venture

Korean Entrepreneurs: Lee Jae-Bum of KakaoTalk

KakaoTalk has been South Korea’s biggest smart phone app success story. KakaoTalk has already 18 million users worldwide as of July 2011. KakaoTalk is top download in the App Store and the most successful social network service across iPhone and Android platforms in Korea. Number of users is estimated 20 million by the end of this year. KakaoTalk’s success continues outside of Korea as well. KakaoTalk has approximately 1 million users overseas and this figure continues to grow by ten thousands users per day. KakaoTalk now handles over 300 million messages per day. The success led Google to choose KakaoTalk as one of top developers in the Android Market. Yahoo! and Skype are chosen neither top apps nor top developers yet. Mr. Lee Jae-Bum, CEO of KakaoTalk, is in charge of creating this remarkable product and fan-ship.

Jae-Bum has envisioned himself as a future owner of enterprise from his college days. He majored in industrial engineering at Seoul National University, which is the nation’s top university in Korea. He heard so many great stories about his alums at school becoming successful venture entrepreneurs. So, he also took his own venture by establishing an Internet company right after college with hope that he could join those successful entrepreneurs shoulder to shoulder. One day, his professor made introduction to Jae-Bum to work with Mr. Kim Bum-Soo, one of SNU alums and a very successful venture entrepreneur who founded Hangame, a leading online game company. Hangame was eventually merged with the NHN, a top Internet property in Korea with gross annual revenue over $1 billion. Jae-Bum’s challenge to dare to start a venture business from scratch somehow proved himself to Bum-Soo and other board members. So, Jae-Bum landed his job at KakaoTalk (previously known as IWI Lab) and he was eventually promoted to lead the business while Bum-Soo sat on the board as chairman.

Jae-Bum’s early work with KakaoTalk was not that brilliant. Few pet projects such as memo aggregation or personal ranking chart combined with social network features were in production but never really took off. There were already global power brands such as Facebook or Twitter dominant in the SNS market. In a popular business strategy term, web based SNS was already in the “red ocean” and competition was high. So, Jae-Bum turned his attention to the app market. The advent of smart phone and rapid growth in European and North American markets inspired him. Jae-Bum had expected that Korea would follow such a big wave of smart phone penetration soon. So, Jae-Bum made a decision to develop mass appealing smart phone app like a messenger for smart phone. Sending short message is not too expensive but mass market loves KakaoTalk that allows users to send short messages back and forth for free. Now, users on KakaoTalk can send messages as well as photos and other attachments like other popular PC-based messenger like MSN or Gtalk. Jae-Bum’s prediction for surging smart phone market really hits the bull’s eye. iPhone was finally introduced in Korea in late 2009 through Korea Telecom and SK Telecom quickly fired back with Android phones from Samsung, HTC, etc. App market has rapidly grown, too, as demand for smart phone usage has grown. KakaoTalk has become de facto messenger tool for smart phone users in Korea.

Jae-Bum has made few interesting points on his success that could be note-worthy to those folks who build their products in the smart phone universe. First, Jae-Bum emphasizes on “venture mind.” Without it, KakaoTalk wouldn’t be materialized. He values highly of those people with hearts for innovative ideas than lucrative business model. For instance, up until last year, the company didn’t turn any revenue from KakaoTalk. Team tried to design a more stable product and service first. Generating revenue was always second in the row just like Facebook did during its early days. Revenue-demanding culture often misses out this point even if that is what venture is all about. Second, KakaoTalk is also unusual in the sense that it has created a horizontal organization. Unlike other Korean companies, where top-down management is sort of cultural norm, Jae-Bum encourages active communication and debate among peers in order to keep the organization away from unnecessary bureaucracy. As an example, Jae-Bum has made office policy calling peers by their initials or nickname. In Korea’s typical office setting, it is not common practice. Though, this policy really helps and makes people to get friendly to each other even if there is 10~20 years of age gap between peers. Third, the company has done reorganization of internal team almost 40 times since its inception. It has contributed to KakaoTalk’s unhindered communication among different parts of the company and the team to collaborate. It has also made the company can better understand and react to fast-changing market needs and reflect them into the product development faster.

KakaoTalk plans to elevate its popular app to the next level becoming ‘social-hub’ for smart phone users. Commerce, culture, music, and game contents are likely to be added to its main property soon. Similar to Facebook, it is likely to embrace different services and contents and want to be total service platform for smart phone users. Few market observers estimate KakaoTalk will make $15~$20m in revenue this year. KakaoTalk’s revenue model is fairly weak as yet because it only makes money from mobile gift card sales from strategic partnership with Korea Telecom. Though, KakaoTalk already has huge user base and other revenue model should be easily deployed. With its recent angel funding of $4.5 million from those top tech entrepreneurs in Korea such as Mr. Kim Taek-Jin of NCSoft and Park Sung-Chan of Danal would add key components to accelerate its product development and sales growth. KakaoTalk has its own challenges such as Apple’s strict in-app purchase policy biting back large proportion of its revenue. KakaoTalk also faces battle with top mobile telecommunication companies in Korea because KakaoTalk seems to eat up potential revenue stream from short message (or SMS) that telecom companies could have earned if there was no such thing like KakaoTalk. KakaoTalk has successfully finished its baby steps to build a profound communication platform on the wave of smart phone. We look forward to seeing how Jae-Bum would turn this business to become a global franchise in the near future.

(This article was developed with Steve J. Min, a staff writer.)

Advertisement

Building a new venture is like rock climbing.

Entrepreneurship 101

 

Building a new venture is like rock climbing. Three lessons we learn from rock climbing:

1. You have to be physically ready to climb.

Preparing a plan and setting your goal is one way to make yourself ready physically and mentally.

