KakaoTalk Mobile App Case Study
|KakaoTalk, a Mobile Social Platform Pioneer|
|KakaoTalk, an instant messenger app for smartphones, emerged from nowhere to become a near ubiquitous part of Koreans’ daily lives. Its fast rise to dominance came from Kakao’s unique development approach, and a philosophy of constant improvement. Innovations like the provision of a gaming infrastructure helped Kakao to become profitable in record time.|
THE MOBILE MESSENGER IN KOREA
The holy grail of branding is when a company’s name becomes shorthand for using its service. Need to find information? “Google it.” Need an overnight delivery? “FedEx it.” In Korea, “Send me a message” is rarely heard. Instead, people say “Katalk me.”
Released in March 2010, as Korea’s first mobile instant messenger, KakaoTalk became an instant hit thanks to its free download onto smartphones. After quickly overtaking Google Talk and WhatsApp, the first mobile messenger in the world, KakaoTalk parlayed its platform to become Korea’s No. 1 social networking service and provider of wildly popular games.
In December 2012, KakaoTalk had 70 million registered user worldwide, including more than 90 percent of Korea’s smartphone owners. According to a domestic survey, 72.4 percent of respondents said they will not buy mobile phones which do not support the messaging service. The share was 69.2 percent for prospective iPhone users who are famous for high product loyalty.1
From early morning to well into the night Koreans incessantly pound out messages on their mobile phones. The number of messages sent on KakaoTalk amounts to 4.2 billion per day, which is equivalent to 156 messages per person per day (where the daily average number of users is presumed at 27 million).2 As of early-November 2012, the average time spent on KakaoTalk per day reached 3,182 seconds, or 53 minutes, dwarfing the 531 seconds (8 minutes, 51 seconds) recorded by Viber, a famous free calling and messaging app and 422 (7 minutes, 2 seconds) by WhatsApp.
KakaoTalk supports 12 languages, including English, Spanish and Japanese, and is available in 230 countries. The vast majority of the KakaoTalk user base, however, is in Korea. The next step is to broaden the messaging service’s international presence. WhatsApp is widespread, Facebook Messenger is the favorite messenger in the United States and Weixin is entrenched in China. But greater penetration abroad offers mammoth payoffs.
Mobile instant messengers (MIM)3 are being hailed as the killer app for the mobile era. The number of mobile messenger users worldwide has increased from 120 million in 2008 to 310 million in 2010. Nearly 40 percent more users will be added annually in the next few years, for a total of 1.6 billion by 2015.4 Likewise, the number of MIM messages will increase at an annual average of 42.2 percent to reach 20.3 trillion in 2015 from 3.5 in 2008.
MIM dwarfs short message services (SMS) or multimedia message services (MMS), which are expected to rise no more than 6 percent annually by 2016, to 9.6 trillion and 270 billion messages, respectively. SMS or MMS users are typically charged a per-message fee, though flat-rate payment plans make the service almost free.
KEYS TO SUCCESS
KakaoTalk sprang from Kakao Corporation, a software platform company that opened in 2006. The company, originally named IWILAB,5 was founded by Kim Beom-soo, former CEO of NHN Corporation, Korea’s leading Web portal. Before launching Kakao, Kim made a fortune in Hangame, a popular online game portal which merged with NHN in April 2000. Although he provided capital in the beginning, others soon recognized the firm’s potential, and outside investment was recruited three times (Jan 2011: ₩;5.3 billion, Sep 2011: ₩20.6 billion, Apr 2012: ₩92 billion).
Kakao initially focused on web-based social networking services (SNS). However, its SNS entries, buru.com and wisia.com, were slow in coming to the market, losing valuable time to competitors. The arrival of the smartphone in Korea and its instant popularity prompted Kakao to pivot in 2009.
Early in the mobile era, most IT firms saw mobile service as an extension of traditional web service, thinking that search services became available on smartphones, too. Thus they simply sought to adjust existing web-based services to the mobile environment as quickly as possible. The results, however, were not successful because they failed to capture the characteristics of the mobile era.
Kakao believed mobile services were totally different from web services just as web services revolutionized communications in the 1990s. Realizing it had to make a radical shift, the company halted all web-based projects and devoted its resources to developing mobile services. Kakao believed that communications would be the key feature sought by smartphone users and thus chose messenger services as its main offering.
To develop the service, Kakao adopted a principle called “4-2.” That is, four members, usually one planner, two developers and one designer, form a team that works on a project for two months. If they fail to make substantial progress, the project is withdrawn and the team is disbanded. The tight deadline was derived from the lessons learned in Kakao’s failed web-based SNS attempts. Kakao concluded that it had to be much nimbler and quicker to the market.
