Expand Territory... Naver's 'Blood Alliance' vs Kakao's 'M&A'

[Asia Economy Reporters Kang Nahum and Boo Aeri] As the two major IT platforms, Naver and Kakao, create new ecosystems in various fields such as logistics and mobility, their differing business expansion strategies are being compared. Unlike Naver, which builds ecosystems by partnering with the industry to generate technological synergy, Kakao is aggressively entering new businesses directly through mergers and acquisitions (M&A).

◆ Naver expands its domain through ‘blood alliance’ = According to industry sources on the 20th, Naver’s business expansion strategy is to establish ‘blood alliance’ relationships through stock equity swaps with other companies. Starting with a 500 billion KRW equity swap with Mirae Asset Securities in 2017, Naver formed alliances through equity swaps with CJ ENM, Korea Express, Studio Dragon (600 billion KRW), HYBE (400 billion KRW), and Shinsegae Group (250 billion KRW).

Recently, Naver also conducted a 130 billion KRW equity swap with the e-commerce platform Cafe24. Cafe24 has comprehensively provided elements necessary for shopping mall operations such as mall setup, advertising, marketing, payment, and logistics to e-commerce sellers. Given its steady annual sales growth of around 20% over the past decade, Naver is interpreted to have judged that this will help expand its commerce sector in the future.

Naver’s strategy aims to create an ecosystem that generates mutual technological synergy. This intention is especially evident in the logistics sector. Last month, Naver partnered with various logistics players to establish the ‘Naver Fulfillment Alliance (NFA)’. This is a new type of technology platform created through collaboration with existing players. This approach also provides opportunities for companies growing together. According to Naver, some companies have received up to 10 times more inquiries than usual since the NFA’s launch.

Naver also plans to continuously maintain cooperative relationships with SMEs. It operates the Start Zero program, which supports order management fees for one year for early Smart Store operators. Recently, it additionally supports sales-linked fees incurred when sellers choose to link with shopping search, and also restructured order management fees based on sales volume, making it more favorable for small businesses.

◆ Kakao grows its size through ‘M&A’ = Kakao is directly entering new businesses or building monopolistic positions in the market through mergers and acquisitions. In recent years, Kakao has expanded its business comprehensively by acquiring Daum, Melon, web novel platform Radish, fashion platform Zigzag, and others.

The acquisition strategy is particularly prominent in the mobility sector. Kakao’s subsidiary Kakao Mobility recently formed a joint venture with the number one designated driver company and acquired the second largest company. As a result, monetization is progressing rapidly due to increased market share in the designated driver market. Kakao has also directly entered the quick service market, expanding its mobility portfolio.

Additionally, through the merger with Kakao Commerce, partner companies on the commerce platform can easily use KakaoTalk channels, and in the content sector, synergy is being strengthened through the merger of KakaoPage, Kakao M, and Melon.

This is expected to greatly support Kakao’s focus on expanding the ‘subscription economy’ in the second half of the year. Earlier, on the 3rd, Kakao launched ‘Kakao View,’ a content curation platform, as the third tab on KakaoTalk. It also operates ‘Subscription ON,’ which collects subscription products, and Plus products such as emoticons and Talk drawers available through monthly subscription. Instead of offering an ‘integrated membership’ like Naver or Coupang, Kakao plans to pursue a strategy of making individual products and services paid subscriptions.