Kim Beom-su Steps Down After 1 Year and 6 Months Back... Kakao Faces a Crucial Test

Kakao in Crisis: Returned as a Savior in November 2023
Tried to Reform, but Faced Ordeal with Stock Manipulation Arrest
Released on Bail Four Months Ago, Now Struggles with Cancer
Steps Down from Management
With the Founder Stepping Aside
Must Grow AI Business and Restructure Non-Core Units
Kakao Faces a Crucial Test

Kakao founder Kim Beom-su, co-chairman of the CA Council, is stepping down 1 year and 6 months after returning to the front lines of management. Kim reappeared in November 2023 as a savior for Kakao, which was facing an unprecedented crisis due to its sprawling business expansion. Last year, he faced judicial issues, and now, due to health problems, he is officially halting his management activities, putting Kakao once again on the test bench.

On the 13th, Kakao announced that Kim would step down as chairman of the CA Council, the highest decision-making body within the Kakao Group, and that CEO Jeong Shin-ah would take over as the sole chairman. Kim had served as co-chairman since January last year. The Management Innovation Committee, which Kim led to revamp the group, will also be disbanded. Kakao stated, "Kim will continue to serve as head of the Future Initiative Center, which establishes the group's vision and future strategies," but in reality, he will no longer be directly involved in management.

The reason Kim is stepping away from management less than two years after his return is bladder cancer. A Kakao official said, "Kim recently experienced health issues and needs to focus on treatment for the time being."

Chairman of the Management Innovation Committee and Kakao founder Kim Beom-su, who is considered the pinnacle of the 'SM stock price manipulation' suspicion, is attending the detention hearing (warrant review) held at the Southern District Court in Yangcheon-gu, Seoul on July 22 last year. Photo by Kim Hyun-min

Kakao, stuck in a quagmire, appeared as a savior but...

Kim launched the KakaoTalk service in 2010 and rapidly grew Kakao. Expanding into gaming, finance, and commerce, Kakao established itself as one of the two major IT companies alongside Naver. However, from 2020, negative issues began to surface. The company was criticized for its reckless expansion of affiliates, infringing on local businesses, a phenomenon dubbed "octopus leg expansion." The spin-offs of Kakao Games, Kakao Pay, and Kakao Bank led to controversies over shareholder value dilution. Kakao Mobility was penalized by the Fair Trade Commission for manipulating algorithms to favor its affiliated taxi service, "Kakao T Blue," through "call steering." In October 2022, a data center fire caused a major outage, halting key Kakao services.

In March 2022, Kim stepped down as chairman of Kakao's board, stating he would focus on global markets and the future, but when Kakao failed to escape its difficulties, he returned to full management in November 2023. At that time, Kim said, "As the founder and major shareholder, I will return to the founding spirit and take responsibility to lead the crisis recovery." After launching the Management Innovation Committee, which included key CEOs, he also established the Compliance and Trust Committee to improve the company's image. The affiliate expansion was halted. The number of Kakao affiliates, which had reached 147 as of May 2023, was reduced to 116 by last month.

Meeting between Kim Beom-su, founder of Kakao, and Kim So-young, Chairperson of the Compliance and Trust Committee (former Supreme Court Justice). Provided by Kakao

Last year, hardship due to stock manipulation... judicial risks remain

However, these efforts were overshadowed by the SM Entertainment stock manipulation case. Kim was arrested in July last year on charges of manipulating SM Entertainment's stock price above the public tender offer price (120,000 KRW) to obstruct the competing bid by HYBE during the acquisition process. Although he was released on bail in October after about three months in detention, he is currently on trial without detention. If found guilty, he could be re-arrested. While Kakao cited bladder cancer as the reason for Kim's resignation, industry insiders speculate that these legal issues also played a role.

AI Kanana launch ahead... Kakao faces test in restructuring non-core businesses

Jung Sin-ah, CEO of Kakao, is giving a presentation at the 'Kakao Media Day' held on the 4th of last month at the Plaza Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung

In this situation, with CEO Jeong taking sole chairmanship last year, Kakao faces another test of founder absence. Especially as artificial intelligence (AI) has become a core agenda across the IT industry, Kakao has yet to produce significant results, which is a challenge for CEO Jeong. The planned release of the self-developed large language model (LLM) "KoGPT 2.0" in 2023 was postponed. Currently, Kakao is shifting focus to developing and utilizing its own LLM alongside launching AI services, with the AI assistant service "Kanana" scheduled for release in the first half of this year.

On the day Kim announced his withdrawal from frontline management, Kakao decided to spin off its portal service "Daum," a company-in-company (CIC), into a separate corporation. Since Daum has not been prominent in the domestic search market, this appears to be a strategy of selection and concentration. With Kakao marking "AI" and "KakaoTalk" as its main growth engines this year, CEO Jeong's task is to improve profitability by restructuring non-core businesses in the absence of the founder.