Turbulence of Kakao
Kakao emerged as a star in Korea’s IT industry with its mobile messenger Kakao Talk. However, its new subscriber acquisition rate is slowing down these days, along with the pace of growth of its major game services. It is also losing ground in overseas markets.
According to industry sources, its total cumulative number of subscribers has recently exceeded 130 million just five months since the 100 million mark was surpassed in July this year. Still, those in the know say that the performance is something less than expected. The number of subscribers of Naver Line increased from 200 million to 300 million during the same period, while that of Tencent’s WeChat went up from 400 million to 600 million to become the largest messaging network in the world.
35 million out of the 130 million users are those using the service in Korea. Kakao’s local market share is indeed overwhelming given that the number of smartphone users in Korea is approximately 37 million. However, the growth rate is moving sideways, as the Korean smart phone market is reaching saturation.
The company set up Kakao Japan in July 2011 to open up the global market in earnest. It used to make headlines by topping the application download charts in Japan, Vietnam, Indonesia, and other countries, becoming the most famous Korean mobile messenger thanks to the popularity of Korean pop culture in these regions.
However Naver Line, which focused on overseas markets from the beginning, is catching up with it. Although it made its debut 15 months later than Kakao Talk, it is growing explosively in Southeast Asian countries such as Japan, Taiwan, and Indonesia. Even Kakao’s joint venture with Yahoo Japan established in October last year and its large-scale marketing campaigns have done no wonders. In China, WeChat has a firm grip on the market.
The GameHagi service associated with KakaoTalk messenger is losing steam, too. Sales are showing consistent growth, but more users are losing interest in the service, as an increasing number of similar games are available by other companies. During the early stages, small developers’ mobile games like Ani Pang and Dragon Flight enjoyed huge popularity. No less than nine games have recorded cumulative downloads of at least 100 million up to now.
The problem is that their popularity has been declining since July this year, the first anniversary of the launching of GameHagi. No game has posted 100 million hits since that month. For example, Monster Taming from NetMarble, which is the top of the list now, has reached just five million downloads four months since its debut. This is because GameHagi is increasingly led by major studios, and similar games are available in the market. Kakao is trying to tackle the situation by releasing imported games in cooperation with overseas firms, but the outlook is not that bright.
Moreover, its ambitiously-launched new services are fighting a hard battle, too. One of the typical examples is the Kakao Page for paid mobile content. After one year in the market, it is now considered merely a commonplace Webtoon service. The mobile shopping mall service Kakao Style and the closed social networking service Kakao Group have failed to distinguish themselves as well.
Users are also complaining about server errors occurring more frequently than before. The company had as many as four server errors in 2013 alone. Kakao Talk transmits as many as 5.2 billion daily messages on average, and many people are criticizing it for its unstable service.
Under the circumstances, it is expected that the company’s annual sales for this year would be short of the earlier estimate of 250 billion won (US$237 million). A downturn in sales could result in a decrease in marketing expenses, which, in turn, could lead to a vicious cycle. WeChat spent as much as 200 billion won (US$190 million) on marketing this year, and is planning to double the amount in 2014. Line is mulling over doubling its marketing expenses next year to 200 billion or so, too.