Kakao makes profits

By Cho Mu-hyun

Kim Beom-su Kakao Talk chairman

Kakao, the company that manages one of Korea’s most popular chat apps, reported Thursday that it earned profits last year for the first time since it started its service three years ago.

The turnaround suggests that the firm now has a profitable business model supported by money-making features, especially its game platforms, which were fueled by its immensely popular free mobile messenger Kakao Talk.

Kakao first launched the messenger in March, 2010, and it quickly gained popularity, becoming the dominant chat application for two years until late last year when NHN’s Line toppled it. Kakao Talk currently has around 80 million subscribers while Line has 100 million.

The firm introduced new services periodically such as its social service Kakao Story and ad service Plus Friend, but it was not until in August last year when it brought in a game platform that it turned into the black.

“We broke even starting September last year,” said Kakao spokeswoman Elin Lee. “We are just finishing our calculations for the whole year, and concluded that we made a profit on an annual basis for 2012.”

Some of the titles available such as Ani Pang and Dragon Flight became household games played by a majority of those owning smartphones. They marked over 10 million downloads respectively and are still widely played.

These games offer in-game items for cash, while Kakao takes a small portion of the profit from the apps. The 10 games currently available are estimated to have earned over 1 billion won each per month.

In 2011, despite its popularity, the firm marked a 15.25 billion won deficit, raising questions over the sustainability of its business model.

Feeling confident from the game platform’s success, Chairman Brian Kim made a rare appearance last year in November at a press event to introduce Kakao Page, Story Plus and Chatting Plus, all enhanced versions of previous services.

Kakao Page is a market for trading and buying content, where anybody can post self-developed content and buy that made by others. Chatting Plus is an upgraded Kakao Story exclusively offered for enterprise clients to be used in promotions.

The company plans to add more games to total over 30 and release them globally.

Industry analysts praised the success of the game platform, but said that Kakao would need to offer more and should pin its hope on Kakao Page.

“After the game platform first broke even in September, the profits continued to increase but stabilized between November and December,” said Choi Hoon, an analyst at KB Securities. “It is because games cannibalize each others’ profits. When one game goes up in the rankings, others go down.”

Choi said Kakao Page’s openness was “drastic and innovative” and will determine its success level. “It breaks the traditional hierarchy between distributors and content providers and makes it horizontal. It is innovative.”

An industry official, declining to be named, said that Kakao will also need to fight against the resistance of network providers who are unhappy over its use of their networks. “The issue of network neutrality will continue, and Kakao will need to resist the established order as effectively as possible,” he said.