Dark Side of `Republic of Naver
This is the final in a three-part series on the nation's top Web portal Naver and its influence on Korea. _ ED.
By Kim Tae-gyu
Staff Reporter
The impressive growth of Naver, which became an unrivaled Internet company here around 2005, has both a bright side and dark side.
First, the bright side of the ``Republic of Naver.''
Experts point out that Naver has achieved the economies of scale _ the first in the Korean Internet business _ which is of advantage to the country as a whole.
To be sure, Naver and its operator NHN are different. NHN today boasts of a market capitalization of approximately 8 trillion won, 10 times bigger than runner-up player Daum Communications.
Based on such financial leeway, NHN has briskly made inroads into foreign countries including the United States, Japan and China to spread Korean Internet culture there.
In addition, Naver has contributed much to enriching Korean-language databases through various services including the Knowledge Search that is similar to Yahoo Answers of the U.S.
``Naver is pushing the envelope of the Internet portal industry. Plus, NHN is the only legitimate company that can wade into overseas countries,'' said Kim Kyung-mo, an analyst at Mirae Asset.
However, the dark side of the Naver prowess is as outstanding as the bright aspect.
In particular, experts take issue with two points _ Naver does not take full responsibility for its role as a business bellwether and it continues to grow at the expense of smaller companies.
Regarding Naver's passive attitude in assuming proper responsibilities, society as a whole has already taken action and the company is suffering from a backlash.
Social Responsibility
On May 9, investigators of two government agencies raided the NHN head office located in Bundang, Gyeonggi Province, at the same time.
The two agencies were the National Tax Service (NTS) and the Fair Trade Commission (FTC), which have put Naver under the microscope over the past several months.
The NTS launched an investigation into the Web portal in late April _ the first time since Naver came to town about 10 years ago.
The FTC is getting to the bottom of the portal's alleged wrongdoings in making contracts with small-sized content providers.
``It is rare that investigators from two different agencies storm a company office at the same time. This amply demonstrates NHN is drawing a lot of attention regarding its responsibility,'' a Seoul professor said.
``More than 10 million users log onto Naver everyday, thus generating huge profits for Naver. But the portal site appears reluctant to take any social responsibility. That is a big deal,'' he said.
Even the Ministry of Information and Communication, which is in charge of overseeing the Internet industry, is seemingly trying to butt in, despite being supportive of the business overall.
``Internet portal sites have chalked up impressive growth thanks in no small part to the dearth of regulations,'' Yoo Young-hwan, vice minister of information and communication, told reporters late last month.
``Unlike in the past, they are exerting a strong influence on the media and content businesses. Accordingly, they are required to assume social responsibility down the road,'' Yoo said.
Topping other things off, Yoo picked up such issues as personal data, obscene content and problematic advertisements circulating in cyberspace through portal sites.
Although Yoo didn't specify Naver, he hinted it is one of the main culprits of the above-mentioned problems.
Rep. Chin Soo-hee of the main opposition Grand National Party is leading a group of critics claiming that Naver should not make money through keyword advertisements.
Chin contends that Naver takes advantage of the heavy traffic for search services by demonstrating sponsored ads, for which veracity is not guaranteed, in higher positions of query results.
She plans to present a bill urging Internet portals to provide advertisement-free search results. If enforced, the policy is likely to remove a significant chunk of portal site revenue coming from keyword ads associated with search results.
Proprietary Database
Naver has long been under attack for its policy of not disclosing its database to the outside world. In this climate, some describe Naver as a ``walled garden.''
Naver's running of a proprietary database is shown well by its Knowledge Search service, which allows Web users to ask questions or answer ones posted by other users.
The amount of Knowledge Search data hit the 60 million mark in February, less than five years after its premiere in Oct. 2002, and just four months after it collected its 50 millionth piece of data last October.
``Knowledge Search has played an important role in boosting the Korean-language database. That is important,'' said Wayne Lee, an economist at Woori Securities.
``But Naver refused to share the database with other Web portals. It is not available for users of non-Naver search engines. That is a big issue,'' Lee said.
In response to such criticism, Naver started asking its subscribers whether to open their questions and answers at Knowledge Search. Should any user agree to open their data, it is accessible to all Internet users.
However, the default is set at not disclosing the data. As a result, the number of outside portals accessing the Knowledge Search content is still very low.
Yoo Do-hyun, CEO at local Internet consultancy KoreanClick, points out that Knowledge Search shows the other problem of Naver _ it has not come up with innovative services.
``Naver didn't create Knowledge Search. It was a revised form of an existing offering provided by a domestic newspaper since Oct. 2000,'' Yoo said.
``Yet, Naver could get huge success by changing the format and such me-too strategies have become the trademark of Naver in subsequent years,'' Yoo said.
Yoo said such a tactic was understandable for a minnow player like Naver was in late 2002. However, he said it still sticks to the old-fashioned way and that generates concerns.
``If Naver doesn't scrap me-too strategies, it will not be able to be successful in the years to come. Now, it's time for the site to wake up and smell the coffee,'' Yoo said.
Three-Year Jinx
Experts say Naver will not be successful on the global scene if it refuses to take the approach of sharing data with others.
They warned the dominance of Naver and its operator NHN could become diluted, even on the domestic market where the Web portal has prevailed over the past few years.
``In the 10-year history of the country's Internet business, the title of the leader has changed twice. Naver should not be complacent,'' said Peter Kim, CEO at UCC site Pandora TV.
``Naver is overly proud and sometimes it appears to be arrogant. That has been a signal that heralds the collapse of the top player. Naver should keep this in mind,'' he said.
Actually, history here has created an eccentric jinx that any Internet firm claiming the top spot stays there for no longer than three years.
``Indeed, domestic portal sites have all headed downward for some reason exactly three years after they took the driver's seat,'' Kang Rok-hee, an analyst at Daishin Securities, said.
As featured in the first article of this three-part series on the ``Republic of Naver'' (See The Korea Times page 12 on May 22 edition), Yahoo Korea flat-out ruled the local Internet landscape from 1997 through 2000.
Daum Communications dethroned Yahoo Korea around 2001 with two flagship services _ free e-mail dubbed Hanmail and community sites named Cafe.
Then, Naver toppled Daum in late 2004 based on its dominance in Internet searches. This also enabled Naver to find a cash cow via keyword advertisements.
``The three-year jinx might be a source of concern to Naver, which became an indisputable business bellwether in late 2004 and early 2005. This is its third year at the top,'' Kang said.
Yoo at KoreanClick also articulates that nothing lasts forever in the turbulent Internet business.
``Naver's prowess is unparalleled at the moment and it seems to be learning lessons from the failures of Daum and Yahoo Korea. The possibility is that Naver will channel its energy and funds to remain ahead of the curve,'' Yoo said.
``But Naver should keep in mind that an unprecedented innovative service can change the landscape of the whole Internet at any time. Who knows what will happen this year or next?'' Yoo asked.