SK Communications Faces Uncertain Future
By Kim Tae-gyu
Staff Reporter
SK Communications, Korea's second-largest Internet company, is expected to have hard time in finding a business model even after it merges with Empas later this year.
After obtaining a 24.4-percent stake in Empas last October, SK announced a merger with the Kosdaq-listed outfit with the aim of beefing up its Web search services.
However, such a goal seems to be a far-off dream because of the two companies' disappointing performance on the local Internet search service market.
``After snapping up Empas stocks, SK practically managed Empas as if the two firms were the same entity,'' said Kang Rok-hee, an analyst at Daishin Securities.
``Yet, their combined market share was decreasing. So we can conclude the two firms failed to create synergy through the tie-up,'' he said.
The two companies' market share in search services was roughly 6 percent last October when SK bought Empas stocks, according to KoreaClick, an online consultancy.
Through the hook-up, SK hoped to carve out a significant chunk of the domestic Web search market dominated by business bellwether Naver and runner-up Daum.
But the combined market share inched down to around 5 percent in May.
The weak performance has weighed financially on SK since the lucrative keyword advertisements are closely related to search market share.
The two companies earned a mere 30.3 billion won in keyword ads last year, only 6.2 percent of the 489.2 billion won total.
Keyword ads refer to the concept of online promotions for selling ads associated with query keywords that produce results favorable to marketers who pay the search engine.
``Keyword ads now represent the primary business model of the Internet industry and the segment is expected to chalk up robust growth over the next few years,'' Kang said.
``Should SK and Empas fail to reap impressive results in the sector, they will not be able to rub shoulders with the leading players, Naver and Daum,'' he said.
The Internet Marketing Council of Korea says the size of the keyword ads market was 50 billion won in 2000 and racked up breakneck growth to 216 billion won in 2004 and 489.2 billion won last year.
The figure is projected to top 1 trillion won in 2009 or 2010.
In response, SK said the acquisition of Empas would provide a platform to the Seoul-based company.
``Together with Naver, we are the only two of several local Internet portals that retains its own search engine,'' a spokesman at SK Communications said.
``We think we will be able to surpass 10 percent in our keyword ads market share when we divert heavy visitors to our sites to Empas search later this year through other mergers,'' he said.
SK Communications runs a social-networking service CyWorld, the Korean equivalent of the U.S.-based MySpace, and boasts of more than 20 million monthly visitors to the site.