in Advertising Spending Top Online Ad Spending By Country 2012 – 2017E ($MM) Top Search Ad Spending By Country 2012 – 2017E ($MM) Source: Magna Global
  • 205. 204 CONFIDENTIAL Percent of Total Digital Advertising Spending Russian Advertising Market Digital Vs. Traditional 99% 97% 95% 90% 90% 87% 84% 83% 82% 79% 77% 77% 76% 1% 1% 3% 6% 6% 7% 10% 10% 11% 12% 14% 14% 14% 2% 2% 4% 4% 5% 7% 7% 7% 8% 9% 9% 10% 0% 20% 40% 60% 80% 100% 120% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Ex. Online Search Revenue Other Online Revenue 29.9% 36.4% 53.8% 58.2% 58.2% 59.3% 59.3% 59.7% 60.1% 60.1% 60.1% 60.1% 60.1% 70.1% 63.2% 44.0% 38.8% 38.8% 37.9% 37.9% 37.0% 36.0% 34.8% 33.6% 32.4% 31.2% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Search Revenue Display Mobile Video Russian Advertising Market is Increasingly Moving Toward Online Ads Sources: Magna Global, Zenith Optimedia,eMarketer and JP Morgan
  • 206. 205 CONFIDENTIAL Despite Only Being Strong in Russia Yandex Is A Strong Global Search Player Jul-08 % Dec-08 % Jul-09 % Dec-09 % Jul-12 % Dec-12 % CAGR Number of Searches (in billions): Google 48.7 60.4% 55.6 62.0% 76.7 67.5% 87.8 66.8% 115.3 66.7% 114.7 65.2% 21% Baidu 7.4 9.2% 8 8.9% 8 7.0% 8.5 6.5% 15.2 8.8% 14.5 8.2% 16% Yahoo 8.7 10.8% 8.4 9.4% 8.9 7.8% 9.4 7.20% 10.2 5.9% 8.6 4.9% 0% Yandex 0.7 0.80% 1 1.10% 1.3 1.10% 1.9 1.40% 3.5 2% 4.8 3% 53% Microsoft 2.3 2.90% 2.4 2.70% 3.3 2.90% 4.1 3.10% 4.6 2.60% 4.5 2.50% 16% Jul-12 % Aug-12 % Sep-12 % Oct-12 % Nov-12 % Dec-12 % CAGR Unique Searchers (In millions) Google 1,223 82.2% 1,211 81.2% 1,156 77.3% 1,163 76.9% 1,160 76.5% 1,168 76.6% -9% Baidu 293 19.7% 293 19.7% 285 19.0% 289 19.1% 290 19.1% 293 19.2% 0% Yahoo 312 21.0% 304 20.4% 282 18.9% 291 19.3% 293 19.3% 292 19.2% -12% Yandex 68 4.6% 68 4.6% 69 4.6% 72 4.8% 73 4.8% 74 4.9% 18% Microsoft 274 18.4% 267 17.9% 270 18.0% 267 17.6% 286 18.9% 269 17.6% -4% Jul-12 Aug-12 Growth Sep-12 Growth Oct-12 Growth Nov-12 Growth Dec-12 % CAGR Total Searches Per User (In millions) Google 94 89 -5% 93 4% 98 6% 98 0% 98 0% 8% Baidu 52 54 5% 49 -10% 48 -1% 50 4% 49 -2% -9% Yahoo 33 33 3% 31 -8% 31 -1% 29 -4% 29 0% -18% Yandex 51 53 3% 55 5% 62 12% 63 3% 65 2% 58% Microsoft 17 13 -25% 16 27% 17 7% 16 -8% 17 7% 1% Sources: Bloomberg LP
  • 207. 206 CONFIDENTIAL U.S. Mobile and Desktop Internet Minutes (MM) Mobile Time Spent Study Source:Comscore excluding online video viewing minutes & BofA Merrill Lynch Total Digital Media Time Spent (Billions of Minutes) 416 477 81 381 100 0 200 400 600 800 1,000 1,200 May 2010 May 2013 Tablet Smartphone Desktop U.S. Retail Usage in Minutes (Millions Of Minutes) U.S. Mobile and Desktop Users (000s) 46,086 50,101 67,110 64,269 28,445 221,486 225,359 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 December 2012 July 2013 iPhone Users Android Users iPad Users PCs 172,438 203,127 147,338 229,231 130,863 505,515 435,542 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 December 2012 July 2013 iPhone Android iPad PCs 14,475 16,992 2,660 12,914 4,966 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 February 2010 February 2013 Tablet Smartphone Desktop
