Alliance for Global Dominance
Korea’s number one portal Naver is in negotiations for investments and strategic partnership with Softbank of Japan and Alibaba Group of China. An executive at Naver said, “As Softbank and Alibaba showed their interest in investing in or forming a strategic partnership with Line, a mobile messenging company, we are currently under negotiations.”
Line is a 100 percent subsidiary of Naver, and currently has 480 million users. Softbank and Alibaba hope to acquire 30 percent of its shares each. If negotiations are concluded successfully, an alliance of major IT companies from Korea, China, and Japan will start to target the global mobile market.
Line is one of the top three mobile messengers in the world, competing with WhatsApp of Facebook and WeChat of Tencent. The greatest strength of Line is its fast growth. Lee Hae-jin, an executive of Naver, said at the press conference celebrating 300 million Line users in Japan in November last year, “2014 goal is to break 500 million users.”
Line is growing at an unexpected speed. On average there are 830,000 new users per day, and the total number of users exceeded 400 million on April 1. If this trend goes on, users will far exceed 500 million at the end of this year, perhaps even reaching 600 million. The corporate value of Line is surging accordingly. Lee Chang-young, a researcher at Tongyang Securities, said, “Currently, the corporate value of Line is 23 trillion won. This could become 28.5 trillion won, if Line is listed.” Twenty-three trillion won is roughly equal to US$22 billion.
Line has a serious concern, though. It is the number one mobile messenger in Asian countries such as Japan, Indonesia, Taiwan, and Thailand. The problem is that Line cannot beat Facebook's WhatsApp of in the U.S. or of Tencent's WeChat in China, the world’s two biggest markets.
But if Naver allies with Softbank and Alibaba, it might be possible to buck the trend and jump into the U.S. and China.
Softbank, the biggest IT company in Japan led by Korean Japanese Chairman Son Jung-eui, is famous for aggressive investment and M&As. Softbank acquired Sprint, the third largest telecommunication service provider in the US, last year, and already agreed to acquire T-Mobile, the fourth in the U.S. Softbank proposed to invest in Line’s equity, as they believed that Line could be a very important partner to penetrate the U.S. market.
Two companies could radically increase Line users if Line (as an operating program) is pre-installed on smartphones sold by Sprint and T-mobile.
The Alibaba Group could be a key business partner in the Chinese market. Alibaba is operating B2B commercial sites Alibaba.com, online shopping mall Taobao, and electronic payment service Alipay. The product transaction amounts to consumers were 254 trillion won (US$246 billion) last year, accounting for 4/5ths of the total amount.
Alibaba also desperately needs a competitive mobile service other than electronic transactions. The company's major competitor, Tencent, has WeChat, so Alibaba needs Line as a partner in Asia.
Softbank and Alibaba, both hoping to invest in Line, are actually sister companies. Son Jung-eui, Chairman of Softbank, is the largest shareholder of Alibaba, after he invested US$20 million (approximately 20.5 billion won) in the company back in 2000 when it was a venture company, and acquired 34.4 percent of its shares. When Alibaba is listed in the US stock market early next month, the value of Softbank’s shares will jump to US$57.8 billion (approximately 59 trillion won).
Softbank and Alibaba, with enough money, desire to acquire as much of Line’s equity as possible. However, Naver rather wants to form strategic partnerships and transfer equity less. Due to these reasons, negotiations are dragging on.