KakaoTalk, the Korean messaging app turned social phenomenon

Article  by  Jennifer ROUSSE-MARQUET  •  Published 21.03.2013  •  Updated 21.03.2013
In the country where there are more mobile phones than people, KakaoTalk, a mobile messaging application, is enjoying phenomenal success.

Summary

 More than 60 percent of South Koreans now have smartphones. Welcome to South Korea, one of the most wired country in the world.Out of 52.55 million mobile phone users[+] NoteAnd 50 million inhabitants as of June 2012. The country has a penetration rate of 109%, which means many people have more than one mobile phone.X [1], more than 60 percent of South Koreans now have smartphones. The number of smartphone users as of August 2012 surpassed 30 million, and the number was expected to reach 42 million by the end of 2012. Following with unprecedented growth rates, the smartphone penetration rate in South Korea now surpass those of smartphone savvy countries like Canada (45%) and the USA (38%).

 Kakaotalk is progressively substituting traditional telecom services. Not only does the country leads the world in smart device adoption, but in 2012, it also became the world’s first country to offer 4G Long Term Evolution service through its three national operators. The country has since emerged as a forerunner in LTE development, and represents no less than 22 percent of the global LTE user base, with approximately 10 million LTE-enabled device users[+] NoteWhich equates to approximately a third of Korean smartphone users.X [2].
On the back of a fast and extended LTE network and a large smartphone installed base, KakaoTalk, a homegrown mobile messaging application, has quickly become a staple of communication for Korean smartphone users, and is progressively substituting traditional telecom services.

Allowing its users to send and receive media-rich messages including photos, videos and voice clips, the free application has become massively popular. Launched in 2010, only a few months after the iPhone 3GS debuted in Korea, KakaoTalk now has 70 million registered users worldwide, and more than 90 percent of all Korean smartphone users in the country use this application to communicate.

Moreover, Kakao Games, the game platform from the same company, was on overnight success when it was launched in Korea in July 201 2 : since then, it has already brought in revenues of $51.6 million.

How did this application managed, in just 1000 days, to become the method of choice to communicate for two out of three mobile users in Korea? What is the business model of Kakao, and how did it managed to evolve into a profitable global service platform? On the international market, what is the position of Kakao compared to its main competitors?

Kakao : a succes story

KakaoTalk is South Korea’s biggest smart phone application success story, and the most successful social network service across iPhone and Android platforms in Korea.

Altough it seems like an overnight success, the company was actually established in 2006 under the name IWI Lab. It was later renamed as KAKAO Corporation because of the chocolate analogy and because of its easy pronunciation both for Koreans and people overseas.

The company was founded by Kim Beom-soo. Kim is no stranger to the IT world, as he is the former CEO of NHN Corporation[+] NoteNHN Corporation is a South- Korean Internet content service operator which operates Internet portal Naver, amd the online game company Hangame.X [3]. He first founded Hangame, an online game company[+] NoteThe country's number one online game portal.X [4], which was eventually merged with Naver.com -Korea’s most popular Web portal -, to create NHN[+] NoteNHN now has a gross annual revenue of over $1 billion.X [5].

While Kim Beom-Soo currently chairs the company’s board, Lee Jae-Bum and Lee Sirgoo are co-CEOs of Kakao. Lee Jae-Bum is an entrepreneur who started his Internet company after he graduated from Seoul National University[+] NoteOne of Korea’s best university.X [6] with a degree in industrial engineering. He was later introduced to Kim Beom-Soo by one of their professor, which lead to Kim Beom-Soo asking Lee Jae-Bum to join the Kakao team in 2007.

For his part, previous to joining Kakao Corporation as VP & General Counsel in the summer of 2011, Lee Sirgoo worked for IBM Korea as Senior Attorney and later served as VP of overseas business development and CEO of NHN USA.

At first, the company mainly focused on developing web services. As many other venture firms, between 2007 and 2009 lots of trials and errors were made, and the projects of memo aggregation and personal ranking chart combined with social network features never really took off.

However, Kim Beom-Soo happened to be in the United States when the iPhone was launched in the USA in 2007. He witnessed the rapid growth of the device in both the United States and in Europe, which prompted the Kakao Team to refocus on the mobile area instead of web services, and to start working on a project related to communication.

When the Apple 3GS iPhone smartphone was finally introduced in Korea in November 2009, the “smartphone tsunami” took over the country, and quickly led to a rapid growth of the mobile application market.

 In March 2010, only a few months after the iPhone debuted in Korea, KakaoTalk, a mobile messaging application, was launched.  In March 2010, only a few months after the iPhone debuted in Korea, KakaoTalk, a mobile messaging application, was launched. With 10 million users just one month after its launch, it was an instant hit.

