Kakao spins off its transportation service apps

Kakao, operator of the KakaoTalk mobile messenger, is launching a subsidiary devoted to its existing transportation-related services including Kakao Taxi, to wring more profit out of businesses that are as old as two and a half years.

According to the chat app operator on Monday, the new subsidiary Kakao Mobility will be headed by Chung Joo-hwan, a vice president of Kakao who has been taking care of the mobility-related business division.

Some 150 employees will be transferred from Kakao to the new company.

The business areas of Kakao Mobility include Kakao Taxi, a taxi-hailing app; Kakao Driver, a designated driver-calling app; and Kakao Navi, a navigation app. The new company will launch on Aug. 1 and is expected to introduce new services in the second half, including a parking service that alerts users to vacant parking space using big data. The parking service may be part of Kakao Navi or a stand-alone app.

Since there are several home-grown start-ups that have already been offering parking lot sharing services, Kakao decided not to enter that area.

“We are deliberating on various business models in our attempt to improve profits,” said a Kakao spokesman.

Kakao Taxi, launched in March 2015, was modeled on Uber and currently serves 1.5 million users daily.

The number of active users for Kakao Driver also grew from 2.2 million per month in February 2016 to 2.7 million in June 2017 - one third of the Korean population. Almost 95 percent of all taxi drivers in Korea have the app running, although it’s not clear how many actually use it when operating.

Kakao attracted a 500 billion won ($449 million) investment under a strategic partnership with a consortium led by a U.S. private equity fund TPG at the end of June on upbeat prospects for on-demand transportation services in Korea.

Headquartered in Fort Worth and San Francisco, TPG has been paying attention to the mobility sector including Airbnb, Lynda.com, Spotify, Uber and Vice Media.

TPG acquired a 30.7 percent stake in Kakao Mobility, so Kakao Mobility’s valuation is around 1.63 trillion won. By comparison, the world’s biggest ride-sharing service - Uber - is valued at 7.8 trillion won and Didi Chuxing, the Chinese ride-hail behemoth, at around 5.5 trillion won.

Kakao mobility services barely make money. Kakao Taxi does not charge for its service. There is a risk of customers deserting the service if they are forced to pay commissions for calling a taxi.

Instead, the new subsidiary is considering starting a corporate call taxi service, which could be more profitable from the start, in the third quarter.

“If the call fee was set at 500 won, it would immediately contribute up to 65.7 billion won to Kakao’s quarterly revenue, which is more than 15 percent of the entire pie,” said Chung Ho-yoon, an analyst with Eugene Investment & Securities.

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