Kakao’s hyperscale AI business loses steam amid legal risk

[Courtesy of Kakao]

Kakao Corp.’s generative artificial intelligence (AI) business is at the risk of losing momentum as the pressure from regulators and law enforcement authorities continues to mount for the South Korea’s platform giant.

Kakao had previously announced plans to unveil its own large-scale AI model, KoGPT 2.0, by the end of 2023, with corresponding services to follow.

Maeil Business Newspaper learnt on Wednesday that progress has slowed as market trust in Kakao has plummeted due to the legal risks and overall interest in AI has diminished to a certain degree.

Although noting that “there have been no changes to our plans regarding the release of the large language model and business direction,” Kakao acknowledged that there could be some changes in the plans based on future developments.

The AI business was led by Kakao Brain, a Kakao subsidiary, before the recent surge in interest in generative AI. But the business has currently evolved into a complex and integrated business linking the whole Kakao community.

For example, Kakao’s AI service involves AI chatbots integrated with KakaoTalk and is linked with all Kakao businesses, including commerce, mobility, and finance.

Industry sources noted that the uncertainty surrounding the parent company, Kakao, could have an impact on the entire AI business.

“The expectations for the AI model have risen significantly due to the market’s higher standards,” an industry official who asked to be unnamed said. “The controversy surrounding market manipulation during Kakao’s acquisition of SM Entertainment is affecting the group’s decision-making, making AI business a comparatively lower priority.”

Kakao’s core business linked to KakaoTalk messenger, such as advertising, also faces uncertainties. Securities firms have been revising down their earnings outlook for Kakao.

“Kakao’s advertising business is expected to see single-digit growth amid the economic downturn,” Shinhan Securities Co. analyst Kang Seok-oh said. “It is working on revamping the user interface and functionality of its friends and open chatting tabs but it is believed to be too early to expect significant related revenue or traffic.”

Kakao Entertainment and SM Entertainment’s overseas projects have also lost momentum.

Industry sources note that Kakao could boost its overseas sales via SM Entertainment but there are internal suggestions that the projects should be carried out once the legal risks are addressed.