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Daum-Kakao merger needs to address the problems of web portal

Daum-Kakao merger needs to address the problems of web portal

Posted May. 27, 2014 08:48,   


Daum Communications Corp., Korea’s second largest Internet portal operator, and Kakao Group, the country’s leading mobile messaging service, are merging into Daum Kakao. The deal will be the largest merger in the Korean IT industry as the market capitalization of Daum is around one trillion won (997 million U.S. dollars) and the market value of Kakao, which is an unlisted company, is around 2.35 trillion won (2.3 billion dollars). The merger is likely to have a significant impact on the Internet portal and mobile markets, which have been dominated by Naver.

Since the foundation in 1995, Daum ruled the Korean Internet market with its services such as Hanmail, Daum Cafe, and Media Daum, and a search engine. Recently, however, it fell far behind Naver. Kakao, set up in 2006, made a big hit with KakaoTalk, a mobile messenger app, in 2010, becoming a leader in mobile platforms, but it was weak in the gaming business and the global business. The merger is expected to maximize synergy to both companies, bringing the advantage of Kakao’s strong mobile platform to Daum and Daum’s contents and knowhow including advertisement network to Kakao.

The deal appears to be a takeover of Kakao, an unlisted company, by Daum, a listed company. In fact, Kakao is taking over Daum in terms of corporate values. If the merger takes effect in October as scheduled, Kim Beom-soo, chairman of Kakao Corp., will be the largest shareholder of Daum Kakao, and Lee Jae-woong, Daum’s largest shareholder, will have less power. It is an iconic event in the IT industry in which a “mobile service” eats up “PC Internet.”

The merger between Daum and Kakao could have large ramifications in the Korean market while many people are skeptical about the potential growth engine of the new entity. In addition, it is not sure whether the duopoly of Daum Kakao and Naver would have a positive impact on the Korean IT industry and Korean consumers. Daum Kakao should aggressively tap the global market not to become a “big fish in a little pond.”

The two giant portal websites of Korea – Naver and Daum – have expanded their businesses by taking advantage of their power as “big portals” and increased political influence by mimicking the media. Criticism is mounting that the portal sites are editing news to advantage or disadvantage certain political party or politicians in the run-up to the June 4 local elections. If the merger increases the size only and does not address the problems of a distorted web portal, people would harshly criticize that it would only increase a few major shareholders’ assets.