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After 10 years, Kakao is not slowing down

A meteoric rise, from a chat app to a growing financial player

Mar 23,2020
In 2010, the idea of exchanging messages over the phone for free was an unfamiliar concept. A mobile text with less than 40 words cost 20 won. Sending photos or messages longer than that would incur an additional charge of 30 won.

KakaoTalk launched on March 18 that year and has since occupied the dominant position as Korea’s most-used mobile messenger service. Today, an average of 11 billion messages are exchanged per day over the app, globally. A decade ago, that would have generated 1 billion won ($806,000) for mobile carriers.

“I remember staying up all night making the service, and the four of us, an iPhone app developer, server developer, designer and product manager, eagerly waited to see the customer response,” Kakao founder Kim Beom-soo said in a video shared on March 18, which marked KakaoTalk’s 10th anniversary. “We saw a huge success in the first month. I’d never felt that happy in my entire life.”

Ten years later, Kakao has grown into one of the biggest success stories in Korea’s IT history. Starting from four, the company now has nearly 3,000 employees and 20 subsidiaries that range from character-themed goods, ride-hailing services, webtoons, music streaming and games to mobile payments and artificial intelligence research.

Last year it passed a milestone of 3 trillion won in annual revenue and an operating profit of 206.6 billion won, although it recorded a net loss of 339.8 billion won.

That loss notwithstanding, the company’s stock price has jumped in the last year. On its ninth birthday, March 18, 2019, the company was trading at 104,000 won and closed at 141,000 won a year later, last Wednesday.

“The jump in Kakao stock prices two years ago was a temporary one, prompted by anticipation of Kakao Bank,” said Samsung Securities analyst Oh Dong-whan, referring to the service’s 2017 launch. “The recent upward trend is different. It’s proof that the company’s fundamentals have improved, including higher profitability for Kakao’s main service, the messenger app.”

Kakao has always been a big name among the country’s smartphone users, but it hasn’t been long since investors started to believe in its profitability. It merged with Korea’s second most used portal Daum in 2014 and acquired the leading music streaming service Melon two years later.

But even after those two massive deals, investors were still questioning Kakao’s fundamentals. The mobile messenger had long become a staple for Korean consumers, who were using “katalk” as a verb replacing “text.” The service was the most successful mobile messenger in the country, and yet it wasn’t generating much revenue.

Until as recently as mid-2019, Kakao didn’t seem very interested in making money directly from the messenger service. Related features like emoticons or gift e-coupons were growing, but it refrained from using the chat screen to push ads to its users.

“Unlike portals, where users come to search for information, messengers are perceived as personal space, so we were careful in attaching a profit model to it,” explained a company spokesman.

Moon Hyung-nam, business professor at Sookmyung Women’s University, agreed.

“Timing is the most important factor when a platform operator introduces a profit model. If done too fast, the decision can ruin the entire platform. Kakao made a prudent approach and was successful with it,” he said.

In October, the company launched Biz Board - a small advertising box pinned at the top of the app’s list of conversations. The feature is not extremely visible, but that level of exposure was the work of artificial intelligence software used to dial in the right size to avoid disturbing the user’s experience.

The launch appears to have been a success, so far. More than 3,000 companies have approached Kakao to place their ads in the box. Biz Board’s average revenue was 500 million won per day in December. Kakao’s target for ad revenue this year is 1 trillion won.

Kakao’s power as a platform is now disrupting the financial market. Affiliates Kakao Pay and Kakao Bank are growing rapidly, with Kakao Pay’s transaction volume reaching 13.5 trillion won in last year’s fourth quarter, a 75 percent increase on year.

The company recently completed the acquisition of a 60 percent stake in Baro Investment & Securities, signaling its entrance into the securities market as well. Launched in 2017, Kakao Bank has grown enough to threaten traditional commercial banks, now boasting more than 11 million customers.

Its entertainment business is another sector that’s shown noticeable growth. Kakao M, which has production houses and K-pop management companies under its wing, recently received 210 billion won from global investors. Last year, it bought production houses Moonlight Film and Sanai Pictures, expanding Kakao M’s reach from music and video to film.

Kakao’s co-CEOs Yeo Min-soo and Joh Su-yong were appointed in 2018 after working at Naver with Kim Beom-soo in the 2000s. Both executives were contributors behind the portal giant’s growth.

“Yeo is an advertising expert while Joh is a veteran in brand design. Together they created a virtuous cycle by devising a structure among Kakao’s many businesses dispersed across various fields - now they’re generating sound revenue,” said an IT industry expert.

Looking ahead to its next decade, Kakao’s plans to offer solutions not just for its users, but for society as a whole, says Kim.

“When I started Kakao, my ambition was to build a company that didn’t exist in Korea,” Kim said in a March 18 message sent to staff. “My belief was that it’s not just the people or the system; it’s also about the culture where staff can communicate equally and work upon self-motivation. Now having grown in size, the original ‘Kakaoness’ has faded, but I feel the spirit that only we have is still here.”

He added, “In Season 2, our questions should not be just about business. I once mentioned that a company can be the most efficient organization to solve problems in society. I hope our crew can set its sights on fixing social issues using the latest technology in our own way.”

BY SONG KYOUNG-SON, PARK MIN-JE [song.kyoungson@joongang.co.kr]


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