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Russian Internet Advertising Report – Summer 2006

Abstract
Russian Federation is one of most promising developing economies where Internet is still growing with amazing speed. Advertising is a primary source of power for Internet businesses and a powerful instrument for the Russian economy overall. Respective market size will soon become big enough to be important for international companies. Since there is little or no information about Russian Internet advertising market published in English language, the purpose of this review is to provide interested parties with all significant details about local market, focusing especially on differences from global trends. This review is published by MediaRevolution.ru, which not only provides Russian professionals with Internet advertising news but also publishes news about Russian events in English.

Basic information
Russia is the largest state in the world in terms of territory, which equals about 17 million square kilometers   (6.6 million sq. miles). Most of this space is uninhabited and is rich in natural resources (Russia is the world’s largest gas and one of the largest oil producers). Populated areas are very centralized: with total population of 145 million people (according to 2002 All-Russia Population Census), 10 million lives in Moscow, 4.6 million in Saint Petersburg and the next largest city is Novosibirsk (West Siberia) with 1.4 million. There are 11 cities with population more than 1 million people. While the country is a multinational federation, 80% of its population is ethnically Russian and Russian is a universal language. There are also many Russian-speaking people in other ex-Soviet republics with Ukraine being the largest one, so Russian Internet space is significantly bigger than Russia itself. Russia's GDP in 2005 amounted to $765 billion.

Internet penetration
There are several independent sociological surveys that regularly measure Internet use and penetration of online services in Russia.

ROMIR Monitoring  conducts personal interviews monthly and publishes quarterly results. Public Opinion Foundation  («FOM» in Russian) uses methodology which is basically compatible with Nielsen//NetRatings but starting age is 18 not 16. The foundation conducts nationwide polls – 3,000 respondents bi-weekly - with quarterly results. TNS Gallup Media is developing online panel research. Its first results are expected this fall. The company has already conducted a setup survey with automated phone system in Moscow (age 12+) and personal interviews nationwide (age 16+). This data is already available.

Internet Penetration - Russia
Company Method Age Time frame Number of users Year ago
ROMIR Interviews: 1.600 respondents monthly 18+ Monthly 21 mln (19% of group; was 22% in the 1Q 2006) 16%
FOM Interviews: 18.000 respondents 18+ Last 6 months 24.4 mln (21% of the group) 18.9 mln (17%)
TNS Phone+polls: 28.553 respondents 16+ urban Monthly 15 mln (19% of the group) N/A

There are also official numbers provided by the Communications Ministry . They are very close to aforementioned data of research companies and are probably based on this data. Minister Leonid Reiman said this July that there are 22 million Internet users in Russia. It is estimated that by 2010 more than 70 million Russians will be online. One can suppose that real numbers are even higher as the kids are using Internet too, presumably even more actively than adults.

Internet use has surged greatly in 2005-2006: in this year and a half penetration has increased by almost 50% while several years ago annual growth was only 10%. This acceleration is probably related to increase in broadband access opportunities. ROMIR and J'Son & Partners research companies have published almost the same numbers: both say that 53% of Russia’s home and office Internet users have a broadband connection. Two years ago home broadband access was rare and expensive. Now for the average $20-30 a month users get unlimited traffic at high speed.

Other source of Russian Internet use statistics are the web-counters. Most of Russian sites include traffic measurement code in their pages (this will be covered in detail later). As a result, online statistic servers gather user information and publish it. Leading Internet portals do this as well. These numbers cover not only Russian citizens but Russian-speaking Internet part at whole. These statistical centers try to separate traffic from different geographic locations based on IP-space tables. For example, Spylog system says 54% of users are from Russia (next ones are USA – 7% and Ukraine – 6.4%). Portal Rambler says 60% are from Russia with 7.9% from Ukraine and 2.14% from USA and Canada. There are 5 million users online daily, 9.7 million weekly, 22.2 million monthly (this data as well as the table above are for second quarter of 2006).