Fast decision-making and market-responsivity, coupled with right timing and a good team composed of ex-NHN employees, allowed the tech company to swiftly position itself as the most popular free chat service in South Korea. The number of users surged as a growing number of smartphone users switched to the free applications to send messages, instead of sending SMS which are subject to charges[+] NoteSMS usually cost around 20 won ($0,02).X [7].

Now, almost every smartphone users in Korea use it to communicate, or “KaTalk” as it is now called. In November 2012, the average Korean user spent 302 minutes per week on the application, compared to 175 minutes in July 2012.

Moreover, Kakao has become a global phenomenon, as Korean users only account for roughly 40% of its 70 million users. This figure continues to grow by ten thousands users per day.

From an average of 8 million daily unique visitors per month in April 2011, this number reached 27 million in December 2012. 4.2 billion text messages are sent everyday, which means that a KakaoTalk user send an average number of 156 messages per day[+] NoteWhere the daily average number of users is presumed at 27 million.X [8].

Last but not least, Kakao Corp. was named a "Top Developer" on Google's Android Market – which was never the case of Skype or Yahoo for instance.
Back to summary

Just a simple messaging application

But what is KakaoTalk ? KakaoTalk is a free downloadable software application for mobile devices providing free text messaging and call services. It first began as a basic instant messaging service, allowing users to send and receive real-time messages, and then evolved into a global service plaform with features such as voice calls, mobile games and even a social network. 


KakaoTalk Welcome Page.

 It first began as a basic instant messaging service, allowing users to send and receive real-time messages, and then evolved into a global service plaform with features such as voice calls, mobile games and even a social network. Instant Messaging, or IM, was first popularized on desktop computers with applications such as Icq or Microsoft Messenger. With the advent of smartphones, IM is seeing a second youth, with more and more mobile applications allowing real-time chatting and other features. In many cases, Instant Messaging included added features such as allowing file transfers. It then evolved from text-based chatting and sharing files to voice calls and video conferencing, like Skype.

Following the same principle, KakaoTalk users can share diverse contents and information from photos, videos, voice messages, URL links, and contact information. A walkie talkie "push to talk" feature is also available, as well as voice filters and emoticons. Both one-on-one chat and group conversations are available over Wifi or 3G, which means that even when users are overseas, sending messages remains free.

Part of the appeal of the applications is that there are no limits to the number of friends to join in a group chat. It is also possible to create as many group chats as wanted, and users are typically connected to multiple group chats at the same time. Managing privacy is not an issue as conversations are held in separate chat rooms. For example, it is possible to have a conversation with one’s family in a chat room, and to conduct another conversation at the same time with co-workers in another chat room.

To use the application, you only need to enter your phone number without registering or logging-in. The connections between users are then very simple: KakaoTalk automatically synchronizes with the user’s contact list saved in the phone, and find friends who are also using the service. It is also possible for users to search for friends using the KakaoTalk ID, which is a way for users to identify themselves from others without revealing their phone number. It is then possible to add people to a friends list using the KakaoTalkIDs without having to know their phone numbers.

KakaoTalk is now available in 13 languages[+] NoteKorean, English, Japanese, Chinese, Simplified Chinese, Indonesian, Thai, Vietnamese, French, German, Italian, Portuguese, Spanish and Turkish.X [9] and on 5 operating systems[+] NoteiOS, Android, BlackBerry, Windows Phone and Samsung’s Bada platform.X [10].

Wildly popular in South Korea, KakaoTalk has created a new communications culture : as two out of three Korean mobile users use the mobile app to communicate, people who don’t use KakaoTalk feel excluded from their peers. Moreover, just as Facebook introduced "friend" as a verb, the verb “Ka-talk”, which refers to “sending a message via KakaoTalk”, as entered the local lexicon.

 Example of a group conversation, using emoticons to convey emotions

Just as SMS talk[+] NoteAbbreviations and slang commonly used due to the brevity of SMS - such as ASAP for “as soon as possible”, THX for thanks…X [11] was introduced with the utilization of SMS, a new series of terms and symbols have emerged on KakaoTalk. A wide variety of emoticons can be used to express emotional context and mood.

Examples of various emoticons available on KakaoTalk

 When in 3G or Wifi zones, users rely on KakaoTalk instead of using SMS. Moreover, the service is progressively substituting for Short Message Service (SMS). The application is free to download, and sending and receiving material (text, pictures, videos, sounds…) in wi-fi zones is also free, even when users are overseas. As a consequence, when in 3G or Wifi zones, users rely on KakaoTalk instead of using SMS.

When KakaoTalk was first introduced, the company main goal was to propose a free and high quality messaging service in order to build a large and loyal user base - which would make it easier later to introduce monetizable services. The company’s business plan does not rely on charging for traffic or downloads. It is also interesting to note that no mobile banner ads are displayed on the application, as the company is trying to develop a business model that isn’t dependent on advertising.
 
