[Population Decline Hits Industry] MZ Generation Avoids News on Portals... Naver, Kakao Break Through with Overseas New Businesses

Low Birthrate Limits Domestic Growth
Future Main Users in Their 10s and 20s
Preference for Global Big Tech Services
Naver Builds Overseas C2C Belt
Kakao Bets on Content Business

‘National Portal’ ‘National Messenger’. The flagship services of Korea’s leading IT companies, Naver and Kakao, both carry the term ‘National’. Naver boasts an overwhelming market share among domestic portal services. Most citizens resolve their searches, news, and shopping through Naver. KakaoTalk has established itself as an essential communication tool for the nation to the extent that if its functions stop even briefly, it feels as if South Korea stops. However, these days, officials from both companies become tense whenever they hear the term ‘national company.’ This is because, with the rapidly declining population, being called a national company feels like being labeled a company without a future.

A warning signal sounded for the two companies, which seemed destined for endless growth with explosive annual user increases. Due to population decline caused by low birth rates, growth within the domestic market has reached its limits. The 10s and 20s generations, who will be the main users in the future, are decreasing every year. Moreover, they prefer global big tech services over national company services. Ultimately, Naver and Kakao have begun seeking new growth engines overseas beyond Korea.

1020 Generation Watching News on YouTube

In 2016, Naver’s search market share was close to 80%. At that time, Naver’s subscriber count was 42 million, representing 80% of the total population. It seemed no service could surpass Naver search. However, Naver’s search market share has sharply declined every year, recording around 58% this year. The decline in Naver’s search share is largely due to the younger generation turning away. They started seeking information and news on social networking services (SNS) like Facebook and Instagram, and now they resolve everything through YouTube. This can be seen by examining comments on Naver News.

In 2019, teenagers accounted for 1.2% of comments on Naver News, while those in their 20s and 30s made up 36.7%. The 40s and 50s age group accounted for 52.4%, and those aged 60 and above were 9.7%. However, as years passed, the effects of low birth rates and aging became clearly evident in Naver News comments. This year, teenagers commenting on Naver News accounted for only 0.1%. It is practically safe to say that teenagers no longer consume news through Naver. The 20s and 30s group dropped by about 20% to 18.6% over four years. In contrast, the 40s and 50s group increased to 61.3%, and those aged 60 and above more than doubled to 19.8%.

‘National Messenger’ KakaoTalk Faces Declining Users

Kakao’s core service, the messenger KakaoTalk, is also in crisis. KakaoTalk’s quarterly average monthly active users (MAU) showed steep growth since its launch. From 32.49 million in Q1 2013, it surpassed 40 million in Q4 2015. In Q1 2020, it recorded 45.18 million users, and in Q2 this year, it increased to 48.2 million, establishing itself as a service used by 9 out of 10 citizens.

KakaoTalk, which grew alongside population growth, now faces the obstacle of population decline. The total domestic population, which was 51.84 million in 2020, decreased to 51.55 million this year for the first time. The shocking total fertility rate of 0.78 (the average number of children a woman is expected to have in her lifetime, based on 2022 data) forecasts annual population decline going forward. The total population is projected to be 51.5 million next year. Since communication between users is key for messengers, KakaoTalk faces clear growth limits as the number of users to communicate with decreases.

Finding Growth Engines Globally: Naver

Last year, Naver declared ‘Global 3.0’. The blueprint aims to achieve 1 billion global users and 15 trillion KRW in sales by 2027, standing shoulder to shoulder with global companies. The Global 3.0 phase combines the 1.0 phase Line and the 2.0 phase services such as Webtoon, Snow, Zepeto, V Live, and Works. Naver plans to transform its unique business model into forms optimized for Japan, North America, and Europe, and accelerate global growth with advanced technological competitiveness.

The most noticeable change since the Global 3.0 declaration is the strengthening of commerce services. This month, Naver’s C2C platform subsidiary Cream announced a 97.6 billion KRW investment in Japan’s Soda. Last year, it acquired Poshmark, North America’s largest C2C community service.

Naver’s global C2C belt targets the MZ generation. Naver’s existing users, who grew mainly through search services, are in their 30s to 50s. To sustain growth, it must target the 10s and 20s generations. The secondhand trading market is heavily used by young people, but there is no absolute dominant player like Amazon or Google yet.

Choi Soo-yeon, CEO of Naver, stated, “I believe that ‘community’ is at the center of continuing or achieving even greater growth for Naver in the future. We are deeply considering changes to community services that Naver aims to create domestically.”

Kakao’s Bold Move in Content Business

Kakao, which has already gathered a large user base domestically, is also seeking growth engines overseas. Unlike Naver, which emphasizes commerce functions and community-type services, Kakao focuses on the content business.

Earlier this year, Kakao accelerated its global expansion by acquiring SM Entertainment. Kakao, which has led various content businesses such as characters, games, webtoons, and music, can now create synergy for global expansion through acquiring SM Entertainment, which manages many popular overseas singers.

Kakao Entertainment and SM Entertainment launched a joint local corporation in North America in August, signaling their global expansion. The integrated corporation will actively develop and invest in new intellectual properties (IP). To support the global activities of artists from both companies, they are systematically building a global 360-degree management system and providing support for album releases, concerts, broadcasts, promotions, and other local activities worldwide.

The webtoon and web novel businesses are also steadily expanding. Last year, Kakao acquired North American webtoon platform Tapas and web novel platform Radish, launching the merged entity Tapas Entertainment. They plan to use this as a forward base for ‘K-Webtoon’ to target the global market.