FOCUS: Yandex likely to face fierce rivalry with Asian makers by expanding device range

By Yekaterina Yezhova

MOSCOW, Nov 26 (PRIME) -- Russian Internet giant Yandex did not unveil its long awaited smartphone at the November 19 presentation, but it did demonstrate serious upgrade of its search engine and two small siblings to its voice speaker Yandex.Station. Sellers hope for demand, while analysts say the company may confront severe competition with hardware makers, mostly Asian firms.

“The Andromeda update has been rolled out by the Yandex search team over the last year and included over one thousand improvements and features…Andromeda builds on the prior Korolyov and Palekh updates, which improved users’ search experience by better understanding complex, informal inquiries and intent,” the company said.

Investment company Veles Capital analyst Artyom Mikhailin said the company’s presentation went as expected with no big impact on the company’s quotes. Yandex’s shares added a mere 0.44% on the presentation day, closing at 1,924.5 rubles on the Moscow Exchange.

“An impact from the search engine update will not be reflected in the financial results straight away and its assessment will be hard,” the analyst told PRIME.

Yandex also unveiled IRBIS A and DEXP Smartbox: two devices manufactured by third-party companies, IRBIS and DEXP, on the basis of Yandex.io, on which Yandex.Station runs as well. The devices are equipped with Yandex’s smart assistant Alisa, which is monthly used by more than 30 million people. The assistant can read news and weather forecasts, order pizza or taxi, and play music.

“We think that new devices from partners will expand the existing ecosystem and make it more affordable for mass consumers, for those for whom Yandex.Station seems too expensive. Such devices do not boost the company’s cash flows much, but they are of a strategic importance, acting as a link between various services of Yandex,” Mikhailin said.

Yandex started selling Yandex.Station in May for 9,990 rubles, and the device is now available on Beru, a marketplace of Yandex and Sberbank, the country’s biggest bank. Yandex does not disclose sale numbers.

The two new devices will cost 3,290 rubles apiece and will be offered shortly at retail chains M.Video-Eldorado Group and DNS.

“The smart speakers can be commercially successful not only because of an affordable price, but thanks to the uniqueness of the product,” head of the research department at investment company IC RUSS-INVEST Dmitry Bedenkov said.

M.Video-Eldorado Group PR Director Valeria Andreyeva said sales of IRBIS A could start in stores and online within several months. “Under the m_mobile project we focus on expansion of assortment of advanced digital gadgets, this is why the device with the Russian speaking assistant from Yandex is an important novelty,” she told PRIME.

“In essence, it’s a unique product because it is not about music, but about Alisa’s functions and the speaker’s options. There are no exact analogues, but the product is close to portable speakers, which are in high demand: sales rocketed 70–80% on the year in money and in units in January–September.”

Such gadgets were earlier purchased as an interesting and high-tech gift, but the seller has seen a more stable demand in 2018. “IRBIS A could occupy a niche in this segment thanks to its competitive advantage of the Russian-speaking assistant,” Andreyeva said.

Georgy Vashchenko, director of operations on the Russian stock market at investment company Freedom Finance, said that Yandex has adopted Apple’s presentation and promotion concept and Xiaomi’s concept in building a product range, although the Russian giant still has a long way to go before reaching the two manufacturers.

“Perhaps, the company wants to become the first national gadget brand, but to become that, it will have to face tough competition with producers from Asia, including Xiaomi,” he said in a research note.

China’s Xiaomi constantly expands its product range from phones and devices for smart homes to bicycles. India is a strategical market for Xiaomi, although sales on the Mainland China more than doubled during a year and a half. Xiaomi pursues an aggressive marketing policy.

“If Yandex wants to repeat Xiaomi’s success on the Russian market, it will have to raise investment in research and development and marketing or enter an alliance with a third-party manufacturer. It seems the company has been following the second path so far by offering its platform of voice control over devices to technical vendors IRBIS and DEXP. It minimizes expenses on R&D. I think this model pays back poorly,” Vashchenko said.

“I think that it will take Yandex at least two years to shape demand for the products under its own brand, and the company will hugely depend on capacities of manufacturers. IRBIS and DEXP work in the field of computers and phones, and the Internet of Things is a new direction for them.”

Vashchenko did not rule out that Yandex could be challenged in the future by an alliance of Internet company Mail.Ru Group and mobile operator MegaFon, which is already testing 5G and expects that 100 million devices will get registered in the network in three years. “If local IoT manufacturers get preferences from the government, which cannot be excluded in the light of ongoing trading wars, we’ll see a battle for the 500 billion ruble market, in which big local IT companies will certainly take part,” he said.

“This is why, I think, investors won’t pay attention to possible losses related to promotion of first smart devices. This direction is not core for Yandex so far, and the company hardly expects its annual sales volume to exceed 250 million rubles.”

(65.6664 rubles – U.S. $1)

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