The Kakao team quickly expresses its will to “connect to everything”, including social commerce, contents, gaming, affiliate marketing and other applications, in order to become a global service platform. In order to do so, the company decided to focus on expanding its user base through the launch of new programs, instead of first focusing on trying to find a profit model. The company chose to develop features on the base of customers feedbacks[+] NoteAmong the features at the top of the list wish of customers were voice services and the possibility to share photos – which were later introduced with VoiceTalk and KakaoStory.X [12].
 
While focusing on the acquisition of new users, the company slowly came up with various business models.

The first one was Kakao Gift, a feature which allows users to send gifts such as Starbucks coffee or Baskin-Robbins ice cream coupons to their Kakao friends. The company takes a small commission on the sale of these gifts. Kakao’s gift giving service rose from 107 products in December 2010 to 9970 two years later.

Then, while basic emoticons are available for free, users can purchase premium emoticons. Before the launch of mobile games, this feature was one of the most profitable for the company. Companies and brands can also cooperate with Kakoao to create their own emoticons as a marketing tool.

In November 2011, as the number of Kakao Talk users had surpassed the 30 million mark, the company introduced a service called “Plus Friend”. This Twitter-esque feed feature allows users to receive special contents and updates from brands and artists they choose as their “ Plus Friends”. Ranging from K-pop singers like Girls’ Generation, Super Junior and f(x),clothing stores, restaurants such as Outback or Burger King, department stores such as Shinsegae Mall and Lotte Department Store, and news networks, users pick the services or offers they want to follow, and Kakao collects a cut from the revenue generated.

KakaoTalk plus Friends Tutorial

Instead of relying on mass advertising, the idea behind this feature is to do targeted advertising, and to offer a valuable service to the customers. Users are the ones who actively select the brands or services they are interesting in, it is not forced upon them. And as advertisers acquire a costumer pool, users can get various benefits like coupons. The service was later launched in 50 countries. In November 2012, Kakao had 260 “Plus Friend” partner companies - it started out with 21 -, and was attracting 15 million unique users.
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Kakao vs Telcos

When Plus Friends was launched, Kakao Talk had already secured 6 million overseas users[+] NoteAccording to the company, in November 2011, there were 1.8 million in the U.S., followed by 1.5 million in Japan and 1.2 million in China and Southeast Asia. It also had 900 000 users in the Middle East and 600 000 users in Europe.X [13], although the company had never actively done any marketing overseas.

 Identifying Japan as the foundation of its global business growth, a branch was established in the country. Identifying Japan as the foundation of its global business growth, a branch was established in the country[+] NoteKakao Japan.X [14] in July 2011.  With more than 102 million people and a smartphone adoption which has increased rapidly in 2012 (+ 43% between 2011 and 2012), Japan is home to advanced mobile Internet services, and is the ideal environment for a mobile messaging application.

Fully convinced of the potential of the Japanese market, and although the feature hadn’t even been introduced in Korea yet, in February 2012 the company unveiled in Japan “Kakao VoiceTalk”, its free call service based on mobile VoIP, allowing for real-time voice communication in Kakao Talk chat rooms. Mobile VoIP or mVoIP is a service that connects the calls over the Internet or any other IP network where the mobile phone connects itself to a wireless data network such as 3G or WiFi. There are no extra charges to the call outside of the flat rate the user pays for the Internet connection of his mobile phone.

Video how to make free call

However, when Kakao announced its will to then launch its mVoIP service in Korea later in 2012, the three local mobile operators, SK Telecom, KT and LG U+, expressed their strong opposition.
They were already wrestling with the surging popularity of Kakao Talk, whose tens of millions users were largely using the application instead of SMS. The operators identified VoiceTalk as a threat to their voice markets.

 The SMS count per person dropped from 1819 messages per person in 2010 to a mere 429 messages per person as of June 2012. Since 2010, SK telecom has suffered a 28.3% reduction in its overall SMS service, a number which is expected to decline to 32.3% by the end of 2013. The SMS count per person dropped from 1819 messages per person in 2010 to a mere 429 messages per person as of June 2012. This concern is shared by the two other operators, KT and LG U+, whose net profit has also been significantly reduced.

This situation is not exclusive to South Korea, as every telecom operators around the globe are experiencing difficulties with these popularfree mobile applications.

Indeed, in spite of the massive investments of telecom operators in the data networks, the exploding popularity of mobile devices and the data traffic explosion,their revenue model has come under severe pressure as the shift towards data is cannibalizing revenue generated by traditional business (SMS and voice calls), resulting in an overall value loss.
 