  • 208. 207 CONFIDENTIAL Russia Is A Leader in Search 2012 % 2013 % 2014 % 2015 % 2016 % 2017 % CAGR North America $38,419 39% $42,618 39% $47,236 39% $52,436 38% $58,130 38% $64,034 38% 9% China $10,677 11% $13,612 12% $16,475 13% $19,616 14% $22,952 15% $25,978 15% 16% Japan $8,524 9% $9,136 8% $10,133 8% $11,385 8% $12,661 8% $13,960 8% 9% UK $7,297 7% $8,008 7% $8,375 7% $8,824 6% $9,278 6% $9,750 6% 5% Germany $6,044 6% $6,450 6% $6,975 6% $7,518 6% $8,075 5% $8,648 5% 6% France $3,230 3% $3,367 3% $3,543 3% $3,795 3% $4,194 3% $4,654 3% 6% Australia $2,461 3% $2,816 3% $3,231 3% $3,697 3% $4,324 3% $5,013 3% 13% Brazil $2,459 3% $2,819 3% $3,233 3% $3,817 3% $4,683 3% $5,418 3% 14% Russia $1,696 2% $2,002 2% $2,290 2% $2,618 2% $2,996 2% $3,407 2% 12% Italy $1,298 1% $1,412 1% $1,633 1% $1,866 1% $2,108 1% $2,369 1% 11% 2012 % 2013 % 2014 % 2015 % 2016 % 2017 % CAGR China $680 11% $1,177 14% $1,936 18% $2,913 21% $3,844 22% $4,845 23% 39% Japan $1,728 27% $2,074 25% $2,402 22% $2,812 20% $3,254 19% $3,727 18% 14% UK $496 8% $803 10% $924 8% $1,062 8% $1,181 7% $1,310 6% 18% Germany $49 1% $72 1% $147 1% $234 2% $332 2% $442 2% 44% France $65 1% $109 1% $150 1% $199 1% $282 2% $360 2% 33% Australia $5 0% $14 0% $36 0% $85 1% $164 1% $266 1% 95% India $32 1% $64 1% $82 1% $103 1% $129 1% $162 1% 31% Russia $22 0% $34 0% $55 1% $81 1% $114 1% $153 1% 38% Netherlands $36 1% $47 1% $65 1% $87 1% $104 1% $125 1% 23% Norway $26 0% $36 0% $58 1% $81 1% $94 1% $108 1% 27% Top Ten Online Advertising Countries (2017E) ($MM) Top Ten Mobile Advertising Countries (2017E) ($MM) Source: Bloomberg LP
  • 209. 208 CONFIDENTIAL Text Ad Market In Russia Yandex Owns 75-80% of the Russian text ad revenues Russian Ad Market More than 78,000 advertisers More than 4,300,000 active ads More than 29,000,000 active keywords Yandex vs. Google Adwords & Begun Moscow, 19% Other Countries, 17% Ukraine, 12% Other Russia, 46% St. Petersburg, 6% Who Sees Yandex Ads
  • 210. 209 CONFIDENTIAL Russian Ecommerce Market Growth Comparison Russian Sites Offering Select Features Number of Digital Buyers Source:eMarketer 178 220 271 322 375 423 15 19 25 30 36 42 143 150 156 163 169 175 19 24 27 30 32 3420 23 26 29 31 33 0 50 100 150 200 250 300 350 400 450 2011 2012 2013 2014 2015 2016 China India U.S. Brazil Russia 318 501 670 852 956 1,039 597 632 665 691 708 724 2,104 2,293 2,466 2,626 2,785 2,937 730 717 741 792 800 806 569 628 670 715 738 758 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2011 2012 2013 2014 2015 2016 China India U.S. Brazil Russia
  • 211. 210 CONFIDENTIAL Visitors For Week Ending November 16, 2013 Minutes Across Devices 2,712 2,179 913 581 461 424 359 314 228 186 11.81% 9.49% 3.98% 2.53% 2.01% 1.85% 1.56% 1.37% 0.99% 0.81% -30.00% -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Google Facebook YouTube Yahoo! Yahoo! Mail Gmail Bing Yahoo! Search msn Windows Live Mail Total Visits Visits Share 40,480 27,149 26,492 6,519 5,997 5,677 59,558 50,149 46,767 0 20,000 40,000 60,000 80,000 100,000 120,000 Sept 2013 Jan 2013 Sept 2012 Apps Mobile Web Desktop Source: comScore & Hitwise US Google Visitors & Minutes
