By Kim Tong-hyung
Staff Reporter

The rivalry between NHN and Daum, the country's two biggest Internet companies, is becoming as lopsided as battle between Tom and Jerry.

Industry watchers predict that NHN, the operator of Naver (www.naver.com), the country's top search engine, and Hangame (www.hangame.com), a popular online game site, could exploit the bad economy to widen its gap with competitors, as advertisers concentrate their advertisements on the No.1 Web company.

In a regulatory filing last week, NHN reported 322.4 billion won (about $259 million) in sales and 128.3 billion won in operating profit, both representing marginal gains from last year's numbers. The company's net income of 104.3 billion won during the January to March period was an 18 percent rise from a year earlier.

NHN's performance starkly compared to that of Daum, the operator of the eponymous Web portal that trails Naver in the search market, which reported a net loss of 4.1 billion won during the first quarter. The company's 50.6 billion won in sales represented a 10-percent drop year-on-year, while its operating profit dropped nearly 15 percent to 3.6 billion won.

The No. 3 player didn't fare much better. SK Communications, the Internet unit of mobile telephony giant, SK Telecom, and operator of the Cyworld (www.cyworld.com) social networking services, saw its revenue dip more than 13 percent from last year at 47.8 billion won.

``The market for search advertisements is known to be resistant to economic downturns and the online game market actually feeds on a bad economy, so it clearly helps that NHN has dominating positions on both sides,'' said Hwang Seung-taek, an analyst from Hana Daetoo Securities.

``NHN sites continue to hog traffic, and the company still has a strong advertising inventory, with a lot of advertisers including those for long-tail keywords. These strong points will allow even stronger leverage for the company when the overall economy starts to rebound.''

Although not exactly immune to economic slumps, online advertising is considered the most recession-proof medium in the advertisement world, due to its accountability and efficiency and being built on a cost-controlled model.

And it seems that advertisers, pressured to trim spending, are increasingly choosing to put all their available money to the most proven platform, instead of spreading their spending, a trend that benefits NHN, the undisputed industry kingpin.

Naver currently controls about 70 percent of the country's online advertising market, and it is hard to envisage the Web portal surrendering an ounce of its dominance anytime soon.

Considering that NHN's game-related revenue rose by more than 20 percent year-on-year in the first quarter, with more and more people seeking escapist entertainment, the company's business prospects look rock solid.

Daum hopes it can say the same thing. The company has been aggressive in its efforts to put up a meaningful fight against NHN, introducing a digital map service, based on a high-resolution photographic map of Korea and other products to win more traffic. However, the economic turmoil is apparently squeezing the ad money out of Daum.

Industry watchers predict it will have to wait until next year for a reversal in its fortune, when its new investment in digital maps, online games and mobile applications begin to gain traction. The company's online shopping business, which grew more than 170 percent year-on-year during the first quarter, may also prove an important foundation.

thkim@koreatimes.co.kr