 A large wall display at the lobby of NHN's Bundang office shows most frequently searched keywords on Naver, its internet search service. / Courtesy of NHN |
By Yoon Jung-keun, Im Il
Founded as an internal venture of Samsung Group, NHN has become a leading Internet company in Korea in less than 10 years. Despite the breakneck competition in the industry, NHN remains the leader in various online businesses, including search advertisements, portal services, and casual online games.
Rapid expansion
NHN was founded in 1997 as a small internal venture company within Samsung SDS, a Samsung Group subsidiary. After being spun off from Samsung in 1999, NHN focused on internet search engine services. One initial success of NHN was the “Total Search,” which included various types of web pages such as newspaper article pages as well as general web pages in the search result.
Profit model
Like any other internet businesses, drawing large traffic of users and making money out of it was another matter. NHN’s management, headed by founder Lee Hae-jin, saw that there were three pillars of NHN’s business model ― search engines, advertisements, and games.
Naver, NHN’s portal site, provides an integrated search service and this generated revenue from keyword search advertisements, in the similar way Google puts ads on its search list. Ever since NHN introduced this business model to Korea in May 2000, the market has been growing rapidly. NHN’s 487 billion won revenue from this market in 2007 represented a 63 percent increase over the previous year and accounted for 53 percent of NHN’s total revenue.
Online games from the Hangame division also brought a stable flow of revenue to NHN. Hangame was the first to provide online “board” games in Korea 1999. By 2008, it had 280 titles in its lineup.
Fending off Google’s challenge
Google entered the Korean keyword search advertisement market in 2007.
The approaches of Google and NHN were different. Google was focused on its powerful and simple search engine technologies that link users to external sites. But NHN tried to keep its users within its site by having as much information within its own database and blocking access from outside search engines, including Google.
Despite some complaints from liberal internet users, this “walled garden” strategy resulted in the successes of various services such as “Knowledge iN”.
In other words, NHN’s strategy was being a content generator and a large database of knowledge, instead of being a mere search engine. This approach was especially successful in the early 2000s because there were not enough useful web sites in Korea and most of government and corporate homepages were anyway blocking access from external search engines such as Google and Naver. Therefore, Korean internet users preferred to visit a portal site where they could find needed information from its own internal database.
With this strategy, NHN could defend Korean market from foreign competitors such as Google. According to a July 2007 report from KoreanClick, an Internet market research company, only 20 percent of people visiting Naver were navigating to other sites after using its keyword search, while the rest stayed inside Naver. This showed how self-contained the site was and how big its database was.
Future challenges
In 2008, although NHN continued its growth, its declining stock price raised questions whether the quality of growth was being deteriorated. NHN also had difficulties in expanding its businesses to foreign markets such as the U.S., China and Japan, where a lot of money had been invested over several years.
The growth of keyword search advertisement in Korea was slowing down as the market was being saturated, but its online game revenue continued a strong growth. It may be about time to make another major strategic decision to sustain NHN’s growth.
Key LessonsNHN customized its business to the local market. Since there were not many web pages in Korean in the early days of the internet, NHN took it upon itself to generate content for users. Users visited NHN to find information they needed and they often contributed to the database by themselves without compensation. This led to a large stream of traffic and eventually a stable profit from its search advertisement business.
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