Keep your friends close, but your frenemies closer



This is a tale of two businesses: a giant and a startup, where the giant ended up giving a part of its business to the startup. There’s a few lessons in our experiences for other startups, I think. But first, some history.

Back in 2000, the fourth largest search engine in the world – Yandex – launched a free website hosting platform called Narod. It quickly became extremely popular, becoming one of the 10 most visited websites in RuNet and reaching a whopping 2 million websites created by users.

Of course, the strategic goal of Yandex was to increase the number of searches on its engine – much like Google when it launches new services.

In 2005, uCoz (of which I’m the international development manager), was founded by two Ukranian developers. It was launched to help Russian internet users create and host free websites. Initially, we wanted to give users a complete system to build a website – a platform for people to practice their CSS/HTML/Javascript skills. The idea wasn’t to go up against Narod directly, because our focus was different. Where Narod was mostly a GeoCities for users with no technical knowledge, uCoz was a little more technical. Of course, once you hit a few hundreds of thousands users, distinctions like these matter little.

Lesson 1: as a startup, it’s quite possible to take on an established competitor

Pretty quickly it became obvious that we were competing for the same users. Because we were a startup on a budget, we mostly focused on product, service and community.

Our advantage was our focus. I think all along, Yandex focused more on developing its core architecture and search algorithm. Developing Narod further was less interesting for them, which allowed us to become the market leader. I think Yandex has more than three thousand employees – things are more bureaucratic there than at a small company like uCoz. We’re sixty.

Lesson 2: you can grow based on service and community

We also never spent money on advertising, because we just didn’t have the money available to do that. When we received funding in 2007, we used again to improve the product and expand the team. I think that’s really important: our growth was due to providing a good product, and taking care of our community of users.

Narod did keep its servers up to date and tried to keep the users happy, but I think we were just that little bit more focused on developing a full product, as well as on customer satisfaction. In 2008, we overtook Narod as the number 1 free website builder for the Russian market.

Lesson 3: keep your “frenemies” close

While some say that startups should market themselves to the big corporates – you never know when they might start a shopping spree, I can’t say that we every marketed us directly to Yandex or Narod, with an eye towards acquisition. We did go into a distribution partnership for Yandex Search. (In hindsight, maybe we should have kept our competitors even closer.)

Lesson 4: you need some luck too

What was a bit distracting to us, however, was having that big dog in our backyard while we were trying to grow internationally. uCoz was market leader in the CMS space in Russia (we’re now regarded more or less as the “Russian WordPress”) but having Narod trailing us so closely made it hard to make bold moves internationally.

We did expand to other markets and localized – we have a German and English language version, but we were somewhat hesitant to invest heavily in international offices. We were eying Brazil, a huge, emerging market.

And then we got lucky. Yandex decided to discontinue its Narod offering. And then we were lucky again. When Yahoo discontinued GeoCities, it shuttered the service, leaving a lot of users unable to save or export their projects. Mail.ru did the same with Boom.ru. Yandex didn’t want to put its users through that and went looking for someone who could take all those sites off its hands. They came to uCoz, their direct competitor. That’s a rare strategic move from the largest tech IPO in the Russian market (valued at $ 8 bn today). And it’s also a big step for a startup like uCoz, which is only in it 8th year of operations.

Shortly after, we launched our Portuguese language service – the 16th. And with that “big dog” in our backyard on our team, we can also begin to think seriously about opening up offices around the world.

My conclusion is that we should do this more often in Europe. For the growth of the European tech startup ecosystem, there’s a need to see more examples of large companies shaking hands with smaller players.

Photo: Greg Westfall, Flickr

Powered by Facebook Comments

About the author

Lucian Avadani

Lucian Avadani is the International Development Manager of uCoz, a leading free website builder in Eastern Europe. Before joining the company as a Romanian Localization Manager, he co-founded two offline startups. But, the love for the internet, internationalization and innovation made him return in front of the screens and now is an active supporter of startups, technological progress and the nomadic lifestyle. You can follow Lucian on Twitter.