  • 212. 211 CONFIDENTIAL CTR Lift By Ad Location Mobile Native Ad Formats CTR Mobile Is Much Harder Than Desktop Sources: BI Intelligence & Millward Brown 1.37% 0.86% 0.14% 0.10% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% Mobile Native Ad Formats (ad expanstion/Click- through rate) Standerd Mobile Banner Ad CTR Desktop rich media ad CTR Standerd Desktop Banner Ad CTR 40% 48% 26% 5% 0% 10% 20% 30% 40% 50% 60% Less Than 1 Mile 1 to 2 Mile 2 to 5 Miles 5 to 10 Miles Smart Device Owners Attitude Toward Ads 18% 23% 23% 25% 28% 28% 32% 33% 36% 36% 38% 39% 41% 42% 44% 45% 47% 48% 50% 51% 51% 0% 10% 20% 30% 40% 50% 60% Non-Opt In E-mail Ads Mobile Ads Online Music Players Games Telemarketing Online Ads With Video Direc tMail Social Media Ads Online Display Ads Websites/Microsites Product Placement Online Search Ads Cinema Ads Social Media Newsfeed Local Deals Opt-in E-mail Ads Newspaper Ads Billboard Ads Magazine Ads TV Ads Radio Ads
  • 213. 212 CONFIDENTIAL Russia Activities On Smartphone and e-Commerce Desktop e-Commence Dollar Sales Sources: eMarketer; and GlobalWebIndex $42 $53 $67 $82 $102 $123 $130 $130 $142 $162 $186 $100$30 $40 $51 $61 $69 $77 $84 $80 $85 $94 $103 $58 $72 $93 $118 $143 $171 $200 $214 $210 $227 $256 $289 $158 $0 $50 $100 $150 $200 $250 $300 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013 retail travel Activities on Smartphone (Ever Used) Country Used a search engine for product search Purchased a product or service Used a search engine for a general search Searched for travel or holidays Searched for a flat or house Searched for job- offers Searched for restaurants or bars Accessed a social network Used Online- banking or other finance activities Brazil 52.5 29.1 60.1 34.2 27.9 33.2 36.8 75.8 41.2 China 74.2 55.7 74.8 55.9 41 45.2 56.9 74.2 55.6 France 64.4 31.2 75.5 34.5 20.6 20.5 48.2 60.8 54.1 Germany 58.1 34.3 72.4 33.8 23.1 19.7 47.1 62.5 35.2 India 52.5 39.9 59.6 43 30.6 42.8 42.8 62.5 42.4 Russia 61.9 44.1 78.5 47.9 40.9 46.9 52.8 80.8 51.6 UK 67.8 39.3 77.1 37.6 23.1 23.6 46.5 67.2 42 USA 67.6 42.3 77.2 40.1 27.8 32.2 57.5 71.9 53.3
  • 214. 213 CONFIDENTIAL Mobile Only Share Of Time That Is Growing Sources:dfsdfd Media Consumption By Channel 45% 25% 17% 9% 7% 4% 44% 26% 16% 8% 8% 6% 43% 26% 15% 7% 7% 9% 42% 26% 14% 6% 6% 12% 38% 20% 12% 4% 4% 20% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% TV Online Radio Print Other Mobile 2009 2010 2011 2012 2013
  • 215. 214 CONFIDENTIAL Mobile Revenue Growth Mobile Revenue $4,016 $8,808 $15,818 $24,909 $35,553 $47,159 $59,670 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 2011 2012 2013 2014 2015 2016 2017 North America Asia Western Europe Central & Eastern Europe Latin America Middle East & Africa Source: eMarketer
  • 216. 215 CONFIDENTIAL Programmatic Ad Buying Exploding Source: eMarketer Programmatic Ad Buying $2.8 $4.8 $7.5 $9.8 $12.4 $14.8 $16.9 $1.7 $2.8 $4.5 $6.8 $9.5 $12.5 $15.7 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 2011 2012 2013 2014 2015 2016 2017 US Rest Of World
  • 217. 216 CONFIDENTIAL Emerging Markets Growing Quicker Than Global Market Source: Bloomberg LP Ad Spend Growth -15 -10 -5 0 5 10 15 20 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Global Ad Spend Growth (% YoY) Emerging Markets Ad Spend Growth (% YoY)