Impact: NHN has been a leader in online games on PCs. DFC Intelligence reported that worldwide they were No. 9 in revenue for PC games in 2012. However, they were one of the few companies to show a revenue decline in PC games as 2012 revenue was down 5% from 2011. So NHN Corp.’s fixation on the mobile segment is fathomable. According to Korea Internet & Security Agency, between 2011 and 2012 smartphone penetration in South Korea for those between the ages of 19 and 59 jumped from 39.2% to 78.5%. That’s a huge number of new consumers to be reeled in, and there is no shortage of Korean competitors with the ability to service them.
Which leads us to another factor in the equation. NHN Corp. was formed from the combination of two start-up firms. One of those founders, co-chief-executive Kim Beom-Soo (who started Hangame) left the company in 2007 and a year later co-founded Iwi-lab. By 2010 after attempting several online services that did not catch on, the start-up saw a market opportunity and developed a free text messaging app called KakaoTalk for the iPhone, which took off since sending text messages in Korea at the time often cost consumers 20 won each (around two cents). The app became so popular that an Android version soon followed and Iwi-lab changed its name to Kakao Inc.
In one year KakaoTalk had attracted 10 million users. By 2012 that number had grown to 50 million, and last month had grown to more than 100 million users globally. KakaoTalk earns most of its revenue from selling enhanced emoticons and a gift feature that transacts the sending of gifts by users for a fee. During 2012, a social gaming platform was added. When a former chief-executive leaves your company, helps found a start-up, and soon after rides the explosion of smartphone ownership to huge success, you take notice… and we wager that was the case with NHN. During 2011 NHN launched its own messenger, LINE, in Japan. The app rose to dominance in that country, and has grown to more than 200 million users globally, although KakaoTalk remains dominant in South Korea. Despite this, NHN has suffered criticism that it is mimicking KakaoTalk features as they are introduced. One of the hoped-for benefits of spinning off Naver Corp. and NHN Ent. is that both entities can get better at innovating features and new IP rather than reacting to the advancements of other firms.
Other major technology companies have come to similar plateaus when they become so successful that the tried-and-true models that achieved that success often restrain the kind of change that facilitates exploiting unexplored opportunities. Netflix is one of the rare examples of a firm abandoning its existing model wholesale for a new technology, whereas Microsoft just announced yet another major operational restructuring to prod itself into better forward thinking. Whether NHN’s formula will be successful is anyone’s guess at this juncture. Too much depends on the intangibles of how individual initiative responds in these spun off entities. It’s a bold strategic play to be sure.