Yandex’s Balancing Act and the Sovereign Runet Bill

By: Natasha Bluth

In early March, more than 15,000 people gathered in Moscow to protest a bill passed through the lower house of the State Duma that would isolate the Russian internet from the rest of the World Wide Web—a move that advocates argue is meant to safeguard the Runet from foreign interference. In the following days, hackers redirected traffic from Russia’s largest IT company, Yandex, and other major Russian sites, to domains blacklisted by Roskomnadzor, Russia’s state censor.

Yandex did not identify the incident as a cyber-attack but still faces deep entanglement in the Runet sovereignty debate. Throughout its more than 20 years in existence, Yandex has maintained a delicate balancing act, working with and around the state, both resisting and complying with the Kremlin’s political agenda to fulfill its business ambitions. As per founder and CEO Arkady Volozh’s words, “the Russian state exists, and it has its own daily agenda, we develop around it.” In January, Yandex recommended that the sovereign Runet bill undergo serious revisions, which some commentators see as an attempt to postpone its passage, but the company nevertheless offered its support. This gesture marks a strong departure from last year, when Yandex denounced Roskomnadzor’s decision to ban the messaging app Telegram, calling it a “blow to the Runet.”

One of the few high-profile business success stories outside of Russia’s energy sector, Yandex has expanded its services prolifically, from cloud computing and e-commerce to smartphones and a taxi service. It also has offices in 27 countries, including its parent company’s headquarters in the Netherlands, and its services are available in many more.

With an isolated Runet, Yandex could dominate even more of its core base, but a consolidated market would also make it more susceptible to nationalization and hinder international expansion. In its 2018 annual report, Yandex listed risks to its growth, specifically underscoring that “governments of the countries in which we operate are increasingly developing legislation aimed at regulation of the internet.” Coupled with Volozh’s emphasis on the importance of maintaining a competitive business environment in Russia, Yandex’s support for a sovereign Runet stands in sharp contrast.

This discrepancy may be a result of the Kremlin’s encroachment on Yandex’s autonomy over the years. By nature of providing new digital technologies to the public, for example, Yandex played a role in political events of the early 21st century that haunt its current relationship to the state. In The Red Web: The Struggle Between Russia’s Digital Dictators and the New Online Revolutionaries, journalists Irina Borogan and Andrei Soldatov detail how Yandex debuted a money-sharing app on Facebook in the run-up to the 2011 Bolotnaya protests. The feature allowed Russians to donate funds to the event, which grew into one of Russia’s biggest opposition rallies condemning electoral fraud and the Putin administration. Yandex insisted that the timing of this new feature was coincidental, but its role in Bolotnaya arguably legitimized the Russian Investigative Committee’s inquiry into the company in 2013 when it accused opposition leader Alexei Navalny of funneling stolen money through Yandex for his mayoral campaign.

Putin’s return to the presidency in 2012 wielded more severe crackdowns on the IT sector, bolstered by rising geopolitical tensions. Borogan and Soldatov note that after receiving praise for attracting foreign investment and cultivating an international board, Yandex befell criticism from the Kremlin, which manipulated these characteristics to insinuate that the company cooperated with foreigners. This attack came to a head in April 2014, when Putin alleged that foreign investment in Yandex was part of an ongoing US plot to control the internet and gather sensitive Russian intelligence. Yandex’s stock subsequently fell 20%, while the president’s theory gained traction as the armed conflict in eastern Ukraine wore on.

Fielding these threats, Volozh updated Yandex’s board, adding German Gref, the CEO of state-owned Sberbank and a liberal figure who also enjoys a personal relationship with Putin. But other actions have since distanced Yandex from the state, indicating growing resentment and distrust. In 2016, for example, Volozh obtained Maltese citizenship for himself and his family, which was rationalized by the CEO’s extensive EU travel but also poignantly expressed his wariness of the Russian government. Upon Putin’s visit to celebrate Yandex’s 20th anniversary, the company preemptively barred one politically contentious employee from even entering the office building.

Today, government officials continue to police the company—what Gref calls “taming Yandex”—with threats of state ownership. Last October, rumors circulated that Sberbank was seeking to increase its share of the IT company to 30%, which would effectively bar Yandex from developing in directions that conflicted with the state’s agenda. Back in 2009, Yandex also awarded Sberbank a “golden share” when it filed for an IPO on the Nasdaq. This move pacified the Kremlin by keeping Yandex under Russian control, but also prevented Alisher Usmanov—an oligarch who once warned Navalny that he doesn’t “use the internet,” he “develops it”—from purchasing a substantial stake. The company’s IPO prospectus aptly forewarned that “Businesses in Russia can be subject to aggressive actions by financial groups seeking to obtain control through the exercise of economic or political influence or government connections.”

Yandex’s amorphous nature also continues to pose a problem in the eyes of the authorities. Despite its popular news aggregator, Yandex is registered as a search engine rather than a media organization and thus evades the typical regulations imposed on news outlets, whose freedoms are increasingly censored by the state. But in October, one of the masterminds behind the sovereign Runet bill, Andrei Lugovoi, proposed legislation that would limit foreign ownership of news aggregators to 20%, an explicit attack on Yandex. As with the sovereign Runet bill, the law was pitched as a security measure, this time to protect Russians against the dissemination of fake news about the Kemerovo mall fire and the shooting at the Kerch Technical College.

Though Yandex selectively criticizes state policy (as with the Telegram ban, or more recently, the arrest of Baring Vostok’s Michael Calvey), its compromises affect its users, even if the visibility of such cooperation is limited. Roskomnadzor, for instance, gained access to user metadata from a handful of Yandex’s services after the company ceded to government pressure. Following the Telegram protests last year, Alexei Kovalev wrote that “Most of the headlines I’m seeing on Yandex.News [are] tidbits of non-information.” And after Russia annexed Crimea in April 2014, Yandex.Maps began displaying the peninsula differently to Ukrainian and Russian audiences—a localization strategy that both foreign and domestic IT companies employ to stay within the good graces of the Russian government.

In retaliation against Russian occupation and information warfare, Ukraine blocked the majority of Yandex’s services, including Maps, in 2017. But while Yandex lost its Ukrainian audience, its hold over the Russian market continues to strengthen. In 2017, it won its long-standing antitrust battle with Google, meaning that Yandex can now pre-install its apps on Android phones, and last year, it became the majority stakeholder in the merger between Yandex.Taxi and Uber, which operates in more than 100 Eurasian cities.

Putin’s latest May Decree spoke of a “technological breakthrough” for Russia, but shiny objects like Yandex’s AI-assistant and self-driving cars will not camouflage the ramifications of a national digital economy severed from the rest of the web. As the parliament prepares to debate the sovereign internet bill next month, it also remains unclear how the government plans to achieve this endeavor, particularly considering Roskomnadzor’s struggle to block Telegram last year. In any case, Yandex’s acquiescence signals that the willpower of the Russian tech giant to fight an emboldened Kremlin may be in decline.

Natasha Bluth is a freelance journalist covering politics and culture in the former Soviet Union. Follow her on Twitter: @natashabluth.

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