Driver service companies to request ban on Kakao app

The association representing Korean companies that manage designated drivers said Thursday that it is set to file a court request by the end of this week to ban Kakao from providing a designated-driver hailing service.

The group claims the tech company has “disturbed the market order” with unfair business activities through the designated driver app.

“We have decided to file an operation ban against Kakao, which has been invading the realm of small business operators on the back of its immense capital, by the end of this week at the latest,” the association said in a statement.

The association is also looking to pursue a defamation suit against Kakao for describing existing designated-driver service companies as “evil employers.”

Kakao said it would take countermeasures if any action is made by the association and denied carrying out any unfair corporate practices.

Kakao, best known for its widely used messaging app KakaoTalk, launched Kakao Driver in May as one of many on-demand services linking existing services like designated drivers with apps. It is part of the company’s efforts to capitalize on KakaoTalk’s tens of millions of active users.

The app charges a basic fee of 15,000 won ($13.65) and an additional amount based on the time and distance of the ride. After a disappointing reception in the first few months of release, Kakao late last month added another charging option that allows users to enter the fee they would like to pay before requesting the driver. The higher the fee, the better chance the user has of getting a designated driver in a shorter period of time.

Kakao Driver has performed below par despite upbeat expectations from a flurry of investors. Before its launch, brokerage houses including Deutsche Bank forecast its market share would reach as high as 30 percent, but its share is now estimated at below 10 percent. As of August, the app’s accumulated users totaled one million, and the number of designated drivers for the app stood at 110,000.

Kakao released a taxi hailing app similar to Uber called Kakao Taxi last year and has recently unveiled Kakao Hairshop for beauty salons. Kakao Parking and Kakao Homeclean, which will connect users with empty parking lots and housekeepers, are set to become available in three months.

But none of these services have yet to bring in sizable profits for Kakao. EBEST Investment & Securities on Thursday lowered the target share price of Kakao from 120,000 won to 100,000 won. The firm noted in a report that Kakao’s operating profit is expected to tumble 18 percent year-on-year during the third quarter after it allocated a large amount of money to marketing the on-demand services.

Kakao shares closed at 82,700 won, 28.3 percent lower than the beginning of this year.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]