Kakao shifts gears to focus on platforms

Industry

Published: 16 Nov. 2016, 20:29

Kakao shifts gears to focus on platforms

In a strategy shift toward building up its platforms, Kakao, operator of the nation’s most popular messaging app, announced Tuesday that it would develop an artificial intelligence chatbot that will act as a virtual assistant for users and focus on courting outside companies to expand its on-demand services.

The changes come as the company seeks new ways to capitalize on its massive KakaoTalk user base, which includes more than 95 percent of the country, and after its on-demand services like Kakao Taxi and Kakao Hairshop received lackluster responses.

One key element of the new strategy emphasized by Kakao CEO Jimmy Lim is what the company calls Chat-bot, a virtual assistant that can engage with users via text on KakaoTalk. Users will be able to ask Chat-bot for the weather, movie times and even help make restaurant reservations, order food and translate speech.

The tool is part of Kakao’s bigger plan to expand the messaging app from a means of communication to a tool ingrained in users’ everyday life.

“KakaoTalk will be upgraded to enable users to buy products or reserve services directly from their chat windows,” Lim said. “It’s not just about communication or receiving information anymore; users can actually make behavioral decisions on it.”

Kakao is also retooling its strategy for on-demand services. Originally, the company developed services like cab-hailing app Kakao Taxi and hairstyling appointment app Kakao Hairshop on its own. The response from users, though, was tepid and also raised controversy for taking away customers from smaller operators.

As a result, Kakao will shift its business model for on-demand lifestyle services, such as making appointments for hairstyling or house cleaning, from business-to-consumer to business-to-business. Instead of developing their own apps, Kakao will focus on connecting users with other operators on its platform.

This kind of business model has proven successful for the Kakao Game platform. Game developers pay commission fees in exchange for using the platform when pulling in new users and receiving payment. Kakao’s sales from games were 78.5 billion won ($66.93 million) in this year’s third quarter, a 52 percent increase year on year.

“Two things we noticed on the on-demand industry in Korea is that the number of on-demand service providers has increased whereas its users are still limited to early adopters,” said Jung Joo-whan, head of the on-demand service unit at Kakao. “Providing a platform that connects users and suppliers will boost the size of the on-demand market as a whole.”

As for Kakao Taxi, which has 12 million users, Kakao will include location-based advertisements in the app to bring in more money. Previously, the app did not have a profit model as it did not receive commission.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]