Breaking down a Superconnected Society
The unprecedented shutdown of KakaoTalk messenger app that occurred on Oct. 15 clearly exposed the problems of a platform monopoly. The shutdown of the widely used mobile messenger app did not end with the suspension of about 20 related Kakao services. Other companies and government agencies that use Kakao’s maps, identity authentication and payment systems have also suffered big damage.
Upbit, the largest cryptocurrency exchange in Korea, uses only two methods to log in -- KakaoTalk and Apple accounts. Many users could not trade virtual currencies from the afternoon on Oct. 15.
The Safety Reporting App run by the Ministry of the Interior and Safety did not work at all. This service is used in reporting complaints such as illegal parking and living inconveniences based on users’ location.
“Not only small startups but also large IT companies cannot develop all services such as maps and payment on their own,” an IT industry official said. “They rely heavily on Naver and Kakao for their major services.”
When KakaoTalk services stopped working on Oct. 15, people hurriedly started looking for alternative services. On the day, downloads of competitor apps such as Line and Telegram (messenger services), UT/Tada (taxi hailing), and Naver Maps soared. These services rose high on the Google and Apple App Store download rankings all at once.
“As the monopoly of Kakao and Naver has deepened, competitive services have disappeared,” an IT industry official said. “This is why this fiasco caused more trouble.”
Kakao started as a smartphone messenger service provider in 2010. As KakaoTalk grew into the most popular messenger app among Koreans, it acquired Daum, an internet portal service, and quickly expanded into various areas, from the rentable sober driver service to beauty parlor reservations. Kakao had a total of 134 affiliates as of June. They include major subsidiaries such as Kakao Pay (simple payment), Kakao Mobility (taxi hailing), Kakao Bank (banking), and Kakao Entertainment (entertainment/webtoons).
Kakao has come under fire for spinning off many of its service units into affiliates for stock market listing. It sought to dominate the markets for these services and maximize profits based on its strong monopoly position. Kakao has adhered to the policy of listing affiliates after spinning off in-house startups. When Kakao Games and Kakao Pay and Kakao Bank were listed in 2020 and 2021, respectively, the market cap of the Kakao Group exceeded 120 trillion won. Criticism began to emerge as Kakao shareholders lost money as a result of the excessive listing of its business units. The global economic downturn has pulled down the market cap of Kakao Group to 22 trillion won. Recently, Kakao Group gave up the listing of Lionheart, a game developer and a sub-subsidiary of Kakao Group after criticisms arose.