How Apple and iPhone changed ecosystem of Korean IT industry

By Kim Da-ye

Yoo Ju-wan was an ordinary high school student with a talent for computer programming until Apple’s iPhone entered the Korean market on Nov. 28, 2009.

In the following month, the then 17-year-old released Seoul Bus, an application that showed the real-time location of all the city buses and their arrival time at specific stops, using the municipal government’s GPS (global positioning system) data.

Among Korea’s 15 million smartphone users, Seoul Bus is now one of the most popular apps, having changed the lives of those who commute long distances in the morning or catch the last bus at late night.

“The app wouldn’t exist without the iPhone and the App Store,” Yoo said in a telephone interview. He had begun writing the program in May 2009 at the news of iPhones’ potential arrival here.

“Each time Steve Jobs presented a new product, I was stunned. His death is heartbreaking,” said Yoo, who studies at his dream university, Yonsei, and enjoys a little, but leaves Seoul Bus as a free app.

“The world is immeasurably better because of Steve.”

Apple’s board of directors delivered a statement on Oct. 5, the day the founder and former CEO Steve Jobs died of respiratory arrest caused by pancreatic cancer.

People may question if Jobs improved “all our lives” as the board put it because within the IT ecosystem Jobs created, some gained and some lost.

The transformation of the IT environment couldn’t be more dramatic than in Korea, the home to Apple’s fiercest rivals, key suppliers, budding application makers and avid fans.

One clear change was that Jobs’s products revealed the hubris of the once-world-leading Korean IT industry, which touted its fast, intensive broadband network, but lacked innovations, growing increasingly insular; challenged its tech juggernauts; and eventually helped them come up with better products.

In this process, fast adaptors and those willing to innovate survived while others were ruthlessly abandoned by consumers.

Pre-iPhone, post-iPhone

Apple’s presence in the Korean IT industry is divided into the pre- and post-iPhone eras.

Before the launch of the third-generation iPhone here, the Cupertino, Calif.-based firm was a minor player.

In a country dominated by PCs, nearly everything was tailored specifically to Microsoft’s Windows operating system and Internet Explorer web browser.

On the MacBook, surfing the web was much of a hassle with broken links and missing images, let alone online banking or anything useful that involved Microsoft’s ActiveX controls.

The tech-savvy crowd drooled over the colorful, transparent iMacs and the white, slick MacBooks, but ended up settling for their PCs.

Apple got a chance to put its products into wider use with the introduction of the iPod, the uber chic MP3 player with a click wheel.

The domestic music player market was dominated by iRiver, a tech-driven firm that packed every imaginable feature into its gadgets.

Because of Korean players’ support for various types of files ― many of which could be freely downloaded ― and affordable prices, iPods gained a share among niche consumers called “Applebba.” Bba is a Korean slang for a fan.

IPods became smaller and fancier with a high-definition, color screen through multiple generations. With the iPod Touch, on which the iPhone is based, in the market, Apple’s MP3 players expanded its market share to nearly 15 percent by November 2008, according to price comparison site Danawa’s sales data. Samsung Electronics led the market with a 28 percent market share, followed by iRiver, the then Reigncom, with a 22.5 percent.

And that evolution of music players would later cripple iRiver whose sales fell from 206.84 billion won in 2008 to 144.11 billion won in 2009 and 107.18 billion won in 2010. The firm recorded operating losses in both 2009 and 2010.

On Nov. 28, 2009, Apple emerged as a major player in Korea’s IT market, thanks to the release of its third generation iPhones in partnership with KT, the country’s second largest mobile carrier.

Apple had unveiled the first generation iPhones in January 2007, and it is known that local phone manufacturers, particularly Samsung Electronics, had pressured mobile carriers not to offer the handset, thus delaying its launch here.

Some 65,000 pre-ordered iPhones from KT by Nov. 30, and more than a half million by March 31, 2010, representing 4,000 iPhones sold every day, according to the mobile carrier.

“Only seven countries, including the U.S., out of 88 sold more than 500,000 iPhones in a year. It took Japan, currently with more than 3 million users, seven months to surpass the 500,000 mark,” Pyo Hyun-myung, KT’s personal customer group president, said back then.

