Yahoo Korea falls victim to rivals’ vice-like grip

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Yahoo Korea falls victim to rivals’ vice-like grip

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Just 10 days after Yahoo announced it would shut down its 15-year business in Korea, SK Communications, operator of the Nate portal site and Cyworld “minihompy” service, executed a major corporate restructuring last week.

Although the company declined to disclose the exact figure, one quarter of its nearly 1,300 employees are believed to have left the Internet service arm of SK Group as part of a “voluntary retirement program.” According to insiders, the majority of them were entry- to low-level workers in their 20s and early 30s.

“It’s such a shame that so many people had to leave,” said a spokesman with SK Communications. “But the company was in dire need of innovative management reform to move on.”

SK Communications enjoyed its heyday in the 2000s with Cyworld, the nation’s first-generation social network service similar to Facebook, Nate, a portal site combined with a search engine, and NateOn, a messenger for computers. But massive leaks of users’ personal information in July last year dealt a gigantic blow to Cyworld, leading users to jump ship as it lost credibility.

That incident also saw Nate’s search engine lose significant market share, falling from a peak of 10 percent just two years ago to between 1 and 2 percent. Meanwhile, SK Communications has posted an operating loss since the fourth quarter of last year.

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The spokesman said the company will move to reorganize its business portfolio by linking Nate’s search engine, portal and messenger features with Cyworld this month. He refused to elaborate.

“The current business portfolio is not hugely different from that of a decade earlier, even though the overall IT business environment has changed enormously,” he said.

The fall of Yahoo Korea and SK Communications reflects the challenges that portals face in today’s Web environment in Korea in the face of a de facto duopoly by Naver and Daum.

Naver, run by Kospi-listed NHN, is a top player among portal sites with over 70 percent of the pie, followed by Daum of Daum Communications, which controls 20 percent. The remaining 10 percent is shared by Nate, Google and several smaller players.

On Oct. 19, the Korean subsidiary of Yahoo made public its decision to leave Korea by the end of this year. Local traffic will be redirected to its U.S. site, it said.

“Our business in Korea has been struggling in the past few years,” said Yahoo Korea in a statement. “We are withdrawing our business here to inject resources into more powerful global businesses, aimed at long-term growth and success.”

On Oct. 22, Yahoo CEO Marissa Mayer revealed a revival strategy that prioritizes delivering the Internet firm’s popular online services to smartphones and tablets. She said Yahoo has failed to capitalize on the opportunity presented by people using those mobile gadgets to connect with the Internet.

Yahoo was a leading light among Internet portal sites from the late 1990s until the early 2000s here as it rode a strong wave of high-speed Internet connections in Korea, the world’s most wired country. At one point in the late 1990s daily page views at Yahoo Korea surged to 20 million, or 40 percent of the population then.

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In the early 2000s, four players - Yahoo, Naver, Daum and Empass - dominated the portal market. Before long, however, Naver had raced ahead as it launched its “Jisik-iN” service, a Q&A site where users share their knowledge. It has since sustained its market dominance.

In stark contrast to its situation in Korea, Yahoo remains the No. 1 portal site in Japan. Experts point to the fact that Korea is a “rapidly changing market hardly seen in other parts of the world.”

“However big or global any enterprise is, it can fail in Korea unless it adapts itself to Korean consumers’ especially picky taste - through localizing efforts,” said an executive with a foreign company, who declined to be named.

The changes seen in the IT industry are the fastest among all industrial sectors in Korea. Yahoo struggled to keep pace as it is a foreign company, meaning it is essentially structured to report and discuss every minor corporate decision with its headquarters, according to sources familiar with the company’s internal workings.

Formerly robust IT firms such as Motorola, Nokia and HTC have garnered meager success here. HTC even shut down its Korean office in July. The situation with non-IT companies is little different. International retail giants Wal-Mart and Carrefour departed in 2006.

However, Naver-Daum’s more than 90 percent share of the Korean portal ecosystem is seen as the bigger culprit for the travails of rivals like Yahoo and Paran, another portal that terminated its service four months ago. The two top players’ dominance ties directly to profits derived from online advertisements.

“When the third player in the market, Nate, has a market share of less than 2 percent, we call this [Naver] a monopoly,” said an employee at one of the minor portal sites. “If Naver and Daum keep their current grip on information supply and advertising-derived profit, there is unlikely to be a change to the status quo for a while.”

Others warn that Naver should guard against complacency.

“There is this consensus formed among portal site operators that the PC-based portal service is facing a crisis as users have rapidly migrated to smartphones and other mobile gadgets,” said another industry insider who asked to remain anonymous.

“Naver’s era won’t last forever. It’s already being challenged by rookies such as KakaoTalk [currently Korea’s top mobile messenger].”

Meanwhile, Naver’s parent company NHN is preparing this month to launch a game service on Line, its mobile messenger. Line ranks as the No. 2 player behind KakaoTalk.

“It won’t be long before NHN decides to bet on the potential of Line as a mid- and long-term growth driver,” said Ahn Jae-min, an analyst with Kiwoom Securities.

As of the end of September, global subscribers to Line topped 64.88 million. It is more popular overseas than at home, with users in Japan accounting for 47 percent of the total, trailed by those in Taiwan (13 percent) and Thailand (11 percent).

“The rise in the number of Line users is seen as elevating NHN’s corporate value,” said Park Han-woo, an analyst with HMC Investment Securities.

By Seo Ji-eun [spring@joongang.co.kr]

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