Bo-eun leads the digital content team. She has covered foreign affairs, North Korea, tech, economy and gender issues at The Korea Times. She did a short stint at the South China Morning Post in Hong Kong, where she obtained a new perspective on news production and life. Small sources of joy for her are lounging in the sun, having a good latte and swimming.
Platform giants meddle with algorithms to increase profitability
By Kim Bo-eun
Naver case calls for strengthened gov't monitoring
By Kim Bo-eun
The emergence of platform giants such as Google, and in Korea, Naver, has created market circumstances where dominant players are able to alter algorithms to place themselves at an advantage over competing firms.
In 2017, the European Union's Antitrust Commission fined Google 2.42 billion euros (3.2 trillion won) for abusing its dominance as a search engine by giving an illegal advantage to its own comparison shopping service.
A similar case has unfolded in Korea ― with the Fair Trade Commission (FTC) in October imposing a 26.5 billion won fine on Naver for manipulating algorithms to give greater exposure to sellers affiliated with its shopping platform.
Naver is the dominant portal in Korea, with 30 million people using its website daily.
According to the FTC, Naver has a more than 70 percent market share as an online price comparison service provider based on all major standards including fee income, amount of transactions and engagement with consumers. Other service providers are Kakao and minor platforms such as Danawa and Enuri.
In addition to offering price comparison services, Naver also operates its own platform for sellers named Smart Store. This is similar to eBay Korea's format.
Naver Shopping's sales, generated through the operation of Smart Store, are growing rapidly. Sales of Naver's commerce business came to 285.4 billion won in the third quarter of this year, up 40.9 percent from the same period in 2019. The volume of transactions grew 72 percent in the same period.
Meanwhile, based on dual operations, Naver is in a position where it can alter algorithms to give Smart Store more exposure to consumers.
The FTC imposed the latest sanctions following its inspection of the company after a firm in the e-commerce business complained in 2017. Naver was fined for fixing algorithms so that sellers affiliated with Smart Store got greater exposure than sellers on competing platforms. A series of algorithm manipulations took place over eight years from 2012, according to the FTC.
This meant that even if the products on Naver's Smart Store were more expensive than those offered by other platforms, they got greater exposure.
Analysis of Naver's data shows consumers overwhelmingly viewed and clicked on search results shown on the first page over those shown on other pages. The European Commission referred to studies that showed similar results. When moving the first item on the search result page down to third, the rate of clicks decreased by 50 percent. When moving the first item on the search result page down to tenth, clicks fell by 85 percent. Local studies also showed that 60 percent of users opted for the first and second items on the search result page, regardless of content.
As a result of the manipulation, Naver's Smart Store's market share grew to 22 percent in 2018 from 5 percent in 2015. The share taken by other platform operators consequently shrank.
But Naver has contended that no manipulations took place. The company stated improvements were made for algorithms and these included measures to benefit competing platforms.
"We looked over the sellers that were being exposed and spent a lot of time figuring out how the products of more diverse sellers could be exposed," Naver CEO Han Seong-sook said at a National Assembly audit in October.
Naver also does not agree that it is the dominant player, both in search and shopping.
"It depends on how you define the market. A consumer who does not search on Naver would not opt for websites such as Danawa," a Naver official said, Monday.
"Naver competes with platforms such as YouTube or Instagram," she said.
The official stated that the FTC's market definition focused only on local players, which Naver does not consider as competitors.
Naver has vowed to file an administrative suit against the FTC fine.
Is it possible to prevent abuse of dominance?
Even though the FTC has a division that is in charge of monitoring companies such as Naver, an official said action can only be taken if the players engage in questionable measures.
"The division is comprised of seven members while there are countless firms. It is impossible to look into detailed operations of all of these companies around the clock. Businesses are provided room to operate in the market economy and we take action when we find that a dominant status has been abused," an official of the division said.
He said all the government is able to do pre-emptively is provide guidelines on transparency and fairness for businesses, but it is up to them to follow the guidelines or not.
After unveiling sanctions for Naver, the FTC stated "We expect for the sanctions to set up an environment where fair competition can take place and help protect consumers' right to choose."
Yet even punitive measures such as fines could have little effect, if the companies fight back.