Foreign Internet providers flex muscles in local markets

A surprising situation happened among Internet industry insiders in Czech Republic recently. The portal site Seznam, which was once considered invincible due to its control of 63 percent of the local search market, was defeated by Google to rank second. Czech Republic was one of the four countries where a national portal, rather than Google, was atop in market share along with Korea (Naver), China (Baidu) and Russia (Yandex). Naver said on November 5 that it will only provide me2day, its short text messaging service, until June 30 next year, before abolishing it. Naver said, “While global services such as Facebook and Twitter are making robust growth, me2day has seen the number of its proactive users plummet, and we could hardly afford to continue its operation.”

As Naver’s me2day is set to be abolished following suit of Daum’s ‘Yozm’ and SK Communications’ ‘C-Log,’ most of major domestic SNS services are poised to disappear. With global Internet service providers such as Google, Facebook and Twitter increasing their influence on the Korean market, Korean Internet companies are embracing a growing sense of crisis. Notably, Google is emerging as a new powerhouse by consolidating its stature in the Korean mobile Internet market by banking on its Android smartphones.

According to the portal industry on Wednesday, Google recently emerged as No. 2 player by beating over Daum, which has been the runner-up in the mobile Internet market here. According to main opposition Democratic Party Lawmaker Yoo Seung-hee’s office, the number of net visitors to Google (including YouTube) stood at 30.20 million as of September, closely tracing the market leader Naver (31.25 million). Daum came third with 27.11 million.

With its Android operating system, which controls 91.7 percent share of the Korean smartphone OS market, Google is also introducing applications for Android software. When metaphorically compared with market, the U.S. tech company effectively owns both the market place (Android OS) and store (app). By banking on such favorable environment, Google is effectively dominating the domestic mobile app sector.

According to Korean Click, 12 or 80 percent of the top 15 mobile apps that were installed in Korea in October were those of Google (including Android). Other domestic services among the top 15 only included Kakao Talk (7th), Kakao Story (11th) and Naver App (15th).

The domestic portal industry judges that the growth pace of foreign-based services that are fast expanding their business in the mobile arena is a threat to local players at a time when the Internet environment is fast shifting from wired service to mobile-based one.

A source in the portal industry said, “As a string of regulations, which are only applied to domestic portals but exempt foreign companies, have been put in place en masse recently, we fear that we could end up losing the market completely.” Search service guidelines and policy to block apps harmful to children and teenagers from the app markets, which the government announced recently, are not applied to foreign firms. It would not be right to raise issue with the purpose of these regulations, but foreign players could increase their influence and market share while Korean firms struggle to follow regulations.

The video service sector is the best example of complete change of the game due to reverse discrimination against Korean firms. In Korea, Pandora TV and Daum TV Pot were popular video service providers. With the introduction of real name-based Internet subscription system applied only to domestic services, most users shifted to YouTube. While YouTube’s market share in Korea increased from 2 percent in 2008 to 74 percent this year, Pandora TV, which once ranked first, saw its market share tumble from 42 percent to 4 percent.

It is difficult to force foreign firms to follow regulations devised by the Korean government. Because their head offices are overseas, and even if problems occur, it is difficult for Korean authorities to investigate them. The Fair Trade Commission conducted onsite inspection of Google Korea’s office in 2011 and 2012 on the charge of violation of the antitrust laws, but Google deleted files from its PCs and shut off power.to its servers. It also let its staff to work from home. Google was cleared of charges eventually, but the Internet business community said, “Such response would be even unthinkable if it was a Korean company.”

“If we estimate based on its market share, Google Korea is believed to earn at least 240 billion won (227 million US dollars), but the sales figure is not disclosed because it is a limited liability company,” said a source in the portal industry. “It would be impossible to force the company to follow domestic regulations, considering Korea can hardly afford to collect taxes because its sales are not transparently tallied.”

Professor Kim Seung-joo at Korea University school of information protection said, “Since it is difficult to discern Korean and foreign companies in the Internet economy, it is desirable that the authority implement policy that is fairly applicable to all players.”