Daum at Another Crossroads
By Cho Jin-seo
Staff Reporter
Return of a Jedi entrepreneur?
Public relations officials at Daum Communications used to say that their boss Lee Jae-woong has changed his business strategy from ``expansion and growth'' to ``selection and focusing.'' He has been known to spend most of his time in Boston, where Daum's U.S. affiliate Lycos is based while keeping a low profile in Korea.
On Thursday, however, Lee was once again caught in the center of the media spotlight from Seoul.
Lee, founder and CEO of Daum, was reported to have signed a backdoor contract in March to purchase 70 percent of the shares at a company named Fine A.T.C. with his shares in Daum Communications worth around 100 billion won. If the deal was concluded as reported, Fine A.T.C., a machinery manufacturing firm, was to be the de facto holding company of the Daum Group as the major shareholder of Daum Communications. Lee would keep his control over the Internet empire through the pyramid structure.
Fine A.T.C. announced Thursday evening that its major shareholders decided against the plan because of ``changes in the business environment.'' But the case showed that Lee can make a comeback to the front scene of the Internet industry at any time with his trademark M&A skill.
A major benefit of such a deal to Lee is that it will give access to the rich cash reserves at Fine A.T.C., which is rumored to amount to a few dozen billion won. The stash would be especially useful in his drive for more M& As. Even though he has tried to keep a low profile in recent years, the 38-year-old was considered a natural born entrepreneur.
The speculated deal is also interpreted as good news to investors of Daum as it will reduce Korea's second largest Internet company's risk of being involved in a M&A that is irrevant with Daum's business and will make it focus on the Web portal business without distraction. The firm's share prices rose 4.4 percent Thursday. (Fine A.T.C.'s denial was anounced after the stock market had closed.)
``The scheme looks favorable to Daum, since it will free the firm from the responsibility of looking after badly-performing affiliates,'' said Choi Hoon, an analyst at Hannuri Investment & Securities, on the condition that the news proves to be true. ``Daum will focus on the portal business, and Fine A.T.C. will be the main operator for future M&As.''
As Choi said, investors have complained that Daum's share price has been under-performing the market average as it has been shadowed by CEO Lee' s intractable management style.
The annual revenue of the firm and its 12 affiliate companies was 474 billion won last year, which is 73 percent of that of NHN _ Daum's perennial rival _ and its 14 affiliates. But Daum's market capital (around 992 billion won) is only 12 percent of NHN's, because losses from affiliates have eroded Daum's profit and thus made its shares look less attractive.
`Boys Be Ambitious'
It is not surprising that Lee is going back to the aggressiveness and expansionism of his early days. He is one of the first-generation dot-com CEOs and is a rare survivor among them. He once compared himself with Lee Byung-chull, the founder of Samsung Group (no relative), as an example of true entrepreneurship, while playing down the achievement of his son Lee Kun-hee, the current Samsung chairman as a man of no real creation of his own.
``Many of you would think Lee Kun-hee as the most respected entrepreneur in South Korea. But in fact, he is no entrepreneur though he is probably the best CEO in Korea,'' he said during a lecture at Yonsei University in 2002. ``It is people like Lee Byung-chull and Chung Ju-yung who built the nation.''
Such a belief was well reflected in Daum's early history. He founded Daum in 1995 and has made it one of the most successful Internet businesses in Korea ever since. Hanmail, a free e-mail service, and Cafe, a community service, led Daum's exponential growth in the late '90s through the early 2000s.
During that time, Daum also branched out to shopping, tourism and car insurance services, forming a business group that has the shape of Korea's traditional conglomerates, or chaebol, such as Samsung and Hyundai.
Now they account for more than half of the Daum Group's revenue. Tour Express is the No. 1 in the online tourism field, while Daum Direct Car Insurance was the pioneer of online-based car insurance. (The diversity of its portfolio is shown in its name. Daum means ``next'' in Korean, but it also means ``multiple chords'' in Chinese characters pronounced in Korean.)
Lee's popularity as a dot-com hero, however, has waned over the past few years and it is partly due to the emergence of NHN's Naver portal site as the superpower on the Korean Internet scene. But it is also undeniable that Lee had made a several ill-fated decisions of his own, most notoriously the acquisition of the ageing U.S. search engine Lycos in 2004.
Daum spent about $100 million in buying Lycos, but the company has yet to make any impressive results. The failure disappointed Lee's fans and the media who had once hailed the acquisition as the Korean David purchasing an American Goliath.
Several other affiliates have been similarly lackluster. Last year, Daum Direct Car Insurance, Lycos and other companies recorded a total of 15.2 billion in operating losses. As a result, Daum's share prices have swelled whenever a rumor of selling one of the affiliates appeared.
But with the try to purchase Fine A.T.C., Lee showed that he is still more interested in buying rather than selling.