Daum Kakoa faces challenges at home and abroad

Last Wednesday saw a tie-up between two of South Korea’s major internet players in an all-stock deal that created new company Daum Kakao. But despite an early surge in stocks, investor concerns over the companies’ ability to expand globally have been followed by an exodus of South Korean users from Kakao Talk due to increased monitoring of the messaging app by the government.

Daum runs South Korea’s second-largest Internet portal and search engine, but its popularity has lessened and profits eroded in recent years as the company largely failed to harness a widespread shift to mobile. But shares in the company surged as much as 9.9 per cent on Wednesday as Daum was officially acquired by Kakao Corp., closing 5.6 per cent higher. Investors hope that the tie-up will allow the two companies to compete as a mobile lifestyle platform leader.

In just four years, Kakao has built a platform that has become something of a portal for South Korea’s smartphone users, branching out from its core messaging functions into games, social networking, shopping, music and news. Kakoa Talk is the top messaging app in South Korea, installed on 93 per cent of smartphones in the country.

But investors have raised concerns about the new company’s opportunity for growth. Kakao Talk has reached saturation in its own market and faces competition from Line,a popular messaging app owned by South Korea’s No. 1 web search portal Naver Corp and Chinese messaging service WeChat, which both have larger presence in other Asian markets.

Daum Kakoa has not been forthcoming about its international expansion plans.

“We don’t know yet, which service we’ll be launching first together. We’re currently trying various options,” said Sirgoo Lee, Kakao’s co-chief executive and one of the new company’s two co-CEOs, during a news conference Wednesday in Seoul. “It’s fortunate that we can test a lot more options.”

“Thus far, the company’s attempts at venturing overseas have been centered around Kakao Talk, but we’re looking for other ways in approaching this and looking to partner with others,” said Choi Sae-hoon, Daum Kakao’s other co-chief and the former CEO of Daum Communications, but did not elaborate on who these partners might be.

South Korea’s president Park Geun-hye launched a crackdown on Kakoa Talk in response to insults directed at her on the messaging app, claiming that false rumors “divided the society.” The increased monitoring prompted an increased interest in German competitor Telegram, which saw a 40-fold increase in use after the crackdown was announced.

South Korean users left reviews on Telegram saying they left Kakao Talk to seek “asylum,” asking Telegram to add a Korean language service.

As Daum Kakoa struggles to break into foreign markets, the uproar surrounding the South Korean government’s crackdown threatens to slow adoption of social media or send South Korean users to foreign services, undercutting ambitions to build a high-tech “creative economy” using South Korean services.

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