Interviewing Innovation
Sirgoo Lee is co-CEO of Kakao Corporation, alongside JB Lee. He has previously been the CEO of NHN USA, and is a lawyer by trade. BusinessKorea spoke with him about the history and future of KakaoTalk and his insights into the smartphone instant messaging market.
All 3 of the executives of KakaoTalk are from Naver or NHN, right? Is that where you all met?
I met Brian when I joined NHN in May of 2004. He was at the time the CEO of NHN. And I joined as the general counsel. That was my initial contact with Brian. He left in 2006 to form the predecessor of Kakao, which was IWILAB. He invested in JB Lee, who is the co-CEO of the company. And so really Brian and JB are the founders of the company.
Now your company is quite successful. I’ve been told you have about 550 people. Do you think this is quick growth?
Very fast, yes. When I first joined 2 and ahalf years ago, we weren’t quite 100 employees. So we’re kindof doubling each year. And that’s what happened at NHN. Those of us who came from NHN and those of us who were there at the early days of NHN, it’s kindof like deja vu – the same kind of growth issues coming up.
You have a corporate culture in which everyone just uses first names; everyone treats each other as equals, there is no acknowledgement of age or rank. Is that something that you brought from NHN?
Actually, Brian started that. He was the first head of NHN USA, and in the US everybody goes by their first name, especially in the IT industry. The culture is very flat. I think he really liked that. So when he started the company back in December 2006, that is one of the points that he wanted to set in from the beginning. But, of course, being a company, you do need hierarchy. Somebody needs to make decisions, somebody needs to have authority. But then the communication culture has to be flat, has to be non-authoritative. Because the mobile industry is something very new, nobody has experienced this industry. A new employee may have a better idea than the management team. So we think it is very important to keep a culture where we encourage debate, where we encourage free communication. It’s worked pretty effectively until now.
Have there also been any disadvantages in using this kind of culture?
Old folks like me, when we join the company, we have to prove ourselves, we have to prove who we are. Whereas before, if you’re a senior, you have that title behind you to back you up. When you first meet somebody in the company they immediately recognize your status and pay respect to that. I joined the company as Vino. Vino has to explain and show everybody what he can do and what his abilities are. For those who aren’t comfortable with that, we’ve had a few employees leave the company because that really didn’t suit them. But that is one of the major attraction points of top talent who like this kind of culture, who are very creative and don’t mind being treated that way.
How much would you judge your success as being based on your unique corporate culture?
I think a lot. Because a lot of great ideas, the way we work, came from that open culture. Most of what we do service-wise comes from our users. We value user input very much, and new features and new services come out of that. And likewise within the company a lot of new ideas of how we operate as a company, how we form our culture, comes from our average employees, rather than top-down.
There are also a lot of other companies that you partner up with for the additional services that you have. How do you choose which companies to participate in these different programs?
The quality of the service they operate or the content that they offer. That’s very important to us. When we make the decision on who to partner with, we’re making that decision based on what our users would like in that service. So we’re very particular, we’re very picky in what we choose. It has to be the best of the best. In some instances that has caused a lot of debate, especially with games, because in the early years when we launched a game on KakaoTalk it became very successful. Those who cannot get in are very disappointed, so we have to explain to them why they weren’t selected vis a vis the games that were selected. Some are very subjective decisions, but our focus is always from the viewpoint of the users, what the users will like, and then it’s always quality.
So there are companies – games or perhaps Plus Friends – that you have decided to not go with?
Plus Friends is a slightly different model where we do have content partners with plus friends, for instance Girls’ Generation, or other different content. But with the advertisement model, those are paid partners. They pay us an advertisement fee, so they can use plus friends as an advertisement platform. We do have a screening process where we don’t allow certain types of advertisement. But as long as there are people who are interested in that product or service, for a fee, you can become a Plus Friend.
Which one of these services has been most profitable for you?
Up until now, games. It has been a year and a half since we launched games on KakaoTalk, and the accumulated revenue has reached in excess of 1 billion dollars. We take a share of that 1 billion, but it’s become a huge success financially. And that makes up a huge chunk of our revenue. Also Plus Friends is becoming a steady revenue stream for us, because it is a very targeted advertising model where it is an opt-in type of service where the user chooses what type of product of service he or she is interested in. So you don’t have to do market research, you don’t have to target a specific audience. You just open up your Plus Friend channel, and then your users get to select it. So you can send them targeted messages. Whereas, if you send out mass messages that becomes spam.
Do you think the criteria that you use for games have also contributed to your success in the games market?
