Naver faces growing regulatory risks as its online dominance grows

Choi Soo-yeon, CEO of Naver / Courtesy of Naver

By Baek Byung-yeul

The government and lawmakers are taking action to regulate Naver's monopolistic position, according to industry officials, Monday.

The Fair Trade Commission (FTC) has been strengthening its guidelines for evaluating monopolistic practices of internet platform companies like Naver since the beginning of the year. Additionally, the National Assembly's National Policy Committee held a public hearing recently on a proposed law aimed at regulating online platform intermediation transactions.

The ruling People Power Party (PPP) also has been increasing its criticism of Naver and plans to propose a bill to prevent the abuse of platform dominance, which could present potential obstacles to Naver's strategy of expanding into the global market through various businesses such as online comics.

The PPP criticized Naver, which operates an online shopping mall service called Smart Store, as the company is abusing its dominance while not serving its responsibility as a dominant platform provider.

“Although the FTC issued corrective orders and a fine of 140 million won to sellers and advertising agencies that posted over 2,700 fake reviews on Naver's shopping mall, Naver itself received no sanctions,” the PPP said on March 24. “The behavior of giant platform companies that exercise authority without taking responsibility must be corrected through regulatory legislation.”

PPP Rep. Lee Chul-gyu also said that “we will push for legal amendments to uproot the behavior of giant companies like Naver that exploit their platform dominance to pass on damages to small business owners and consumers.”

He added, “Even before the legal amendments, we urge relevant ministries to thoroughly devise measures to prevent small business owners and consumers from suffering.”

Naver's headquarters in Seongnam, Gyeonggi Province / Courtesy of Naver

The industry view is that the government started to change its stance after a fire in October 2022 at a data center that houses the servers of internet service providers such as Kakao and Naver, leading to service disruptions.

After the fire, President Yoon Suk Yeol order the FTC to come up with measures to prevent abuse of platform dominance and the agency began implementing the Online Platform Monopoly Review Guidelines earlier this year.

Industry experts raised concerns that the possible imposition of regulatory measures on the online platform company may hinder the development of the domestic internet service industry.

“The market capitalization of Alphabet, the parent company of Google, stands at about $1.4 trillion, while Naver's market cap is 31 trillion won ($23 billion). It is not desirable for the government to regulate companies that account for hardly more than 1 percent of Google's market capitalization. Instead the government should support platform companies and open up opportunities for them to expand overseas markets based on their competence in Korea,” said Kim Dae-jong, a professor of business administration at Sejong University.

The professor added the government needs to implement the negative regulation approach that enables companies to conduct almost every new business from the current positive regulation, under which it prohibits almost everything.

“Korea has the highest smartphone penetration rate and top-tier internet network infrastructure,” he said. “This is the country where only government-approved businesses are allowed to operate, and ride-sharing services like Tada, Airbnb and Uber are prohibited. Despite being one of the most favorable countries for the Fourth Industrial Revolution, it is not right to deprive platform companies of the opportunity to grow in Korea and expand overseas through regulations like this.”

An official of the internet industry also raised questions over the government's move to impose restrictions on businesses, which could potentially stifle the entire startup industry.

“The application of regulations here seems to be focused more on domestic companies rather than global big tech companies, which could ultimately undermine the competitiveness of the local platform industry,” the official said on condition of anonymity. “Moreover, many startups are also involved in this industry and they could also become subject to regulations. It may be necessary to consider these aspects carefully and formulate policies accordingly.”