Kakao to separate Daum into a company-in-company amid weakening presence

An image of the messenger app KakaoTalk [Courtesy of Kakao]

South Korea’s platform giant Kakao Corp. has decided to separate its portal site Daum into a company-in-company (CIC) in a move to focus on its platform and content business led by the country’s most popular messenger app KakaoTalk.

Maeil Business Newspaper has learned on Wednesday that Kakao has internally decided to split Daum into a CIC. The company plans to shortly announce the plan in a meeting with its staff.

Kakao is known to have launched discussions about the changes with the labor union and have been collecting employee responses. Details on the separation and CIC launch are expected to be released as early as this month.

“My understanding is that Kakao is preparing to gather opinions in advance to address the concerns executives and employees of Daum have,” said an unnamed official from the information technology (IT) industry.

“The key is fully explaining matters of concern to the staff, such as the changes in working conditions and job levels.”

According to Kakao’s 2022 business report, its portal business accounted for 6 percent of the company’s entire sales.

Sales of the portal business including those of Daum fell 13.9 percent to 424.1 billion won ($318.7 million) in 2022 from 492.5 billion won in 2021.

Brokerages say that Kakao’s portal business sales do not show clear signs of recovery and project that it will further decline to below 400 billion won this year, which is in contrast to Naver‘s sales of which up to 50 percent comes from the search platform division.

Data from NHN Corp., the operator of Korea’s top portal Naver, shows that the traffic of Daum’s search engine was a mere 5.4 percent as of the end of last year, which is far lower than 11.5 percent in 2020 and 8 percent in 2021.

Advertising revenue accounts for a vast majority in the portal business.

Kakao’s business is largely led by its messenger app.

KakaoTalk accounted for a lion’s share of Kakao’s sales in 2022, at 26.8 percent, which includes advertisements and commerce business.

Other platform businesses such as mobility and pay services took up 20.3 percent of the sales, games 15.6 percent, and story business including webtoon and Piccoma services 13 percent.

Daum logo [Courtesy of Daum]

Kakao’s decision to separate Daum into a CIC comes at a time when the overall search market is being reshaped by other social media services such as Instagram and TikTok.

According to NHN data, the market share of Naver in the domestic search engine market was 62.2 percent in December last year. Google took up 31.8 percent and Daum 5.37 percent.

The number of users of the Daum app is also on a decline.

According to app analytics platform Mobile Index, the number of monthly active users (MAU) of the Daum app dropped by 1.79 million to 7.97 million in January from 9.76 million two years ago.

Speculations grow that Kakao may sell Daum if its business feasibility continues to decline after being separated into a CIC as its presence weakens as was in previous cases.

Kakao Enterprise Corp., a business-to-business (B2B) unit of Kakao specializing in the development of AI-based platforms and solutions, was separated as a CIC named AI Lab in 2019. It, however, was spun off in the same year.

Kakao Healthcare Corp. also launched as a CIC but later became a separate entity in March last year. The only remaining CIC in Kakao is Kakao Commerce.

“If you look at the history of a company turning into a CIC and a separate entity, you can clearly tell if it is a business of focus or not,” said an unnamed IT industry official. “It remains to be seen if Daum will revive and become one of the main businesses of Kakao.”

Some industry insiders note that Kakao is trying to revamp its portal business by improving the structure. Daum’s independence may allow the search engine to become more competitive. It will also have its own decision-making authority over its budget and business strategies.