By Kim Tong-hyung
Staff Reporter
NHN, the operator of the country's most popular Web site, Naver (www.naver.com), dominates search services like an older kid in the nursery room. And in an attempt to get even bigger, the company has decided to split.
Making a surprise announcement Thursday, NHN's board of directors approved a plan to divide the company into two separate entities.
The new company, NHN Internet Business Platform (IBP), which is to be headed by current NHN chief executive Chae Hwi-young, will inherit the sales, advertising and infrastructure management divisions.
NHN will be taken over by Kim Sang-hun, now the vice president of business management, and devote to developing Web services and online video games. The company, which will entirely own NHN IBP, has no immediate plans to make its new subsidiary public.
``In the past 10 years, NHN has relied on information-based Web portal services and online games for growth, and it was time to establish ourselves a framework for new growth for the next 10 years,'' Chae said in a conference call, claiming that the split would make the company more nimble in developing new businesses and help cut costs.
When asked whether the move is related to speculation about NHN reorganizing under a holding company structure, Chae said the discussions about converting to a holding company remains only at a ``study level.''
``This has nothing to do with the discussions about converting to a holding company,'' he said.
With Naver already accounting for nearly 80 percent of all Internet searches here, finding new room for growth is critical for NHN.
The split is widely considered NHN's direct swing to global Internet giants Yahoo and Google, who struggle to compete with Naver in searches, but combine for a duopoly in Internet advertising services here through Overture and AdSense.
Naver is currently relying on Yahoo's Overture to administer its pay-for-placement advertisements, but with NHN IBP developing new advertisement applications and platforms, it's looking more likely that the Web portal will switch hands.
Based on the popularity of Naver, Overture controls about 80 percent of the country's search advertising market, with Google-backed AdSense getting most of the rest.
Having Naver among its clients would allow NHN IBP to shake up the hierarchy, although NHN officials aren't confirming whether the new subsidiary will be involved in advertising.
The country's market for search advertisements is expected to grow to about 3.7 trillion won (about $2.3 billion) in 2010, according to industry estimates.
``Overture has a shaky global status and it's apparent that Naver has been thinking that it will have to eventually go alone,'' said an official from Daum (www.daum.net), which trails Naver as the No.2 Web portal.
``The Web advertising market is showing more signs of diversifying, as seen by Daum selling its advertisements to Yahoo! Korea using Google and having its own agency ― Namu Communications. Naver ought to establish leadership in this market, and will have to establish a strong pool of advertisers to do so,'' he said.
Sales from search advertisements accounted for about 70 percent of NHN's revenue last year. Under the changes, NHN IBP is expected to take over the cost-per-mile (CPM), display and online shopping advertisement divisions, as well as the cost-per-click (CPM) advertisements it outsources to Overture.
Hence, NHN will rely on its online game portal, Hangame (www.hangame.com), to generate most of its revenue.
By having NHN IBP manage the entire corporate infrastructure instead having different business divisions buying and operating their own servers as they do now, NHN believes it could cut costs by some 15.7 billion won this year.
The split could also allow NHN to eventually reduce labor costs by deploying separate wage systems between the two companies.