With the surging popularity of free mobile applications bypassing SMS gateways, global telecom operators are expected to have lost US$23 billion in SMS revenues by the end of 2012 – a number which is forecasted to reach US$54 billion by the end of 2016.

As a consequence, at the beginning of 2012, the South Korean telecom operators urged the Korea Communications Commission (KCC)[+] NoteThe South Korean telecommunications regulator.X [15] to block the launch of Kakao’s free voice service, claiming Kakao VoiceTalk could severely impact their businesses. They argued that the free call service would lead  to an overload of data networks – and therefore poor services for consumers -, and that because of the associated decrease of their sales they would have no choice but to raise their telephone fees.

In June 2012, the KCC backed Kakao, declaring that free voice calls were good for customers, and despite the opposition from mobile carriers, Kakao eventually launched VoiceTalk in Korea on the same month.
 
But within three days of the launch of VoiceTalk in Korea, 20 million VoIP calls a day were already being made by Kakao users. The reaction from telecom operators was not long in coming.
In the following days, the three operators started to degrade the service for the lowest two tiers of their data plans, causing disruptive dropped calls and making this feature virtually unusable for many users[+] NoteAccording to the vice-president of international business development at Kakao Corp, 50 percent of the data packets required were being dropped by operators.X [16].
 
Reconsidering its decision, the Korea Communications Commission eventually ruled that operators could charge users extra fees for VoIP applications or block their use entirely.
 
Many in the industry have leveled the criticism that, with this decision, the Korea Communications Commission is ignoring net neutrality. Net neutrality is the principle according to which Internet traffic should be treated equally. Under this philosophy, Internet service providers search engines, major online services, and other companies cannot restrict or filter a user's access to services provided by competitors.
 
Since then, LG U+ has now introduced a new pricing policy that allowed users to use VoIP services, but only up to a limit each month. They are charged $7 fee if they overshot. Regarding SK Telecom and KT subscribers, in order to able to make calls without disruptions, they have to sign up for expensive unlimited 3G or LTE plans, and are still facing limits on how many megabytes they could use on VoIP calls per month.
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From an instant messaging service to a mobile business platform

 In the beginning of 2012, as it had focused on developing its products and growing its user base, Kakao was struggling to find a profitable business model amid a two-year deficit.  In the beginning of 2012, as it had focused on developing its products and growing its user base, Kakao was struggling to find a profitable business model amid a two-year deficit - the company had incurred a loss of more than $12,8 million[+] Note15,3 billion won.X [17] since 2009. The company was striving to make some revenue through advertising, and the emoticon store was then one of the few businesses that was bringing in a steady income for the company.

In a move to accelerate is expansion, Kakao launched on March 2012 Kakao Story, a photo sharing social networking service for KakaoTalk users. Kakao Story allows users to share pictures and status updates via their phone with Kakao Talk friends. Photo filters and editing features are available. Integrated with KakaoTalk, users can import all their KakaoTalk friends to KakaoStory, and it is possible to view friend’s latest updates in a “feeds”.

A Kakao Story gallery
 
KakaoStory was an instant hit: the number of South-Korean subscribers reached 5 million just three days after its launch, and broke the 9.2 million mark only a week after[+] NoteKakaoStory now has 30 million users.X [18]. The application even became more popular than Facebook mobile application, and surpassed it in terms of daily users: according to market research agency Nielsen KoreanClick, 9,44 million subscribers logged into Kakao Story at least once in May 2012, compared to 4,97 million for Facebook. The astounding success of the new service was mainly attributed to the vast network of Kakao Talk, which had at the time 40 million subscribers.
 
But as KakaoTalk, KakaoStory is a free application. The company had yet to find how to transform this loyal user base into potential customers.
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Strategic partnerships

The company had been willing for a while to strengthen its mobile platform business, and to elevate it to the next level in becoming a total service platform for smart phone users.

In May 2012, it was revealed that the tech firm had successfully raised KRW 92 billion (around $80 million) from Chinese internet giant Tencent and from Korean fast-growing gaming company Wemade Entertainment. Through this investment, Tencent – which is also the company behind WeChat, another popular mobile messaging application with similar functions as KakaoTalk - acquired 13.54% of the company, while Wemade Entertainment acquired 3.44% of Kakao. In a step to accelerate its advancement in social networking games, Kakao started to work with WeMade Entertainment on developing a mobile game platform.
 
Moreover, at the end of June 2012, Kakao Talk introduced its own virtual currency called ‘Chocos’.
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The surprise of Anipang

But Kakao’s breakthrough arrived at the end of July 2012, with the introduction of its mobile game platform in Korea : Kakao Game.

 But Kakao’s breakthrough arrived at the end of July 2012, with the introduction of its mobile game platform in Korea : Kakao Game. Kakao Game is both a social platform and a gaming platform: it is linked to Kakao Talk messenger, which allows Kakao friends to play games with or against each other. Players can sign in to Kakao Game using their Kakao Talk account and invite friends to play directly from within the games. They can also share their scores through the Kakao Game application.

