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Backed by wealthy entrepreneurs, Korea's coollest brand targets Japan, US, China to become the next Facebook
By Cho Jin-seo
A 15-month-old text messaging service is making an ambitious and well-financed bet to build a global 'online social hub,' aiming to cast Facebook and Twitter aside on the way.
Kakao has become the coolest brand in Korea this year with its ubiquitous mobile phone application KakaoTalk. The firm is now preparing to set up its first overseas subsidiary in Japan in July. And the next step is to open another branch in the United States in the second half of the year.
Money is not a problem -- the firm is financed and guided by a mighty alliance of Korea's wealthiest and most successful IT entrepreneurs who have the patience to wait for several years without demanding return on their investment. So the agenda for Kakao now is to make its service stable and attractive enough to appeal to a wider audience in foreign countries, its CEO Lee Je-beom says.
"Global expansion is inevitable. Even if we don't want to confront it, we cannot avoid global competition because the mobile application market has no borders," Lee told Business Focus in his office in Pangyo, south of Seoul.
Lee said that he has shortlisted candidates for the top position to oversee the Japanese operation. KakaoTalk already has a Japanese-language version but improvements are in the works to better meet local preferences.
Launched only in March 2010, KakaoTalk is a free text messaging application for smartphones such as the Apple iPhone and phones using the Google Android platform. It copied WhatsApp, a text messaging service made in the U.S., Lee admits, but KakaoTalk is generally considered more convenient to use. And unlike WhatsApp, it's free of charge.
Currently, according to the company, more than 11 million people in Korea -- virtually every person who uses a smartphone -- exchange more than 300 million text messages, photos and videos on its yellow screen daily. What is more encouraging to Lee is that over 2 million people are using KakaoTalk outside of Korea (in 215 countries, according to their phone codes), even though the firm hasn't spent a penny in overseas promotion. To compare, in 14 months KakaoTalk attracted 12 million users; it took Facebook about 34 months to do the same.
Encouraging signs abound. In January, Lee was astonished to find out that KakatoTalk was ranked first in the iPhone Appstore in four countries in the Middle East -- Saudi Arabia, UAE, Kuwait and Qatar. This was despite the fact that they did no advertising there. They do not have an Arabic service, and there are not many Koreans in those countries.
"Why the Middle East? I was not able to figure it out. I still don't know," he said. "But that's not important. The popularity in the Middle East showed that the mobile application market is very different from the PC-based internet industry. It's very open in the global environment, and best suited for word-of-mouth marketing. Unlike a PC, you carry your phone with you all day and you often recommend good applications to your friends while face-to-face."
Throughout the interview, Lee repeated more than three times that his firm is not interested in making a profit for the time being, and growth is its only mission now.
It is the same strategy used by Facebook, Twitter and other big social networking services in that they did not pursue profits until they became big enough to create economies of scale. Financial investors tend to fall for the logic. Facebook was valued at $50 billion by Goldman Sachs early this year. LinkedIn, another social network, thinks it is worth $3 billion ahead of floating its shares in the U.S. stock market, even though its net income was a paltry $15.4 million last year.
Kakao does not have to worry about funding either. Its largest shareholder, and the chairman of the board, is Kim Beom-soo, a 45-year-old who made a fortune by founding the nation's largest online game company Hangame. Kim is believed to have put at least 10 billion won into Kakao over the past three years while it ventured into numerous failed projects before the free text messaging service appeared blazing in the horizon.
In January, 14 new investors chipped in a combined 5.4 billion won, and forged strategic partnerships with Kakao. They include the founders and CEOs of firms like NCsoft, Nexon, CJ Internet and Neowiz -- all big and successful online game firms. Think Bill Gates, Steve Jobs and Larry Ellison teaming up for a single startup. KakaoTalk has become the Korean version of such a dream-team project.
"I want to prove that Korea can produce a global winner," Lee says, recognizing the amount of attention Kakao is receiving from the whole IT industry in Korea.
