Will KT, Kakao fix AI strategy following ouster from sovereign AI project?

Kakao CEO Chung Shin-a, left, shakes hands with OpenAI CEO Sam Altman during a joint press conference on the partnership between the two companies at a hotel in Jung District, Seoul, Feb. 4. Korea Times photo by Shim Hyun-chul

The Korean government’s exclusion of KT and Kakao from its ambitious sovereign artificial intelligence (AI) initiative is sending ripples through the domestic tech industry — a decision that experts say underscores a shift in national AI priorities and could force the two digital giants to fundamentally reassess their strategies.

On Aug. 4, the Ministry of Science and ICT announced the five consortia selected for its AI foundation model project, a state-backed program that will provide 200 billion won ($145 million) in resources, including access to high-performance graphics processing units (GPUs), data and personnel. The chosen groups — led by Naver Cloud, Upstage, SK Telecom, NC AI and LG AI Research — were selected based on their ability to develop independent, from-scratch AI models with global-level multimodal capabilities and commercial potential via open-source platforms.

The exclusion of KT and Kakao — two of the most recognizable names in Korea’s digital ecosystem — was seen as a surprise. But for many experts, the decision reflects the government’s insistence on technological self-reliance and a clear rejection of companies perceived as overly dependent on foreign partners.

“Being selected comes down to both past achievements and future plans. But past performance is something you cannot suddenly fabricate,” said professor Lee Seong-yeob of Korea University’s Graduate School of Management of Technology. “KT and Kakao have not built up a strong enough track record when it comes to developing truly independent, sovereign AI.”

“Relying on foreign foundation models instead of developing proprietary ones did not align with the goal of sovereign AI, and their lack of prior experience in building such models likely worked against them in the assessment process.”

Both companies have developed their own large language models — KT’s Mi:dm and Kakao’s Kanana — but their progress has lagged behind competitors like Naver and LG.

Mi:dm was introduced in 2023, but its development was prolonged, with version 2.0 released only this year after partnering with Microsoft. Kakao took an ambivalent approach in developing Kanana, wavering between building an expensive proprietary model and reducing costs through partnerships.

As a result, Kakao decided to partner with OpenAI in February this year, and Kanana remains at version 1.5. On the other hand, LG’s EXAONE has advanced to version 4.0 through continuous upgrades, and Naver’s HyperCLOVA has undergone six iterations since its launch.

The government’s assessment focused on the ability to create AI models independently — from architectural design to pretraining — and not merely customizing or localizing foreign-built models.

“This project emphasized true from-scratch capabilities,” said Song Sang-hoon, deputy minister for the office of ICT policy at the Ministry of Science and ICT. “We evaluated teams based on the breadth of their technical potential and their ability to make a real, practical contribution.”

For KT and Kakao, their collaborative ties with global tech giants appear to have worked against them.

KT CEO Kim Young-shub, left, shakes hands with Microsoft CEO Satya Nadella during a meeting at KT headquarters in central Seoul, March 26. Courtesy of KT

One industry insider said the companies’ heavy reliance on foreign partners may have created the impression that they lack core technological independence, which, in the context of a “sovereign AI” initiative, could be seen as a major red flag.

Analysts say that while both companies are still capable players in the AI field, their disqualification signals a clear message: The Korean government is prioritizing domestic innovation over global collaboration — at least when it comes to state-supported projects.

“Since the current administration is heavily focused on sovereign AI, AI-related companies appear to be adapting their strategies to stay in line with that policy direction,” professor Lee said. “Given this direction, it would be difficult for KT and Kakao to continue working solely with foreign partners as they did before, without engaging in domestic cooperation.”

Yet not all experts believe the decision will dramatically alter KT and Kakao’s AI trajectories.

“These are large corporations with the capacity to pursue their own strategic paths,” said professor Lee Kyoung-mu of Seoul National University’s Department of Computer Engineering. “Being excluded from this particular project may sting, but if they view AI as essential to their future, they are expected to take their own path.”

Kakao, at least, appears unfazed. During its second-quarter earnings call on Thursday, the company announced it will roll out an AI service co-developed with OpenAI, targeting mass adoption through its dominant messaging app, KakaoTalk.

“Starting in the second half of this year, we’ll create opportunities for everyone in Korea to experience AI in their daily lives,” said Kakao CEO Chung Shin-a. “We expect to quickly take the lead in Korea’s business-to-consumer AI market by combining ChatGPT’s user base with Korea’s most powerful mobile platform.”

She added that the company is laying the foundation for a new AI agent ecosystem.

“Just as Kakao was a major platform in the mobile era, we are laying the groundwork to lead in AI agents starting this fall, beginning with integrations into KakaoTalk services and later expanding across more verticals with both affiliates and external partners,” she said.

KT also said that the government project is "an evaluation process," and its outcome does not determine the success or failure of its AI business, adding that it will maintain its two-track strategy of developing the Mi:dm model and using Big Tech's application programming interfaces.