KakaoTalk is a result of the 4-2 principle. A four-member team began developing the app focusing only on messenger services in December 2009, shortly after smartphones arrived in Korea. After two months of development, with WhatsApp used as the benchmark, KakaoTalk hit the market. The messenger had two immediate advantages over its rivals. Google Talk, which began operation earlier than KakaoTalk, requires users to register as a member and then register their friends. KakaoTalk, however, automatically registers friends using the phone numbers stored in users’ mobile phones and even shows unregistered friends they may know. WhatsApp moved from a free service to a paid service. KakaoTalk’s free download enabled it to rapidly secure legions of users in the embryonic mobile market. With users flocking to the messenger most frequently used by friends, KakaoTalk obtained its unofficial “National Messenger” moniker.
KAKAO’s corporate mission is to “grow together toward a better world.” It works with customers to provide better service for them and helps partners get a fair share of profits while giving them opportunities to earn more.
Against this backdrop, Kakao redefined customers as a co-generator of value who provide the final touch to its services. Since the roll out of KakaoTalk, it has conducted a “100 improvements project,” through which it meets customer needs. So far, users have suggested more than 60,000 ideas for improvement, which were put to vote by other users. Consequently, improvements have been made on the most popular ideas. With the project, Kakao has increased on-screen text size, created a photo-sharing function, Kakao Story, which became the top social networking services in Korea, and initiated a voice calling service, Voice Talk. Kakao also gives customers the option of not seeing ads.
The top rule at Kakao is “Do not let your imagination create a service.” This is because developers’ enthusiasm over their creations might not be shared by consumers.
The mobile service-oriented thinking and design, 4-2 principle and partnership with customers have become the keys to KakaoTalk’s stellar debut in 2010. The next challenge was to monetize its success.
GROWTH INTO A MOBILE SOCIAL PLATFORM
KakaoTalk successfully addresses the small screen of a smartphone and the fact that it is often used on the move. It has a simpler interface than most consumers would expect but its communication functions are sophisticated and convenient. Messages exchanged are shown in one screen in chat bubbles, and KakaoTalk was the first mobile messenger to accommodate group conversations. To maintain simplicity of the services, new features can be downloaded as separate apps with links to KakaoTalk.
With mobile phone numbers registered to KakaoTalk and social networks automatically linking them, Kakao set out to establish its mobile messaging service as a transaction platform for individual and corporate users.
Acutely aware of the importance of speed and timing, Kakao released more than 10 services, in less than three years after moving to the mobile market. “It is a vice for a venture firm to mull over an idea for a long time, but not to act on it,” said co-CEO Lee Suk-woo.6
The first step was taken in December 2010 when it linked to KakaoTalk a new app enabling users to buy friends gift coupons. The move was followed with Plus Friend at the end of 2011, through which users receive content and coupons from brands, stars and media they became friends with, and Item Store, which sells emoticons drawn by web cartoonists. In 2012, KAKAO expanded its push into cyber money and games while strengthening social networking services. The result was Kakao Story, a mobile photo sharing app; Choco, cyber money; Playing Game, a collection of mobile games that enable users to share their scores with friends; and Kakao Style, which provides information on the latest fashion trends and sells related products.
Kakao Story set a record in attracting 10 million users only eight days after launch. The app now has more than 30 million users, outnumbering offerings from Facebook (9.49 million)7 and Twitter (6.42 million).8 Equally popular is Kakao’s mobile game Ani Pang, a puzzle that gained widespread popularity among all age groups.
The genius of Playing Game suite is that it integrates with a customer’s KakaoTalk contact list on the Kakao messaging service. Thus a person’s game scores are shared and ranked with friends and associates, stimulating competition. Ani Pang and Dragon Flight, games accessible through Playing Game, became “national” games in one month after launching.
For major platforms, Kakao provides software development kits for partners so that they can develop apps using KakaoTalk social networks. The firm launched Kakao Link9 as an open platform in 2011 to increase the use of KakaoTalk. There were no success stories, however, from which it determined that the strategy was flawed in some way. This recognition drove Kakao to work with selected partners to offer quality services on its platforms and apply them with relatively low fee rates (10-20% of sales).10
ONE TRILLION WON IN VALUE
Initially, Kakao had practically no revenue model. Service for its rapidly forming customer base required continuous capital investment. It thus suffered a deficit. In 2011 alone, the firm ran a deficit of ₩15.3 billion. However, Kakao’s balance sheet shifted to the black in 2012 with profits from contract fees and fees on sales from merchants selling apps on Kakao platforms.11 In September the platform developer posted its first surplus, putting to rest doubts about its revenue model. By the end of 2012, KakaoTalk was valued at ₩1 trillion.12 The 2013 forecasts on Kakao are ₩150 billion in sales and ₩50 billion in operating profit.13 In contrast, other mobile messenger services such as Facebook and Twitter with a huge number of subscribers globally are having trouble making profits.
