SK Communications had struggled for years to take full advantage of the popularity of its Cyworld social media service and develop more options for monetization. Now, that window appears to be shut with Cyworld struggling to compete with rival services like Facebook and Kakao Story, which are better designed to be used on mobile Internet devices. Korea Times file

SK Coms turning into social media after-thought

By Cho Mu-hyun

SK Communications needs repair its tainted reputation from a data leak, repair declining operating margins and venture into the mobile platform by the end of this year.

But achieving any one of these goals seems a far stretch.

The company that runs search engine Nate and social networking service (SNS) Cyworld is being hammered by the quickly changing market while it desperately clings on to its past glory days.

It posted an 8.15 billion won loss for the second quarter of this year, a third-straight quarter of deficits.

The most critical damage came from its content division, which saw revenue plummet 50.7 percent from the same period a year ago to mark 12.9 billion won. The decline was due to the low sales of “chestnuts,” or cyber money used at Cyworld, which was once called the “national SNS” by people in Korea.

The company’s SNS service has been in danger of losing its grip due to the emergence of Facebook and Twitter, which are gaining wider popularity in the domestic market daily due to their strong interconnectivity with mobile platforms.

The rise of smartphones has been especially difficult for SK Communications.

The SNS market in the visual-intensive device is currently a duopoly of Kakao Story and Facebook, which had 49.1 and 34.5 percent of total user time (for Android users) as of May, according to research agency Nielsen KoreanClick in June. Representatives of the agency said they expect their dominance to “only intensify in the coming months.” Cyworld accounted for 8.9 percent that month.

The same study said people using SNS tend to stay on mobile platforms longer compared to their desktop counterparts.

Cyworld’s difficulty lies in that it was optimized for personal computers, which the company admitted in a recent conference call. “We will offer a differentiated service by strengthening our media content aimed at the mobile (market),” said SK Communications Chief Financial Officer Park Yun-taek. “We will especially use the momentum to come from a newly (planned) launched service for our SNS Cyworld to maximize the synergy between our wired and wireless platforms to concentrate on strengthening competitiveness.”

Kakao Story has an overwhelming advantage over its rivals due to its connection with mobile messenger service Kakao Talk, which has over 53 million members. Thirty million of them use its SNS service, according to the Yeoksam-based company, and it also launched its own cyber money “choco,” reminiscent of Cyworld’s chestnuts.

SK Communication’s search engine Nate is also failing to grab interest. The leading Web portal in Korea is still NHN’s Naver, while Daum and Google contend for the runner-up position. The difficult business atmosphere has caused mobile carrier KT’s search engine Paran to end its service in July, which could well happen to Nate too.

Only Naver and Google have successfully laid foundations for the mobile phone market while Nate has nearly no share, according to industry officials. High revenue possibilities from advertising and games make it crucial for SK Communications to expand in the growing market to survive.

The biggest stain on the company’s reputation which hampers it still came last July when 34 million people’s information registered with the search engine was hacked.

There is heightened concern over information security due to a recent hacking of personal information managed by KT. The incident involving Nate has been mentioned numerous times as an example of catastrophic data leaks that are begging for more attention from the authorities.

Over 20 class action lawsuits are ongoing against Nate nationwide, while a court in Daegu favored the plaintiffs in April and ordered the firm to pay damages. The continuous mention of the Web portal will likely keep its image poor in the eyes of the public.