[Exclusive] "Information of Japan Residents Stored in Japan" Naver Revises Customer Information Handling Policy

Naver Cloud Lowers Profile Amid Line Yahoo Incident
Considering Scaling Down Line Yahoo Operations Due to Data Leak
Global Hub's Japan Business Faces Inevitable Negative Impact

Naver Cloud, the starting point of the Japan Line Yahoo incident, has confirmed that it has revised its privacy policy for Japanese customers. The policy now explicitly states that Japanese customer information is stored and operated on local servers. This revision is seen as an effort to dispel concerns about information leaks, separate from the Japanese government's demand to withdraw from Line Yahoo-related operations. However, a red alert has been raised for Naver Cloud's business strategy, which aims to target the Japanese cloud market and create a second Line success story.

According to the IT industry on the 2nd, Naver Cloud revised its privacy policy for Japanese customers on the 26th of last month, adding the phrase "Member information of residents in Japan is stored in Japan." Although Japanese customer information was already stored and operated on local servers, the revision was made to clearly inform this fact.

This move is notable as it came after the 'data sovereignty' issue arose, claiming that Japanese personal data was leaked overseas due to the Line Yahoo incident. Naver Cloud was the cause of the information leak incident when an entrusted company employee managing Line Yahoo information was subjected to a cyberattack. As the Japanese government took an unprecedented step by demanding Naver to divest its shares in Line Yahoo, there is an assessment that Naver has lowered its stance.

Due to the personal information leak at Line Yahoo, a reduction in Naver's infrastructure service operations is inevitable. Naver Cloud has been providing IT infrastructure services under contract with Line Yahoo. Last year, revenue earned through Line Yahoo amounted to 72.2 billion KRW.

According to a report submitted by Line Yahoo to the Japanese Personal Information Protection Commission, the company plans to review its outsourcing contract with Naver Cloud by June and proceed with the separation of the two companies' systems. It will also have audit rights to verify whether Naver Cloud properly implements measures to prevent recurrence of information leaks.

The industry views a business contraction as unavoidable for the time being. Although the administrative guidance from Japan's Ministry of Internal Affairs and Communications has no legal binding force, the perceived binding power on companies is significant. Professor Choi Kyung-jin of Gachon University Law School said, "Japan is known as a country of administrative guidance, where the power of administrative guidance is strong and companies find it difficult to refuse. If domestic companies do not comply, other obligations may be imposed or other pressures applied."

It is also known that Naver has started discussions on the governance structure of SoftBank and Line Yahoo. Line Yahoo shares are held 64.5% by A Holdings, a company jointly invested 50% each by Naver and SoftBank, with the remainder held by individual shareholders.

There is an analysis that the recent incident has triggered an emergency for Naver Cloud's future business strategy in Japan. The strategy to expand business by making Japan a major global hub is inevitably facing setbacks.

Naver Cloud has data centers mainly in global regions using Line, including Japan. In Japan, it operates subsidiaries Naver Cloud Japan and Works Mobile Japan, providing IT infrastructure and groupware services. Based on the success of the collaboration solution 'Line Works' in Japan, it is pushing to expand its market share in the local Software as a Service (SaaS) market. It offers bundled services including cloud-based AI solutions such as chatbots and Papago (translation).

Naver Cloud has focused on Japan due to its high growth potential. According to global market research firm IDC, the Japanese software (SW) market size is $98.5 billion (approximately 135 trillion KRW), ranking fourth in the world. It is more than six times the size of South Korea's market. Although digital transformation has been rapidly promoted since the COVID-19 pandemic, there is no dominant local Cloud Service Provider (CSP), making it a promising market.

At the Naver level, last year, the B2B (business-to-business) organization was consolidated around Naver Cloud, and former CEO Park Won-gi was appointed as head of Naver Cloud's Asia-Pacific (APAC) business development. Additionally, Naver partnered with Japan's SoftBank to develop and sell B2B products.