[Reverse Discrimination Caused by Regulation] "It's Hard to Compete with Google"… Naver and Kakao Trapped by Regulations

[Asia Economy Reporter Buaeri] While global company Google dominates 90% of the worldwide search engine market, South Korea remains one of the few countries where native platforms show strong performance. According to traffic analysis site Internet Trend, last month Naver's search engine market share surpassed Google, securing first place with 52.8%. However, domestic IT companies like Naver and Kakao, which are holding their ground against giant global corporations, have recently grown increasingly frustrated with the government's discriminatory policies.

"Competition is tough enough"… The sighs of native companies

On the 3rd, industry sources noted that the Fair Trade Commission’s “Act on the Fairness of Online Platform Intermediary Transactions (On-Platform Act)” is considered one of the representative discriminatory policies. Submitted to the National Assembly on the 28th of last month, the On-Platform Act requires platform operators such as Naver and Google to mandatorily prepare and provide contracts with tenant companies. Since the contract must specify items such as “the order and criteria by which goods and services information is exposed on the online platform,” domestic platform companies, for whom big data is a core competitive asset, fear having to disclose trade secrets.

This legislation poses a high risk of discrimination against domestic native platform companies. Unlike domestic companies that comply well with government regulations, overseas companies like Google tend to be passive in responding to domestic laws, citing headquarters policies. A Fair Trade Commission official stated, “Since the FTC has enforcement power, we will ensure there is no discrimination against foreign operators,” but the feasibility of this remains uncertain. It is common for foreign operators to employ a “stalling strategy,” taking over a year just to submit materials. A portal industry insider lamented, “It’s hard enough to compete one-on-one with large global companies, but government regulations create a ‘tilted playing field’ from the start.”

Domestic platform companies also face a ‘data discrimination’ issue due to regulations such as the Personal Information Protection Act and online personal information processing guidelines. While companies like Google and Facebook obtain broad consent for personal information with a ‘one-click’ during membership registration, domestic companies like Naver and Kakao separate personal information into mandatory and optional categories to obtain consent. This structure inevitably results in domestic companies collecting less user data compared to foreign companies that do not comply with domestic regulations.

As a result, domestic companies are placed at a disadvantage in utilizing big data and developing services compared to foreign companies. Han Seong-sook, CEO of Naver, publicly appealed, “We cannot win in a one-on-one competition against Facebook or Google,” and added, “We hope regulations are enforced under the same standards.” The government has recognized the problem and is belatedly working on related legal amendments. A Personal Information Protection Commission official explained, “We are trying to resolve discrimination issues by improving the consent system and conducting post-review of privacy policies,” and added, “The amendment to the Personal Information Protection Act is currently under legislative notice.”

Law ineffective against foreign companies

There have been cases where laws intended to crack down on foreign companies have instead become ‘dead weights’ that hinder domestic portals. The amendment to the Enforcement Decree of the Telecommunications Business Act, known as the ‘Netflix Free-Riding Prevention Act,’ mandates content providers (CPs) to take measures to ensure network quality and service stability. Originally designed to curb Netflix’s abuses, the inclusion of Naver and Kakao has raised concerns that it will fail to catch global companies’ unfair practices and instead damage the competitiveness of domestic companies. Although the decree includes penalties such as designation of domestic agents and fines up to 20 million won, it is uncertain whether these will be effectively enforced against foreign companies.

Experts have pointed out the need to improve regulatory fairness so that domestic companies can compete on equal footing with global companies. Kim Hyun-kyung, professor at Seoul National University of Science and Technology’s Graduate School of IT Policy, said, “Platform competition is borderless, but Naver and Kakao must comply with strict domestic regulations while competing,” adding, “Globally, only China, the U.S., and South Korea have search services, but China’s government has nurtured its domestic companies. The government should consider the direction South Korea needs to take.”