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Daum Kakao ought to bring changes to local market
Mergers and acquisitions (M&A) are commonplace in the business world. But the merger between Kakao Corp., the nation's top mobile messenger provider, and Daum Communications, the second-largest web portal, draws particular attention in that it could bring drastic changes to our lethargic local IT market.
Their merger, which will be completed by October through equity swaps, is reportedly aimed at enhancing core businesses and creating business synergy. "The deal will enable us to respond to fast-changing global market trends,'' a Kakao executive was quoted as saying.
True, the merger is mutually complementary. For Kakao, the operator of the hugely popular mobile messenger app Kakao Talk used by more than 140 million people globally, the amalgamation will resolve its chronic problem of the absence of a business model in one stroke.
Despite its vast number of mobile users ― Kakao has managed to reap profits by providing game services ― its long-term survival has been in doubt because of the earnings problem.
Daum is always the distant No. 2 in the portal market after Naver, which owns nearly 70 percent of the local Web search market. Its weaknesses have been extended to the mobile sector with its growth potential chronically in doubt.
As a result, Daum's sales remained at 530 billion won last year, less than a quarter those of Naver.
The newly merged company ― Daum Kakao ― will benefit from Kakao's supremacy on mobile platforms and Daum's business expertise and experience with Internet searches and content. So it's possible to expect the highest synergistic effect from their marriage.
There are many reasons to welcome the merger. First of all, it will serve as an occasion to offer upgraded services to customers at a faster speed.
Also, the merged company, which will have an estimated market capitalization of about 3.5 trillion won with 3,200 employees, will be better positioned to compete with Naver, the dominant portal in South Korea, one of only a few countries in the world not seized by Google.
Given that it has been difficult to expect further innovations in the local IT industry since Naver emerged victorious in 2004, the merger should be a catalyst to prompt competition for innovation among local IT firms.
More importantly, the merged company needs to go abroad more aggressively to explore overseas markets, moving beyond our limited home market. Naver's success in the operation of Line, a messaging service and rival to Kakao Talk that is popular in Asia, is a case in point.
Daum Kakao first has to break through the huge wall erected by Naver locally. This challenge will be formidable, given its strong presence even in the mobile sector.
It would be pointless, however, if the merger fails to be a wake-up call to the lackluster local IT industry and is only used as a vehicle for large shareholders to get windfall gains.
Endless competition and innovation is the key to producing a strong competitor. Hopefully, the merger will help more IT firms to globalize through innovation and competition.