 Kakao Game is both a social platform and a gaming platform. The service recorded 82 million downloads in three months, with an average of 3,58 games downloaded per subscriber.

An overnight hit in the Korean market, Kakao Game is the first profitable mobile messenger-based game platform worldwide : since its launch, the platform generated more than $51 million in revenue, with $31 million just in October 2012, thanks to 23 million users.

Kakao Game’s Monthly Revenue Growth Since Launch (in millions of dollars)

From the 10 initial titles, seven of them made it to the top ten on Google Play in South Korea.
Some of the games such as Anipang the Puzzle developed by Sundaytoz, Dragonflight by NextFloor, Viking Island by WeMade, Tap Tap Blitz by AndromedaGames, and Puzzle Zoo Zoo by Nexon became instant hits. All the titles are essentially one-player games but make use of the KakaoTalk social graph.
As a matter of fact, in November 2012, it was difficult to avoid Anipang in South Korea: subways, cafes, streets and waiting lines were being invaded by people playing the game.


Anipang

Launched on July 30, Anipang the Puzzle, or Anipang, is a simple but fast-paced puzzle game in which users, by swiping the screen, have to line up three or more identical animals as quickly as possible. When identical animals are aligned in a row, they are wiped of the screen, and the players get some points.

Anipang also has a real-time ranking feature, which allows players to see where they rank among their friends and who are the top players. The scores are reset every week, allowing players to start the competition once again.

Each game costs a heart, which is replenished every eight minutes. In the beginning of the game, only five hearts are given. A ‘heart’ is removed every minute. When the hearts run out, players can bypass the waiting time by buying a set of “topazs” which is convertible to a heart.

Ten topazs are priced at $0,99, and the revenue from the sales of topazs is then split among Sundaytoz, Kakao Talk and app store operators. As of October 2012, Kakao was selling an average of 200 million won worth of topazs a day, making it the biggest grossing application in Korea.

Anipang

But the game isn’t just about competition: Kakao friends can also help each other. Instead of buying topazs, players can also ask for more hearts from other players. They can send each other a heart every hour free of charge, and can also earn hearts by inviting their friends. The more friends you have playing Anipang, the more hearts you will receive - which would allow you to become one of the top players.

 Three months after its launch, the number of downloads surpassed the 20 million mark, which means roughly 40 percent of South Koreans and two-thirds of the country's smartphone population were playing the game. The game quickly became a national phenomenon : three months after its launch, the number of downloads surpassed the 20 million mark, which means roughly 40 percent of South Koreans and two-thirds of the country's smartphone population were playing the game.

Anipang is not the first smart phone game application to reach the 20 million mark download[+] NoteGamevil’s Cartoon Wars Series and Air Penguin, as well as Com2uS’s Homerun Battle Series also reached the 20 million mark downloadX [19] but it is the first mobile game to do so with Korean downloaders alone.

Moreover, according to AppRanker , the game was being played an average of 54 minutes a day, which is more than any other mobile game. Also, according to Sundaytoz, the game has more than 10 million daily active users, and 3 million simultaneous users.

To put these numbers into perspective, Crossfire, a Korean First-person shooter (FPS) video game[+] NoteA FPS is a video game genre centered on gun and projectile weapon-based combat through a first-person perspective.X [20] which is one of the most popular online game in China, attracts an average of three to four million simultaneous users. But China’s population is twenty times larger than that of Korea, which makes the three-million simultaneous Anipang users in Korea alone an impressive record.

Anipang popularity was driven by the inclusion of other users – such as the ranking and heart exchange systems - . These social graph features combined with the easy-to-follow rules may also have helped attract previously dormant gamer groups, such as women[+] NoteAccording to research firm Parks Associates, dormant gamers spend little time playing games because of various reasons such as family, work, or school. They prefer complex and challenging games.X [21].

.... NoteUn joueur dormant est, selon Park Associate, un joueur passionné mais jouant peu à cause de son travail ou de sa famille, tout en ayant une préférence pour les titres à « challenge ».X [22]
Fast on the heels of the popularity of Anipang, another game called Dragonflight began to surge in downloads and game-playing time in South Korea. After its launch, the game was even ranked Number 10 on Google Play Worldwide.

Liste des applications les plus rentables sur Google Play Korea, janvier 2012 :
 9 des 12 premières sont des applications Kakao.
 
The success of these mobile games was a surprise for everybody, starting with Kakao’s team itself. The success of Kakao Game demonstrated that multimedia messaging services such as Kakao have the potential to serve as major mobile game platforms generating significant profits.
 