Russian sites
Most popular Russian search engine Yandex has indexed 2.8 million sites and 26,600 Gb of data (July 2006). It is probably the largest Russian website with 22 million visitors in June 2006.  There are 570,000 names registered in RU top level domain. While Google is popular with Russian-speaking users abroad, Russian residents prefer local sites. There are the so-called «Big 3» of portals: Yandex.ru is a leading search engine, Mail.ru is the biggest web-mail provider and Rambler is also a search engine and a rating/catalog website. There is also RBC.ru news portal which is also an important part of Internet media scene as it has grown into an offline holding with one of the biggest web design studios and a business TV-channel. Rambler has its TV channel too. RBC and Rambler  are publicly traded holdings with capitalization of about $830 million  and $200 million  respectively.

To compare Russian portals with international ones we can check Alexa traffic ranks. As of June 25, 2006, their Alexa ranks were: Mail.ru - 49, Yandex - 50, Rambler - 106, RBC.ru - 1165.

Market size
Russian Association of Communication Agencies  (abbreviated AKAR in Russian) publishes market size estimates which include the Internet component as well. It's the most credible evaluation of the Russian advertising market. For the first quarter 2006 Internet advertising market volume was $22 million. It is 75% more than a year ago and now it accounts for 1.8% of the overall advertising market. According to the Association, Internet advertising market size was $60 million in 2005 and $35 million in 2004. Even taking in account overall market growth (plus 28% in 2005), Internet share still had risen from 0.9% to 1.2%. Please notice that it shows only media and does not include context advertising.

Internet market is growing faster than expected. The forecast up until 2010 predicted that in 2005 Internet advertising market would equal $50 million ($85 million with context advertising), but the actual results were stronger. This forecast also predicts that in 2010 Russian Internet advertising market will total $500 million ($700 million with context advertising) thus accounting for 4.9% of total Russian media budgets for that year.

Although Yandex is not a publicly traded company, it has published financial results for 2005: net profit was $13.6 million, revenues under US GAAP amounted to $35.6 million (not including VAT ). Rambler Media's net loss in 2005 was $2.4 million, while net sales totaled $21.4 million .

Two main context advertising and PPC systems on the Russian Internet market are Begun (the word means «Runner» in Russian, 25% plus one share are held by Rambler) and Yandex.Direct with Google AdWords being third with a much smaller share. On June 1, 2006, Yandex said that weekly revenue of Yandex.Direct system has reached $1 million with daily exposure of 80,000 ads from 10,000 clients. Context advertising produced 80% of Yandex's revenue in 2005 . For Rambler paid search generated 33% of its Internet revenues.

Distinctive features of the Russian Internet
1.    Banner exchange networks. In the early Internet years Russian developers have built several non-commercial banner exchange networks (following success of American LinkExchange network). These networks are still alive and they are based on Bannerbank technology (developing company's stake was recently acquired by Rambler). These networks deliver 150-170 million ad impressions daily. Rival AdRiver technology delivers 160 million daily with up to 40 million via RLE.ru networks. Most popular ad unit for these networks is 468x60.
2.    Local ad management technology. DoubleClick technology is used in Russia by IMHO VI agency, part of Russia’s largest media selling holding Video International. But AdRiver technology also has a very firm position for media advertising providing many modern options for advertisement management.
3.    Non-standard ad units. Three standard ad units are popular:  full banner (468x60), leaderboard (728x90) and vertical rectangle (240x400). Skyscrapers are used too, but they are not as popular as in the US market. Many Russian sites sell their own, non-standard ad sizes.
4.    Overlay. Overlay ad units are much more popular on Russian sites then on Western sites. Even the most popular portals permit them.
5.    Open statistics. While there's no such thing as certified web-audit in Russian Internet, it is a custom to place open statistic counters on the websites. Statistic centers provide their service free of charge and publish open ratings of sites. The sites usually take part in several ratings while keeping this statistic data public. Rambler's Top100 rating is most known and it even works as title service for the whole Rambler portal. Even rival Mail.ru portal stays in this rating while supporting its own top.mail.ru rating. Another popular counter-rating is LiveInternet.ru.
6.    Blogging. While American LiveJournal.com is still the most popular tool of Russian bloggers, local followers – LiveInternet.ru, Diary.ru and other are growing fast and together that are already more popular than the LiveJournal. As Yandex's blog research team discovered, 3% of the world's bloggers write in Russian. They generate 10% of the world's blog postings weekly.
7.    Online media. Unlike in the U.S., online editions of the biggest offline media brands are not very popular. Leading independent online news sites are more important and get more visitors.

©2006 MediaRevolution.ru, Alexander Gagin
31.07.2006

English version