“Russia’s new law: the beginning of the end for Facebook and Twitter?”
This was just one of many provocative headlines circulating throughout tech-centered media outlets last Friday. The stories were sparked by tightening regulations against American-based Internet companies from Russian communications watchdog agency Roskomnadzor.
In short, Russia is demanding that American-based Internet companies register as “organizers of information distribution” and store all data on Russian users at data severs inside Russian borders.
It’s a method of information control that Facebook and Google — strong advocates of Internet neutrality — are very unlikely to abide.
The law was initially passed by the Russian parliament back in April with a deadline at the end of 2015, but in the wake of recent political tensions between Russia and the U.S. over events in Ukraine, the deadline has been moved to the end of this year.
Google, Facebook, and Twitter were all directly notified of the regulations on Friday.
Agency deputy chief Maxim Ksenzov said Russia would “force [these companies] one way or another to obey the law.”
He goes on to say, “If websites do not register, Roskomnadzor has the right to blacklist the online platform — that is, to block it from access by Russian Web users.”
The language coming from Ksenzov is strong, and being blacklisted could cost American Internet companies tens of millions of users, but could this really be the end for Facebook, Google, and Twitter?
Not even close.
Russia Doesn’t Matter
Google, Facebook, and Twitter derive approximately 30 million, 20 million, and 5 million users from Russia respectively. It might seem like a lot up front, but proportionally speaking, Russian users are a drop in the bucket for American-based Internet.
In March 2011, Internet World Stats estimated 2.1 billion active online users from around the world — about 30.2% of the global population. Russia accounted for approximately 59 million of these users, or just 2.8% of the total Internet population at the time.
Considering these figures, it shouldn’t be surprising that Russia, despite having a greater population than the majority of the following countries, does not make the top 10 list for Facebook usage…
Credit: Insight Insider
Twitter usage…
Credit: PeerReach
Or Google Plus usage:
The reality is that while Russia may have powerful sway in the energy, machinery, and petrochemical industries, the country has very little influence over global Internet use.
Blacklisting Google, Facebook, or Twitter will be a threat to free speech within the country, but it means virtually nothing for the bottom line of these already well-established Internet giants.
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Russian Search
Russian sanctions against Google, Facebook, and Twitter may not be creating any short opportunities for investors, but the potential exile of American-based Internet does open up a bull case for search engine company Yandex N.V. (NASDAQ: YNDX).
For those who are unfamiliar with Yandex, the company is to Russia as Google (NASDAQ: GOOG) is to the U.S. and Baidu (NASDAQ: BIDU) is to China. All three search engines have historically been dominant in their respective domains.
From 2006 to 2013, Yandex was the clear powerhouse in Russia, consistently capturing ~60% of the market every year.
As of Q1 2014, though, Yandex’s dominance came into question for the first time in years. The company held just 54% of the search engine market in Russia as Google climbed to 34.7%. For perspective, Google held only 6% market share in 2006.
Many people are speculating that increased regulation on information providers spells trouble for Yandex — and it certainly does in some respects — but if Google gets blacklisted, the benefits will far outweigh the consequences.
Russians are going to search the web whether or not the information is filtered in support of Putin’s agenda. If Google disappears, users will just gravitate towards the next biggest name.
If Google went down in the U.S., which website would you go to instead? I’d be willing to place a bet that you’re thinking of either Yahoo or Bing — the two best-known alternatives.
Well, in Russia, Yandex is the primary alternative, and with 34.7% of the market poised to open up, it could be easy pickings for the Russian search company.
Until next time,
Jason Stutman
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