With the launch of the iPhone4 on Sept. 10, the number of the users surpassed 1 million in September and 2 million in January this year.

The immense popularity of the iPhone apparently urged and compelled Samsung Electronics to come up with a working smartphone.

In April 13, 2010, according to various media reports, Chairman Lee Kun-hee visited the mobile, software and design departments in Suwon, Gyeonggi Province, and ordered employees to “make a smartphone that is stronger than any other.”

Lee returned to top management on March 23 after stepping down in April, 2008.

At Lee’s pushing, Samsung released the Galaxy S, an Android-based smartphone with a four-inch “Super AMOLED” screen and digital multimedia broadcasting (DMB) that enabled users watch television on the phone, June 25.

While Samsung was anxious to gain a foot in the smartphone market, LG Electronics wasn’t convinced about the arrival of the smartphone era.

The then world’s third largest handset maker believed that “feature phones,” nicely designed conventional mobile phones, would remain popular for some time.

In early 2010, LG launched the pastel-colored Lollipop2 advertised by idol group Big Bang and the Cookie phone publicized by Girls’ Generation.

With the cute look, they may have appealed to teenagers, but couldn’t satisfy demand for something smarter.

The sober LG unveiled the Optimus Q, an Android-based smartphone with a sliding keyboard, in late May last year. It sold more than 20,000 in the first two weeks, media reports said, but wasn’t enough to make LG a major smartphone maker.

In September, Vice Chairman Nam Yong quit over the poor performance in handset sales. LG Group chairman Koo Bon-moo’s brother Koo Bon-joon replaced him.

By the third quarter last year, LG posted 434.77 billion won in operating losses at its mobile communication unit.

The total nine-month operating profit dropped to 422.16 billion won from 2.57 trillion won.

In April, 2010, Apple wowed the world again with its tablet PC iPad. Samsung quickly responded with the seven-inch Galaxy Tab, an Android-based tablet, by September.

Amid the ongoing competition against Apple, Korean handset makers came up with more products and improved them significantly, giving consumers more choices.

Samsung and LG are now preparing to turn the game around with their long term evolution (LTE) or 4G phones that promises to speed up Internet access nearly five-fold compared to the 3G.

In the meantime, KT, the only mobile carrier of the iPhone until March 2011 when SK Telecom began providing it, built up its muscle.

Sales rose to 21.33 trillion won in 2010 from 19.64 trillion won a year ago while the operating profit doubled from 970.55 billion won to more than 2 trillion won.

SK Telecom had enjoyed a market share of over 50 percent, and KT was thought to always remain the second player.

The iPhone not only boosted KT’s sales, but also helped upgrade its brand image.

At KT’s success, SK changed its mind on the iPhone by early this year, leaving LG Uplus, the only mobile carrier without a smartphone, and vulnerable.

Furthermore, while the smartphone price plan including the data package brought mobile carriers extra income, Apple altered the relations between handset makers and telecom companies.

Manufacturers, in the past, contributed most of the subsidies for consumers, but Apple wouldn’t. Telecom firms now have to give discounts to consumers at their own cost. Some analysts had even showed concerns that such a policy could worsen KT’s profitability.

Samsung, in a way, gained more leverage here as the sole smartphone maker that could subsidize consumers, alleviating mobile carriers’ burden.

The story so far involved just the largest players, but Apple’s influence on application makers like Yoo, accessory producers and suppliers of key parts would be equally or more immeasurable (See page A4).

Future

The revolution that the iPhone instigated is ongoing with more evolutions waiting to take place.

The world is yet to see how the iCloud will change things again.

Apple describes in a release Jobs’s swansong as “a breakthrough set of free cloud services, including iTunes in the Cloud, Photo Stream and Documents in the Cloud, that work seamlessly with your iPhone, iPad, iPod touch, Mac or PC to automatically and wirelessly store your content in iCloud.”

The iTunes Store that led overseas consumers pay for musical contents hasn’t opened in Korea yet.

The ecosystem of the domestic cultural contents industry remains nearly undisturbed by Apple, but one doesn’t know what waits ahead.

Lastly, the fierce patent war between Apple and other smartphone makers including Samsung, revealed another side of the U.S. company, as a destroyer of the ecosystem that it helped created.