[Viewpoint] The Era of Platform Empires

Suh Yonggu, Dean of the Graduate School of Business, Sookmyung Women's University

Recently, Apple's market value surpassed $3 trillion (approximately 3,500 trillion KRW). This exceeds the Gross Domestic Product (GDP) of Germany, the world's fourth-largest economy. The emergence of a company valued at $3 trillion for the first time in the history of capitalism is big news. It is impossible not to feel the power of big tech platform companies. In short, the era of platform empires has begun.

Let's compare Apple with Samsung Electronics, the leading stock in South Korea. Based on 2020 sales, Apple's revenue is only 1.3 times that of Samsung Electronics. Its operating profit is about 1.8 times higher. However, its market capitalization is seven times greater. The fundamental reason for this more than sevenfold difference in corporate value compared to financial performance is that Samsung Electronics is classified as an advanced manufacturing and pipeline company, whereas Apple is recognized as a luxury brand and service platform company. Platform companies attract not only consumers but also countless unspecified suppliers. They operate a "two-sided market" that creates added value through the interaction between suppliers and consumers, known as the "cross-network effect." They build their own ecosystems that operate 24/7 and continuously expand them, enabling infinite growth.

The economic war between the United States and China is also forming fierce battle lines in the platform sector. The U.S. "MAGA" and China's "BATH" are competing against each other. In the U.S., there are Microsoft (3,000 trillion KRW), Apple (3,500 trillion KRW), Google (1,210 trillion KRW), and Amazon (2,000 trillion KRW), three of which have market capitalizations comparable to the world's top 10 economies, inspiring awe. Recently, Apple and Google caused controversy by secretly making agreements with the Chinese government, an official adversary of the U.S. government. Ethical issues regarding the behavior of multinational platform companies that transcend national power are increasingly highlighted. However, for the time being, there is no clear justification or means to check these giant platform companies. Based on this, investors can be interpreted as having judged to triple their stock prices in three years. In China, there are Baidu (61 trillion KRW), Alibaba (401 trillion KRW), Tencent (674 trillion KRW), and Huawei (unlisted). These companies have mainly grown within China so far, but they have a high potential to grow into global platforms through the worldwide Chinese diaspora network economy and China's global influence.

Meanwhile, South Korea's three representative national platform companies?Naver (64 trillion KRW), Kakao (54 trillion KRW), and Coupang (55 trillion KRW)?have market capitalizations that are only 5 to 10% of those of the leading U.S. and Chinese platform companies. In particular, in the e-commerce market where Naver and Coupang compete, about ten companies are fiercely competing. The domestic e-commerce market has grown to become the world's fifth largest, yet it is still experiencing double-digit growth annually. The position of a monopolistic number one operator remains undecided. This is because the cross-network effect that creates monopolies does not work 100% in the Korean market environment. This is due to many demanding customers in the world's best mobile environment who prefer the lowest price rather than company loyalty. Secondhand commerce platforms like Bungaejangter and Danggeun Market are also growing rapidly. For more startups to grow into meaningful platforms, there is still a long way to go. To compete in the high-growth East Asian market against U.S. and Chinese companies in the platform war, South Korea's national representative platform companies must grow further. The understanding and warm support of our people also seem necessary. In the era of platform empires, we wish for the stormy growth of Korean platform companies.