Shareholders of Daum and Kakao Say Yes to Merger

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The shareholders of South Korea’s Internet portal Daum and mobile messaging company Kakao approved the merger between the two companies on Wednesday, August 27, 2014. The merged firm, Daum Kakao (the name will be up for vote in a post-merge shareholder meeting) will soon launch on October 1,2014. The combined firm hopes to become a “platform of global communication, information, and lifestyle.”

The merger, the details of which were unveiled on May 26, 2014, gave sixty percent of the combined company’s shares to Kakao shareholders. The deal valued Kakao at three billion dollars.

Daum is South Korea’s second largest Internet portal. As one of the five web companies from Korea’s nineties’ dotcom boom, Daum has been in a precarious position lately. Although it ranks second to Naver, the nation’s most used search engine, Daum’s search share percentages lag far behind its competitor— 16 percent to Naver’s 70 percent.

KakaoTalk, Kakao’s mobile messaging app, is the nation’s number one platform for mobile messaging service. After its launch in March of 2010, Kakaotalk’s yellow background and the “Katalk” notification alarm have become cultural icons in Korea. Nine out of ten smartphone users use the messaging app in South Korea, where messaging apps have quickly taken over traditional SMS texts. Globally, around 152 million users use the messaging app, of which 37 million are South Koreans.

Kakaotalk has also expanded into Indonesia, Malaysia, and the Philippines, where it competes with other mobile messaging apps like Naver’s Line and WeChat. Naver’s Line boasts more than 400 million registered users, and China’s WeChat boasts 396 million global monthly users.

The majority of Kakao’s profits come from its mobile game platform. Other forms of revenue include Plus Friends, corporate accounts for advertisers, and the Kakao Item Store, where users can purchase emoticons and mobile coupons. More recent portfolios include KakaoMusic, a music streaming service. Kakao has plans also to launch a mobile banking service.

As Kakao hopes to diversify its portfolio, it may benefit from Daum, which has experience with more traditional online marketing strategies. Over the years, Daum has accumulated Internet search capabilities, established networks, and a wealth of search data, which could also benefit Kakao. Daum, on the other hand, will benefit from Kakao’s dominance in the mobile messaging to tap into mobile networks, as more people are using mobile devices to surf the web.

Whether the merge will help the company grow globally is up for debate. In an oversaturated market, it may not be possible for Daum Kakao to gain much headway. One thing is clear, however: the Daum and Kakao merger will challenge the current dominance of Naver.

Daum’s share prices fell by six percent the day when the news of the shareholders’ votes went public.

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