Trailer Dragonflight
  The unexpected success of Kakao Game has created a foundation for exceptional growth in the mobile internet and mobile game segments. As a consequence, the unexpected success of Kakao Game has created a foundation for exceptional growth in the mobile internet and mobile game segments. According to the Korea Creative Contents Agency (KOCCA), helped by the strong global expansion of the smartphone industry, the South-Korean mobile game market is expected to reach 580 billion won in 2013 (around $547,7 million) , up 25 percent from an estimated 460 billion won (around $434,4 million) this year.

Following this huge success in Korea, Kakao Game was launched on the global market on both Android and iOS in November 2012. Kakao now has 31 mobile game partners.
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More features, and expansion overseas

Three other mobile platforms were also launched on November 2012 : Kakao Page, Story Plus and Chatting Plus.

Story Plus allows small and mid-sized merchants to use Kakao Story without limit to the number of friends.

Chatting plus offers new chatting options allowing for example group-chatters to play mobile games during the chat.

 Kakao Page allows users to create, buy and sell contents freely with each other on PCs and mobile devices.  Kakao Page allows users to create, buy and sell contents freely with each other on PCs and mobile devices. Other users can decide to buy and share the contents they like with their Kakao friends. For instance, a user can purchase a recipe at Kakao Page and post it on his or her Kakao Story so that friends can see and share it. Kakao plans to take a 20 per cent cut from Kakao Page sales, after giving 30 per cent to application store operators (like Google or Apple), and 50 per cent to the content creator.

For Kakao, it is important that its various partners benefit from the launch of these new services. Under the slogan “Together, Altogether”, Kakao is willing to shift its focus from being a customer-focused business to becoming a major marketing-booster for its business partners. According to Kakao chairman, Kakao seeks to establish a mobile market based on the “co-prosperity principle”. With these three new mobile platforms, Kakao is aiming to secure at least 1 million profitable individual and group partners in three years.

An online music and electronic book shop is also on the way, and should be unveiled in 2013.

Now that Kakao is a profitable company, its next move is to focus on intensifying its expansion abroad, starting with Japan.

That’s the reason why Kakao decided to partner with local companies in other markets.
At the end of 2012, Kakao sold a 50 per cent stake in Kakao Japan to Yahoo! Japan, in order to compete with LINE on its territory. Kakao is also looking for partners in the US with a large existing user base and strong brand awareness in the American market, such as Google and Facebook.
Recently, Kakao also teamed up with AXIS, an Indonesian mobile telecommunications firm, in order to launch a joint promotion of KakaoTalk.

But KakaoTalk is not the only mobile messaging application on the market.
Back to summary

Mobile messaging applications: a competitive market

According to research firm Ovum, Japan, Korea and China are leading the way in terms of mobile messaging-centric applications which move into diverse services like gaming, affiliate marketing, and next-generation emoticons.

The global messaging market remains fragmented with several independent players : among the various competitors of Kakao on the market, the biggest instant messaging applications are Whatsapp, WeChat and LINE, which all have tens of millions of users. While Whatsapp is mainly popular in the USA, WeChat is mostly used in China, and LINE in Japan and South-East Asia, but all of them are willing to tackle the international market.

In the USA, the mobile messaging market is dominated by Skype, Facebook Messenger and WhatsApp. Just like Kakao Talk, WhatsApp allows users to send text, image and audio messages for free to other subscribers. Founded in 2009 by Brian Acton and Jan Koum, two former employees of Yahoo, the application is free the first year, then users have the option of subscribing to an additional year of service for $0,99.

WhatsApp is reluctant to reveal its user data, but the company has publicly revealed that it is handling 10 billion messages a day - 4 billion inbound messages and 6 billion outbound. Its user base is estimated to be 250 million users worldwide. But Whatsapp is mainly popular in western countries, and doesn’t offer as many features as some of the other messaging applications.

Formerly known as Weixin in Chinese, WeChat was introduced in January 2011. The mobile messaging application was created by Tencent Holdings, China’s largest Internet company which also owns QQ, the most popular instant messaging service for PCs from the country.
 
While WeChat remains relatively unknown in the United States, the application had more than 200 million users at the end of 2012. Although this number is far bigger than the 70 million users of KakaoTalk, WeChat users are mainly Chinese. Moreover, the Chinese market is much larger than the South-Korean market, as it boasts more than 250 million smartphone users (compared to 30 million in South Korea).
 
Lately, just as Kakao, WeChat has been evolving from an instant-messaging application to a global platform.
 
 WeChat is free, and supports sending voice, video, photo and text messages.  Just as the South-Korean application, WeChat is free, and supports sending voice, video, photo and text messages. WeChat, has the capability to have one-to-one conversations and group conversations. It also has a push-to-record feature, which makes it possible to use the phone as a walkie-talkie by just pressing one button. This is a very popular feature among Chinese users due to the difficulty of typing in the language, as identical-sounding words can represent many different characters and meanings.