I think so. There’re definitely good games and bad games quality-wise, and so we do have a screening process. In the early days we hadvery strict criteria where we only accepted around 20 percent of the games onto the platform. Now we’ve kindof opened up the door and allowed more games to be on our platform. We’re now letting our users choose which game they want to play.
What plans do you have for expanding KakaoTalk? New services and features planned for the application itself?
We’ve now announced that we’re going to enable people to send and receive money through our application, and so who knows what’s next?
How is the money transfer going to work, especially in light of government-mandated security protocols in Korea?
The regulations apply to the banks, and so we really don’t have to deal with the technical issues. Of course we’re very mindful of security, but the actual transfer of money is done at the back end, through the banking system, between banks. We offer just a platform for identifying who is sending money to whom. So we don’t collect financial or personal information. That is matched up with the banking system service, so money is transferred from one bank to another, which is done every day right now so there are no security issues there.
So it’s not the Paypal model, where Paypal is acting like a bank?
No, we’re going to start with sending and receiving money, a very humble start, and then we’ll see how that goes. Maybe one day we can get to the point where we’re buying products, doing monetary financial transactions through our application. But the plan right now is... it seems like a simple idea, right? Sending and receiving money. But that entails a lot of issues, because you have to have all 16 banks in Korea work together on one platform, so it’s taken a long time to convince the banks and have the interoperability of the banking system to be working.
Then what kind of plans do you have to expand the company and the user base?
I think we’ve probably cornered the market in Korea. 93 percent of all smartphone users are KakaoTalk users. There is that 7 percent, but I think they’ve made a conscious choice not to use KakaoTalk.
The natural choice is to expand overseas, but unlike Line or WeChat, we are a very small company with very limited resources. So we’re focusing on specific regions or countries. We’re focusing now on Indonesia, the Philippines, Malaysia – countries in Southeast Asia where Korean content is popular and recognized.
It was a Malaysian company that bought your pre-IPO stock, correct?
Yes. They are our partner in Malaysia. We’re doing a partnership in Malaysia whereby they’re doing all the marketing of the application in Malaysia. The gentleman, our partner and the owner of the Berjaya Group, also owns an English premier league soccer team in Cardiff City. So he said, “Would you like to do some marketing in the UK?” and we said, “Why not?” and one day I wake up one morning and everybody’s talking about the advertisement of KakaoTalk on a college city soccer match. And this gentleman was very interested in making an investment into KakaoTalk. He purchased shares of the company back in January.
Does that mean that Malaysia is the number one priority for expansion?
The three countries we’re focusing on are Indonesia, the Philippines, and Malaysia. In Indonesia we’re doing marketing by ourselves, we have a team of 12 people on the ground in Jakarta. Malaysia is also one of our focused markets, but we’ve left that up to a company called Friendster, which is a subsidiary of the Berjaya Group. So all 3 countries are very important to us. We think that it’s in the early stages of the smartphone revolution. And people there are very interested in using services like us.
Do you still consider yourself to be a small, flexible startup?
Up until now, yes. The culture is a very startup culture still. Although WhatsApp only has, what, 16 employees? We are much larger than that, but we are doing a lot of other things, whereas WhatsApp is focusing on text messages. We’re expanding this into a mobile platform. So inevitably you need more employees, and that’s why we’re growing in size. But still, Naver is a big company. WeChat, the mother company is Tencent, they are a huge company. So we do need to draw up our resources in order to compete with those companies.
Speaking of WeChat, WhatsApp, Facebook Messenger, and desktop apps like MSN Messenger, AOL Messenger, and even ICQ, so many applications show that instant messaging applications are extremely fragmented in both the desktop and mobile platforms. Do you think that this is bad for the Internet, and for the user?
I think it’s just the nature of the service. Think of Facebook – on Facebook you can share photos, videos, different content. And it’s cool to be connected to somebody halfway around the globe. To see what they’re interested in, what their daily lives are like. A messenger, though, is a more private experience. And you rarely want to reach out on that level to somebody you don’t know, who you cannot really verify. And so messengers are born to be local, I think. If you have relatives living overseas, maybe then you have to connect globally. Otherwise it’s the people around you and around where you live. And so this fragmentation of KakaoTalk in Korea, Line in Japan, WeChat in China, I think it’s natural. It would be great if everybody used KakaoTalk in Europe, the US, or Australia. But I think that’s not because you want to get connected to people around the world, it will be because that service fits the needs of people in that locality. So that’s the reason we’re focusing on specific countries and regions.