[ANALYSIS] Kakao criticized for sprawling business expansion

[ANALYSIS] Kakao criticized for sprawling business expansion

Kakao founder Kim Beom-su / Korea Times file

No. of IT giant’s affiliates quadruples in 7 years

By Lee Kyung-min

Kakao Corp, the nation’s internet giant and operator of Korea’s most popular messenger app Kakao Talk, has come under fire for its sprawling expansion into over 100 different businesses by capitalizing on its dominant customer base, which many believe is driving smaller players up against the wall.

The IT firm was supposedly created to foster healthy competition and reduce the immense influence of Korea’s major conglomerates, but it is well on its way to joining their ranks, with the same profit motives and at the expense of small market players, some say.

According to the Fair Trade Commission, the number of Kakao’s affiliates totaled 118, quadrupling from 26 in 2014. This is the second-largest number after SK Group.

The net worth of Korea’s richest man, Kakao founder Kim Beom-su, is over 15.4 trillion won ($13.4 billion). The corporation’s annual sales hit a record high of over 4.15 trillion won last year. The KOSPI-listed firm has the third-largest market capitalization of over 66.4 trillion won. Its key banking, payment and webtoon subsidiaries will be listed soon.

[ANALYSIS] Kakao criticized for sprawling business expansion

Kakao Mobility co-CEOs Ryu Gung-seon, left, and Jung Joo-hwan / Korea Times file

The latest example of Kakao’s questionable business expansion is Kakao Mobility, the operator of a ride-hailing service app Kakao T, which set up a joint venture with the top market player for chauffeur services.

CMNP, a subsidiary of Kakao Mobility, recently launched K Drive, in cooperation with Korea Drive, the operator of the chauffeur service. Customers can call 1577-1577 to request a pickup by a driver at a certain location.

K Drive plans to overtake the call operation service from Korea Drive and operate it on the Kakao T platform.

This is why the industry is in an uproar, claiming co-existence is impossible with the conglomerate increasingly threatening the livelihoods of call operators and partner firms that hire and manage chauffeurs.

Workers in the industry say Kakao has already significantly eroded their profitability since Kakao T entered the ride-hailing industry in 2016, and any further moves to expand the business will lead to them losing jobs.

“They are killing us. It’s that simple,” said a member of a group representing chauffeurs hired by small- and medium-sized firms.

About 300,000 calls are made every day and the 3 trillion won market will be handed over to Kakao, they claim.

Currently, 80 percent of the market is run by people in their 40s or older, who find it more convenient to make phone calls. The remaining 20 percent ― mostly women in their 20s and 30s ― are more inclined to use the mobile app to book services.

But this will drastically change once the IT subsidiary wins over the customers, leaving thousands of workers unemployed and their families struggling financially.

“Kakao is threatening the survival of small- and medium-sized businesses through equity investments and sales promotions, both of which can only be pursued with the backing of huge capital,” the representative added.

The group issued a statement Sunday, demanding that large conglomerates including Kakao give up entering the call-based chauffeur service market, unless they do not seek acquisition of existing small call-based service providers for expansion.

Promotional activities using corporate capital, they added, should be banned and government policies should be set up to reduce the influence of large firms over making their call requests be received first compared with those made with small counterparts.

“Kakao has cemented itself as the leading, easiest, most convenient IT service provider mostly via its messaging app Kakao Talk,” an industry watcher said.

“The growth strategy will be effective only up to a point. Whether the public would still tolerate the firm even after it repeats the greed-motivated business practices of other conglomerates remains to be seen.”

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