Playing Game powered the financial turning point. The huge success of the project is very much in evidence in the best selling apps lists of the Apple App Store and Google Play Store. “Playing Game” was released in July, and in less than a month, Ani Pang and Dragon Flight joined the ranks of the nation’s most popular games. In October, Playing Game recorded ₩40 billion in revenue.
As the daily revenue of Ani Pang and Dragon Flight soared 400 times and 2,800 times after launching on Playing Game, respectively, many game developers now wish to use the platform. Nevertheless, Kakao sticks to steady expansion of the platform, as is evidenced in the number of games serviced, which rose from ten at the end of July to 35 at the end of November.
KAKAO plans to further promote more revenue generators in 2013. These include Kakao Page, a paid content marketplace optimized for the mobile setting; Story Plus, a business version of Kakao Story; and Chatting Plus, which links users to diverse apps while chatting. All are in the pipeline to be released within the first quarter of 2013.
With three keywords: mobile, social and platform, Kakao’s 280 employees aim to build a healthy mobile business environment where it can grow together with partners based on its social platforms. The firm seeks to serve as a “connector” to link users, content and services by answering the question over whom to involve and with whom to connect. Also, it announced an ambitious plan to secure 1 million partners making profits on its platforms within the next three years.
Kakao, which bases its business on the size of its subscriber base, has more than half of its 70 million friendships at home. As such, it needs to strengthen overseas operations and expand the overseas subscriber base. Recognizing this need, the company is striving to attract more subscribers in foreign countries, especially in Japan. The company established Kakao Japan in July 2011 and formed an alliance with Yahoo Japan in October 2012. Establishing a presence in foreign mobile messenger markets already dominated by WhatsApp in English-speaking countries, Weixin in China and LINE in Japan will be a tough task. However, Kakao’s business model has ample firepower itself. LINE is the mobile messenger of Korean Internet giant NHN, which decided KakaoTalk was too formidable to challenge in their home country.
On another front, Kakao must address deviant use of KakaoTalk. In 2011, a high school student subjected to abusive group chatting by bullies committed suicide. If Kakao does not take steps to contain abusive messages, it will come under fire. Twitter which can be registered with a pseudonym is considering blocking users with a handful of followers or without a profile and photo from sending messages to certain people. 14
In April 2012, Tencent, a Chinese games and portal site, and Wemade Entertainment, a Korean online game developer decided to invest ₩92 billion into Kakao. As a start-up, the company was able to attract huge investment for its promises to evolve into a global business like Facebook or Twitter. There are stories of a man who said “I love you” to his daughter for the first time using KakaoTalk and a married couple who call their unborn baby “KaTalkyi” since they first met each other through the messenger. If Kakao successfully goes global, such stories will be heard not only in Korea but across the world.
KakaoTalk, mobile messenger, social networking service, mobile instant messenger, WhatsApp, Weixin, LINE
Choi Eunjeong holds a PhD in Industrial & Systems Engineering from KAIST. Her current research focuses on software and services in the area of Information and Communications Technology.
1 DoIT survey (March 2012), recited by Newswire
2 A reply, be it one word or a sentence, is counted as a message, so a single conversation can generate hundreds of messages.
3 MIM is an application enabling users to send text messages, photos and videos on mobile devices in real-time.
4 Mobile Messaging Futures 2011-2015 (January 2011), Portio Research.
5 The company was renamed Kakao Corporation in September 2010, six months after KakaoTalk debuted.
6 Lee Suk-woo, CEO of KAKAO, Smart Content 2012 Awards & Conference, November 19, 2012.
9 A service to send links to music, maps, games, finance and news found in web pages or apps to KakaoTalk to share with friends.
7 UNCTAD. (2012). World Investment Report 2012.
10 Fee rates of other platforms such as app marketplace normally reach 30-90% of sales.
11 KAKAO collects contract fees from firms using Plus Friend and Kakao Style and sales fees from those using Playing Game, Item Store and Sending Gifts. For example, KAKAO takes 21% of sales from Playing Game, 30% from app market and 49% app developer.
12 Money Today (http://news.mt.co.kr/mtview.php?no=2012112210119656119&type=1).
13 Money Today (http://news.mt.co.kr/mtview.php?no=2012112210119656119&type=1).
14 “Twitter prepares curbs on hate speech,” June 27, 2012, Financial Times.
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