2. You have to choose a good rope.

Your rope is lifeline. Never underestimate your budget to find a good gear when you climb the rock.

3. You have to know when to climb.

Going against horrible weather condition is such a bad idea. Never make your stamina burn too fast with imminent threat.

(Presented at the recent entrepreneurship workshop for early stage tech entrepreneurs)


Social commerce big bang

Nearly a year has passed since the introduction of social commerce by local operator named Ticket Monster. Triggered by Ticket Monster’s remarkable success, other local operators such as Coupang and WeMakePrice have sprouted and it is estimated that around 800 social commerce sites are in business throughout South Korea. This burgeoning market has even attracted U.S. online commerce giant Groupon recently and Korean social commerce trading volume is anticipated to reach $550 million in 2011.

Aside from this thriving appearance, however, the dark side of the industry is also detected. Including flooding in of customer complaints, problems arising due to rapid-growth of business may have significant influence over the future of social commerce. Therefore, it seems very important to know the possible results the industry may bear within Korean market and recognize the potential risks.

First and foremost, poor customer service is on the table. Most of the players in the market are likely to be at an embryonic stage of growth and tend to focus more on promoting their presence than on quality controls. Therefore, low-value deals are mass produced which in most of the times exceeding supply. Customers feel deceived when they find out voucher they purchased do not match its value promoted on web sites. Customer-related complaints include denied refunds and no unilateral customer service policy as well. This growing of customer discontent may be attributable to the industry’s low entry barrier which requires nominal start-up costs. With massive influx of unqualified players, they tend to overlook the sound relationship with customers and only seek short-term profits. They should know what is best for achieving their long-term survival of the industry as a whole. With respect to this issue, a measure has recently been taken by Fair Trade Commission to address the problems of social commerce. On May 10th, 2011, the governmental body announced that social commerce firms will also be subject to the same consumer protection codes applicable to other e-commerce sellers. This allows customer refund of vouchers within 7 days of purchase, and the use of escrow services for any purchase exceeding roughly $100 and penalties for exaggerated advertising.

Whether the market is growing or not in the long run is an important issue. It is notable that social commerce has expanded its horizon to areas that could not have been a part of traditional e-commerce market. Restaurant business is a good example. Under past circumstance, there were limited ways, such as handing out leaflets, etc., for restaurants to promote themselves. Social commerce came to their rescue by giving new opportunities of marketing. While admitting the benefits of promotion from social commerce, business owners also complain about low-profit margin or sometimes even loss. Since they have to offer a huge price-cut to be entitled to sell vouchers on the social commerce sites, and with commission fees social commerce business charges, significant opportunity costs should be endured to gain desired promotion effect. This fact leaves one question. Is this business model sustainable? It may attract short-term promotion opportunity seekers only and no one may be left in the long-run. Additionally, social commerce is ultimately a commission business. More and more competitors are entering the market and only way to out-stand among groups seems to rest in low price offers by cutting commissions from what they charge currently somewhere between 20-30% in average. Under this dog-eat-dog competition, no one is for sure who is going to smile in the end.

Last but not least, alteration in promotion strategy of social commerce sites is changing the landscape of the business. Originally, the term ‘social commerce’ was used to indicate collaborative purchasing of goods through SNS. However, from early this year, major local social commerce operators have begun relying on traditional mass media, such as TV ads, public transportation ads, rather than promoting their products through SNS. Because of this, some experts question whether operators in the market are truly performing as social commerce business since they no longer use SNS as vital ways in promoting themselves. This results in high burn rate among current market players and keeps new players from walking into the market as entry cost has got way expensive.

It is uncertain whether the ongoing criticism over social commerce is a fundamental issue or part of a trial-and-error process that all start-up businesses go through. And, of course, there is more downside of social commerce industry in South Korea not revealed in this article. But one thing seems to be clear: Korean social commerce industry just took its baby steps and is at a critical point whether it is going to generate permanent return or end as one-time business opportunity.

(This article is developed with Steve J. Min, a publicist at KingsBay Capital.)

Power of social marketing

Now, I take a relaxing moment here in Youido. (Youido is Wall Street in Seoul where the Korea Stock Exchange is located.) After long and busy weeks, today is a special treat for my wife (who is in her latter part of pregnancy) and me. I’ve got introduction about Soo Spa from my close friend who works nearby. Its ambiance is quite well-appointed for total relaxation and service staffs are excellent. While my wife gets her mother-to-be treatment, I’m reading a book and also flipping few notes I’ve been working on.

Over the past week, I was delighted to get to hear more about interesting business scheme on social marketing. Growing social media such as Facebook or Twitter and their search for revenue center other than traditional ad. somehow leads us to the next big market trend called “social marketing.” Social marketing and its definition varies. It can be group purchase for super discount, limited inventory release, or coupons distribution. They are already existing methods in the traditional retail industry. Though, difference is how quickly (and cheaply) their promotion gets to potential shoppers’ attention.

We always appreciate people (especially friends) who already have knowledge and experience of using certain items. It can be travel experience, new Jimmy Choo, or restaurant selection. Surprisingly, we often highly rely on people in the range of our social comforts even if they are not real experts. Whether we get cheapest deal or most anticipated product in the market, we have higher trust level on our friends and colleagues and feel like we have same clout with them.

Anyhow, now, marketer and advertiser needs to be smarter than ever. We all know, even articles in the New York Times, whether they are there for strong promotional motif or not. It’s a great opportunity for those who have built social network service as they’ve worked hard to build network of people with close social ties. Getting into social network, living in it, and exposing your value is best way to convert your potential shoppers to paying customers.

p.s. Special thanks for the partner who works at Bonn Angels who introduced Aveda product for my wife. It was a great gift idea! I appreciate it.

Posted with WordPress for BlackBerry.