WeChat also has its own social platform, called WeChat “Moments,” a feature that allows users to post pictures and update their online status, just like KakaoStory. The Chinese application also has its own virtual currency, emoticons and a feature similar to Kakao Plus Friends which included brands such as Starbucks or Nike.

Finally, a feature called “Look around” enables users to find new friends nearby just by shaking their phones. Another one calledDrift Bottle” consists on writing a message or talk, put the message in a bottle, and throw it to the virtual sea. A random person can then reply to the message.

In order to enable WeChat user base to grow quickly, Tencent used QQ large user base to market WeChat. Moreover, WeChat is connected with QQ which means users can sign up using their QQ account and add their QQ contacts to their friends list on WeChat. As of September 2011, the active QQ users accounts amounted to 711,7 million[+] NoteThere are 538 million internet users in China.X [23] while its peak concurrent users reached 145,4 million.

WeChat is also connected with Facebook[+] NoteWhich means users can sign up using their Facebook account and can also import their Facebook friends on WeChat.X [24]. The number of Facebook-connected monthly active users stands at around 620 000.

 Contrary to its competitors, WeChat has this huge advantage of not having to worry about monetization as it can rely on Tencent deep pockets.  Although WeChat users are still mostly Chinese, the application is growing in Southeast Asia, but it is making headway elsewhere, including Eastern Europe and the Middle East.
Contrary to its competitors, WeChat has this huge advantage of not having to worry about monetization as it can rely on Tencent deep pockets. WeChat positions itself to be international, and is willing to put the focus on its expansion abroad.

Finally, Tencent acquired 13.54% of Kakao Corporation in 2012.

LINE is very similar to Kakao : it was first launched as a messaging application, and then evolved into a multi-purpose platform.

 It was first launched as a messaging application, and then evolved into a multi-purpose platform.  Launched on June 2011, LINE was developed by NHN Japan, which is an affiliate of NHN Corporation, a South-Korean internet content service operator. In Korea, NHN Corporation, operates Naver.com, the most popular Internet portal of the country, and Hangame, the country's number one online game portal. Hangame was founded by Kakao’s founder Kim Beom-soo, who also is the former CEO of NHN Corporation.

Like KakaoTalk, LINE is a smartphone application which allows users to enjoy free calls and messages to one another, both nationally and internationally. It has secured about 74 million users including 35 million in JapanLINE overseas users mainly come from Taiwan and Thailand, followed by Middle-Eastern regions, Russia, Spain and South America. About 40 percent of registered users are active every day.

Like Kakao, NHN’s LINE has some social network-like features, such as "Home" and "Timeline". “Home” is similar to KakaoStory, and “Timeline” is akin to the Facebook feed which chronologically ranks every updates, comments and content from Line friends.

LINE also has a content-hosting platform “Line Channel”, a feature allowing applications and web-services to be integrated with LINE.

Other features include LINE Camera and LINE Brush, which can be used to decorate and edit pictures; LINE Card, which allows users to send and share e-cards; and LINE play, a virtual store with customizable avatars and decorative items. Mobile games were also introduced in 2012.

Like Kakao Plus Friend, Line also has sponsored brand accounts that users can befriend. The advertisers have to pay JPY2 million (Around $23 000) as a sign-up fee and a minimum of JPY1,5million ($17 000) as monthly advertising fees. LINE also has 34 official accounts run by celebrities.

Currently, most of the profits raised by NHN’s mobile messenger service come from the sales of “stickers”, special emoticons which are emoticons depicting original and well-known characters. Users have access to a range of stickers for free but other ‘premium’ stickers cost $1.99. Launched in April 2102, the Sticker Shop had generated JPY 1,6 billion in end-October (around $18.2 million), and JPY 400 million (around $ 4,5million) in October 2012 alone.

New stickers are released weekly, some are even released only for a limited amount of time and are usually in commemoration of events[+] NoteSuch as the 2012 Summer Olympics.X [25]. Stickers can also be purchased as gifts.

Although LINE has not yet generated profit from mobile games, given its similarity to Kakao and the advantages the Japanese game market, LINE should be able get significant revenues from its game platform. Japan’s mobile game market is larger than that of Korea, and while in Korea and the US, only 3% to 5% of mobile gamers buy game items, around 10% to 20% do so in Japan.

NHN Japan is now focusing on strengthening collaborations with network operators, and increasing the content available on the LINE platform.

While Kakao is focusing on its expansion overseas, the firm has to face a number of local challenges in South Korea.

