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Wednesday, July 24, 2024

Kakao service crash puts crack in company’s dominance as users branch out

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A Kakao employee walks into the Kakao Pangyo Agit, Kakao's headquarters in Seongnam, Gyeonggi, on Monday. [YONHAP]
A Kakao employee walks into the Kakao Pangyo Agit, Kakao’s headquarters in Seongnam, Gyeonggi, on Monday. [YONHAP]

After Kakao’s services crashed over the weekend, its messenger users are broadening their horizons and completely switching to or signing up for additional message services in a move that could create a crack in KakaoTalk’s dominance over the Korean messenger market.

The number of users for other messenger apps such as Line and Telegram has increased sharply following the disruption of KakaoTalk’s services due to the fire at its data center on Saturday, according to WiseApp, an app analysis service on Monday. The number of daily KakaoTalk users decreased by 2.07 million from Friday to 39.05 million on Sunday after the service failure.

On the other hand, the number of Line users soared from 430,000 to 1.28 million and from 1.06 million to 1.28 million for Telegram from Friday to Sunday. In particular, for Line, the number of users who installed the app on their mobile phones increased by 730,000 in just two days.

The people were beginning the Kakao exodus, branching out into other corners of the messenger market, which had been dominated by KakaoTalk.

KakaoTalk has unmistakably dominated the domestic messenger market, though politicians and the presidential office are known to use Telegram for communicating. President Yoon Suk-yeol has previously been photographed while using Telegram.

IT companies pull out all the stops to prevent their users from branching out to other messaging apps because securing market dominance is key to growing their internet business. KakaoTalk was the poster child of an IT platform in Korea that successfully achieved that dominance.

In fact, using multiple apps for the same main purpose requires more effort and costs on the part of the user. KakaoTalk, commonly considered Korea’s national messenger, was able to achieve its dominance due to the network effect that made it inconvenient for people not using KakaoTalk because everyone else was using it.

Other Kakao services, such as the Kakao T app, which dominates more than 90 percent of the taxi-hailing app market, managed to do so by actively making use of Kakao IDs, which many people already had. This KakaoTalk-based platform expansion contributed to maximizing Kakao’s profitability. The annual sales of Kakao increased 14.6 times in 10 years, from 420 billion won ($295 million) in 2011 to 6.13 trillion won last year.

Kakao’s crash over the weekend, however, put a damper on Kakao’s image and led many of the 47.5 million KakaoTalk users to realize it may be in their best interest to branch out. As not only individuals but also public institutions and companies experienced various service failures linked to Kakao ID, some are opting to distribute their risk by using multiple apps.

If exclusive KakaoTalk users start adopting other messaging apps, it could affect the overall corporate value and competitiveness of Kakao. On Monday, stocks of Kakao subsidiaries fell one after another, and Kakao, KakaoBank, and Kakao Pay all recorded 52-week lows.

Taking advantage of this, Naver promoted the messenger app Line, which it jointly owns with SoftBank through a venture called A Holdings, on the first screen of its Naver mobile app while KakaoTalk services were down. This is believed to have contributed directly to the increase in the number of downloads and users for Line.

UT, a navigation app owned 51 percent by Uber and 49 percent by Tmap Mobility, a spinoff of SK Telecom, seized the opportunity to catch up by announcing promotional benefits to drivers using their app.

The question now is whether the trend of using multiple messenger apps will continue.

“In addition to the Kakao outage this time around, there is a possibility that using multiple similar services will continue if competitors provide differentiated services and benefits in a situation where the negative public opinion surrounding Kakao has grown due to the split listing issue of Kakao subsidiaries,” said Kim Do-hoon, a professor of business administration at Kyung Hee University. “There is a case of TikTok succeeding in the market by providing differentiated services such as short-form social media while Facebook was being criticized for advertising and issues related to users’ personal information.”

Monopolizing platforms attempting to prevent users from signing on to other services are subject to the crackdown by the Fair Trade Commission (FTC). The use of multiple platforms has become a problem mainly for those that broker businesses and general users, such as real estate and delivery apps. The FTC clarified that restrictions on using multiple platforms and preferential treatment of companies are violations of a law announced in January.

In the process, Naver Real Estate was presented as a case of restricting users from using other similar services, as the real estate app had made contractual conditions that specify users not to use competing platforms.

“The work on enacting screening guidelines has been underway since January, and we will proceed with it promptly,” said Moon Jae-ho, a spokesperson for the FTC, on Monday.

There is a possibility that regulations governing monopolizing platform operators or policies that promote competition in the platform market may be introduced in the wake of the recent Kakao crisis.

BY YU SUNG-KUK [lim.jeongwon@joongang.co.kr]