Skip to content
  • KOSPI 3140.51 +10.42 +0.33%
  • KOSDAQ 1046.12 +6.69 +0.64%
  • KOSPI200 410.99 +1.77 +0.43%
  • USD/KRW 1169.1 -2.60 -0.22%
  • JPY100/KRW 1,065.58 -6.08 -0.57%
  • EUR/KRW 1,375.56 -9.21 -0.67%
  • CNH/KRW 181.9 -0.03 -0.02%
View Market Snapshot

Tech

Kakao says to shift toward co-existing business model

In face of tightening regulations, Kakao to give up small community businesses and cut membership fees

By Sep 15, 2021 (Gmt+09:00)

Kakao Corp. founder and Chairman Kim Beom-su (right)
Kakao Corp. founder and Chairman Kim Beom-su (right)

Kakao Corp. will be abandoning its growth model that has transformed once a mere mobile messenger operator into one of South Korea's largest business groups over the past decade, in the face of regulatory moves against its sprawling business expansion.

The country's giant mobile platform on Tuesday unveiled a set of measures aimed at co-existing and growing together with its business partners, as well as innovating its business structure. The measures include Kakao's withdrawal from community businesses such as flower and snack delivery services that compete with mom-and-pop stores.

At the same time, the 26-year-old business group decided to abolish the Smart Call service which charges additional fees to grab taxis faster, Kakao Mobility's key cash-generating service. About 93% of the country's taxi drivers use the taxi-hailing app as of end-June, according to the company.

"The recent criticism of Kakao is a strong alarm bell from society," Kakao founder and Chairman Kim Beom-su said in a statement. "Kakao and all its affiliated companies will resolutely abandon the growth model pursued over the past 10 years and build a new model to grow together with our business partners."

The mobility unit will also slash its membership subscription fees for taxi drivers by about two-thirds to 39,000 won ($33.3) from 99,000 won a month. The paid membership was introduced in March of this year to allow drivers to receive ride requests to areas they want.

"We will also adjust, or withdraw from other businesses at the center of controversy of infringing on community businesses," the company said in a statement.

A Kakao source said it would take time to come up with other co-existing measures for services like Kakao Hairshop, which recommends and matches nearby hair designers with its subscribers.
Kakao says to shift toward co-existing business model
LEGISLATIVE, REGULATORY MOVES

Last week, the ruling Democratic Party leader Song Young-gil warned Kakao "not to follow the steps of the country’s other conglomerates that ignored fairness and coexistence in the sole pursuit of profit." He gave the remarks during a discussion with the party members on platform giants' unfair business practices and rapid growth at the expense of small business owners' profits.

The country's top regulators struck the same note. Financial Services Commission (FSC) Chairman Koh Seung-beom, who took office last month, said in a Sept. 10 meeting with the country's leading financial group heads that the financial watchdog would apply the same rules on big tech firms as those for financial services companies to protect consumers and stabilize markets.  

The Financial Supervisory Service, under supervision of the FSC, is considering introducing new regulations targeting big tech firms, according to its research report recently obtained by The Korea Economic Daily.

South Korea's antitrust Fair Trade Commission (FTC) has launched an investigation into Kakao Mobility on allegations of discrimination against taxi drivers not subscribing to its paid membership.

Kakao's Proposed Measures for Co-existence with Small Business Owners

Company or business
Detailed measures
Kakao Mobility
To abolish the Smart Call service which charges extra fees for calling the taxis faster
To cut fees on chauffeur, or designated driver services
To cut membership fees for taxi drivers
Community businesses To withdraw from so-called community businesses such as flower, snack and salad delivery services
Social-value fund To set up a social-value fund worth 300 billion won fund
K Cube Holdings To be transformed into a non-profit organization
 
Regarding K Cub Holdings which serves as a holding company of Kakao Corp. with an 11.21% stake, Kakao said it will transform the company wholly owned by chairman Kim into a non-profit organization to create social values. Kim's two children will resign as paid employees of the holding firm as well.

Kim is considering donating his additional money to a 300 billion won ($256 million) fund to be set up to aid its small-sized business partners.  

Earlier this year, he had pledged to donate more than half of his wealth, which easily exceeds 5 trillion won, to address social issues.

IPO DELAYS, NEXT TARGETS

In the face of toughening regulations, Kakao Mobility and Kakao Pay Corp. have postponed their IPO timelines. Kakao Pay, 45% owned by Ant Group's payments app Alipay, was scheduled to make a stock market debut next month.

Kakao Mobility recently kicked off the process of an initial public offering in 2022. Google, The Carlyle Group, TPG Capital and Japan's Orix Corp. are among its pre-IPO investors.

Industry watchers said other dominant Korean platform companies, including Coupang Corp. and Woowa Brothers, will become the next targets of South Korean regulators. The ruling party has proposed a set of bills targeting online platform and e-commerce businesses to better protect consumers. 

The FTC has been looking into Coupang as the country's No. 2 e-commerce player faced allegations of manipulation of its search algorithms to give its private-brand products a better chance of appearing in search results, FTC Vice Chairman Kim Jae-shin said last week.

Wowa Brothers, the operator of Korea’s top food delivery app Baedal Minjok,  was acquired by Germany’s Delivery Hero SE for $4 billion in 2020.

Write to Ju-wan Kim at kjwan@hankyung.com

Yeonhee Kim edited this article.

Comment 0

0/300