First of all, the company is still trying to find a way to co-exist with telecom operators.
On December 2012, SK Telecom, KT and LG Uplus associated with the Global System for Mobile Communications Association (GSMA) jointly launched “Joyn”, a communication platform service. This service will be extended to PC clients in the first quarter of next year.

 Joyn allows one-to-one and group chatting, live video sharing, and file transfers between devices over any network.  Like KakaoTalk, Joyn allows one-to-one and group chatting, live video sharing, and file transfers between devices over any network. The difference between Joyn and Kakao Talk is that KakaoTalk requires that certain applications be turned off to send messages or call. Also, sending messages is possible even if one of the recipient doesn’t have the Joyn application installed.

Joyn logo, which looks a lot like Kakao’s logo
Free of charge until the end of May 2013, Joyn may become a paid service afterwards as it offers premium services such as video phone calls.

Moreover, local laws impose very strict restrictions on companies like Kakao, that cannot be enforced on companies overseas doing the same business. For example, the ‘shutdown system’ or ‘ Ciderella Law’ is a regulation proposed by the Ministry of Gender Equality and Family Affairs under which children under 16 are not allowed to play computer games between 12pm to 6am. To implement this, Kakao would have had to collect personal information (birthday date, consent of parents). Fortunately, the government decided on February 2013 that mobile games would not be subjected to the online game curfew.

Lee Sirgo, co-CEO of Kakao, explained on October 2012 during Google Big Tent Seoul, that these local challenges make it difficult for companies such as Kakao to come up with innovative ideas and services, and impose pressure to increase the cost of these services for customers.

What does the future hold for KakaoTalk and the other messaging applications? The adoption usage of these applications will most surely continue to grow as smartphone penetration grows. It will be interesting to see how telecom operators from around the world handle this issue. 
 

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Crédits photos :
- ianfogg42 / Flickr
- riacal / Flickr
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Références

Delta Partners, « LTE Asia article series – Part Three Spotlight on Korea », The Delta Insight, November 2012.
 
Chang-Kwean KIM - KDB Daewoo Securities, « Internet/Game », KDB Daewoo Securities 2013 Outlook Report, December 7, 2012.
 
Chang-Young LEE - Tongyang Securities Inc., « Company Report : NHN », Oct 4, 2012.
 
CHOI Eunjeong, « KakaoTalk, a Mobile Social Platform Pioneer », SERI Quaterly, January 2013.
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  • 1. And 50 million inhabitants as of June 2012. The country has a penetration rate of 109%, which means many people have more than one mobile phone.
  • 2. Which equates to approximately a third of Korean smartphone users.
  • 3. NHN Corporation is a South- Korean Internet content service operator which operates Internet portal Naver, amd the online game company Hangame.
  • 4. The country's number one online game portal.
  • 5. NHN now has a gross annual revenue of over $1 billion.
  • 6. One of Korea’s best university.
  • 7. SMS usually cost around 20 won ($0,02).
  • 8. Where the daily average number of users is presumed at 27 million.
  • 9. Korean, English, Japanese, Chinese, Simplified Chinese, Indonesian, Thai, Vietnamese, French, German, Italian, Portuguese, Spanish and Turkish.
  • 10. iOS, Android, BlackBerry, Windows Phone and Samsung’s Bada platform.
  • 11. Abbreviations and slang commonly used due to the brevity of SMS - such as ASAP for “as soon as possible”, THX for thanks…
  • 12. Among the features at the top of the list wish of customers were voice services and the possibility to share photos – which were later introduced with VoiceTalk and KakaoStory.
  • 13. According to the company, in November 2011, there were 1.8 million in the U.S., followed by 1.5 million in Japan and 1.2 million in China and Southeast Asia. It also had 900 000 users in the Middle East and 600 000 users in Europe.
  • 14. Kakao Japan.
  • 15. The South Korean telecommunications regulator.
  • 16. According to the vice-president of international business development at Kakao Corp, 50 percent of the data packets required were being dropped by operators.
  • 17. 15,3 billion won.
  • 18. KakaoStory now has 30 million users.
  • 19. Gamevil’s Cartoon Wars Series and Air Penguin, as well as Com2uS’s Homerun Battle Series also reached the 20 million mark download
  • 20. A FPS is a video game genre centered on gun and projectile weapon-based combat through a first-person perspective.
  • 21. According to research firm Parks Associates, dormant gamers spend little time playing games because of various reasons such as family, work, or school. They prefer complex and challenging games.
  • 22. Un joueur dormant est, selon Park Associate, un joueur passionné mais jouant peu à cause de son travail ou de sa famille, tout en ayant une préférence pour les titres à « challenge ».
  • 23. There are 538 million internet users in China.
  • 24. Which means users can sign up using their Facebook account and can also import their Facebook friends on WeChat.
  • 25. Such as the 2012 Summer Olympics.
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