Is NHN on wrong track?

By Yoon Ja-young

NHN, operator of the search portal Naver (www.naver.com), is an online giant. However, it is seeking new income sources as growth is slowing down.

NHN announced last week that it would launch an open market in the latter half of this year, where consumers and retailers make online transactions. Rumors have continued that NHN would advance into the online marketplace industry which is currently ruled by Auction and Gmarket, both under eBay, and 11st under SK Telecom, but NHN had refuted this.

While these open market operators are regarding NHN’s advancement as a threat, some say the decision shows the firm’s desperate need of new areas of revenue.

NHN’s power in the market is unquestionable. The operator of Naver sees 70 percent of the Internet searches with 34 million users and 17 million daily visitors. Its total sales marked 1.5 trillion won last year, up 11.6 percent from the previous one, and operating profit jumped 11 percent to 599.8 billion won.

Its dominance as a search portal would promise NHN competitiveness in open market business. Analysts estimate around 40 percent of online commerce traffic is channeled through Naver platforms. It has already operated “Knowledge Shopping,” where it works as a middleman between Internet users and e-commerce businesses, and it has a payment system as well. It means NHN has some essential know-how in the field. It has been preparing thoroughly, having scouted hundreds of experts from Auction and 11st, including a former executive at e-Bay Korea.

While the advancement into the open market industry, which breached 10 trillion won last year, certainly would add to NHN’s profitability, some point out that it shows a certain desperation.

“It is not the first time for NHN to put its hands into customers’ baskets,” said an industry source. He pointed out that NHN split with Web advertisement agency Overture, to branch out on its own.

“Unlike other industries, Internet businesses are pressured to show continuous growth potential. It is reflected in stock price, but that of NHN has been on sideways moves during the past few years. It means NHN is failing to realize new growth engines,” he added.

NHN sees over half of its income from search advertisements. But the online advertisement market is nearing saturation. The game business has also been an important revenue source for NHN, but it saw sales decrease upon government regulations.

NHN’s search for new growth engines in the overseas markets hasn’t come up with good results. It withdrew from the Chinese market last year following a departure from Taiwan.

Other portal businesses are also pondering ways to find new income, though last year was good. Daum and SK Communications are seeking opportunities in social shopping, and the industry is expecting to see chances in the mobile sector amid the smartphone boom.