WITH THE lowered entry barrier for stock investment due to the emergence of new technologies such as smartphones, investing in stocks has become a supposedly profitable hobby even amongst Korean youth. Back in early September, 1.54 million Korean dong-hak ants[1] fell into a state of shock when the stock price of Kakao, the biggest platform company in South Korea, plummeted over 25%. This is a result of recent government regulations on online platforms, aiming to break up the monopolies of these companies that they had gained by using their special legal status as “platforms.”

Dominance of Kakao

   Kakao started out as a smartphone application that allowed real-time chatting. With Kakaotalk growing to become a so-called kook-min messenger, Kakao began to enter different fields. It came up with diverse innovative services, including Kakao Emoticons, Kakao Games, and Kakao Friends. After merging with Daum Communication in 2014, Kakao grew larger and larger, ultimately into the giant mobile platform business we know today. While there were only 58 affiliates of Kakao back in 2015, now that number has almost tripled to 158.

   Kakao dominates several different fields, markets, and even our daily lives. With Kakao becoming the “biggest kid on the block,” it was only a matter of time before they were criticized for some of their business practices. Most notably, Kakao is being accused of excessively monopolizing markets. The ruling Democratic Party announced that it will legislate a bill to regulate Kakao, saying that “Kakao, once a symbol of innovation and growth, is now a symbol of avarice and an outdated order, only maximizing its own interest[2].” This criticism is not without merit. The phrase “being Kakaoed” refers to the phenomenon in which small companies go out of business as Kakao enters their industry and begins dominating the market. When this happens, self-employed individuals registered to Kakao are also affected, becoming completely dependent on the platform.

   Regulations on Kakao began with the Financial Services Commission taking aim at Kakaopay, a payment application. It also has been providing its users with access to a variety of loans and insurance programs, even offering customized recommendations, comparisons, and consultations. The authority pointed out that Kakaopay is not simply advertising those financial products, but, in fact, acts as a broker, violating the Financial Consumer Law. Kim Dae-jong (Prof., Dept. of Business Admin., Sejong Univ.), in an interview with The Yonsei Annals, said that “The financial authorities are not acknowledging the mediation license of Kakaopay, because it is its subsidiary company, Kakaopay Securities, not the headquarters, that has the license.” This means that Kakaopay needs to acquire the license by the end of the year. Otherwise, the brokerage of Kakaopay would become illegal.

   The Korea Communications Commission is also examining Kakaomobility, an affiliated company of Kakao, which dominates 80% of the taxi-call market. 90% of taxi drivers in Korea are already registered with the Kakao Taxi system because of the monopoly it has over the market. With Kakao Blue Taxi, a “franchise” taxi service of Kakao, which offers quicker taxi-passenger allocation, users have no choice but to pay an extra fee of ₩3,000 in order to grab a taxi promptly. Individual taxi drivers also have to pay 20% of their earnings if they want to enroll in Kakao Blue Taxi. Although it helps faster allocation, its high commission fee has become very burdensome for drivers. Sim Sang-jung, a Justice Party National Assembly member, said “Platforms are supposed to be a referee in the market. Now that Kakao is also in the market as a player, there cannot be a fair market order[3].” The authorities plan to alter how Kakaomobility works to make the situation fairer for all stakeholders.

Kakao in crisis

   The mere suggestion that the government would regulate Kakao had immediate negative effects on the company’s market value. The day after the ruling party announced plans to regulate Kakao, on September 8, the closing price of Kakao stock fell 10.06%. It was the first time in 90 days that the price fell under ₩140,000. Things got even worse for shareholders when the Kakao stock price plummeted 28% in only nine business days.

   Some investors purchased additional Kakao stocks, seizing the opportunity to buy them at a lower price. Within nine business days, private investors bought over a billion won worth of Kakao stocks. An anonymous student from Yonsei University, a Kakao shareholder himself, said “When Kakao’s stock price dropped, I began to regret my decision to buy them so early. If I had waited a few more days, I could have bought them at a cheaper price. I have actually bought some more Kakao stocks since then. I am thinking of it as a long-term investment.”

What regulations on Kakao imply

   One may wonder why, if Kakao is this troublesome, with monopolies over different markets and undue influence over self-employed individuals, it has not been regulated by the government until recently. It was because Kakao is classified as a “platform,” which refers to an application or website that serves as a base from which a service is provided[4]. Because of this, Kakao could easily evade Monopoly Regulation and Fair Trade Act regulations, despite arguably unfair conduct.

   Kakao has made efforts to embrace the criticisms it has recently received and to stop excessively expanding its businesses. It announced plans to facilitate sang-saeng, coexistence and balance between big companies and small ones. Kakao halted some of its businesses such as its flower delivery service and hair salon business which had been accused of hurting local businesses. Kakaomobility also adjusted its fare table and commission fee to pursue the value of coexistence in the taxi market. At the government audit on October 7, Kim Beom-su, the chairman of the board of directors of Kakao, promised to lower commission rates for its platforms, saying “I think there should be an appropriate amount of containment on big platform companies such as Kakao[5].” At this point, large-scale reform of the platform seems inevitable if Kakao is to overcome the crisis and continue to grow. Meanwhile, Kim Dae-jong said, “Platform companies do need to be more developed in Korea, but we cannot afford to lose sang-saeng at the same time, so that platforms and small companies can progress together.” He suggested that “platform companies could contribute some of their revenues to the preexisting industries as one solution.”

   As for Kakao’s long-term prospects, Kim Dae-jong says there is reason to be cautiously optimistic, saying “Government regulation does have a substantial impact on Kakao stock price for now, but it would not be able to influence it in the long term. This is because Kakao already monopolizes the markets, with every Korean citizen using it. Its stock price is likely to recover within the next six months or year, but only if Kakao is able to cope with the current regulations.”

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   The South Korean government’s initiatives to impose sanctions on online platforms, such as Kakao, is part of a greater effort to find an ideal balance between the new paradigm and the old one, so that both the rising innovative platforms and preexisting businesses can coexist. Only time will tell how this government effort to regulate big tech will turn out. For now, Kakao stocks remain low, the “ants” remain blue, and the rest of society remains focused on whether these regulations will be effective. 

[1] Dong-hak ants: A coinage alluding Korean private investors buying domestic stocks to Dong-hak Movement, an antiforeign movement in 1894

[2] JoongAng Ilbo

[3] Edaily

[4] Merriam-Webster Dictionary

[5] DongA Ilbo