[Han Seung-bum Column] Is Naver a reckless dinosaur or innovative chameleon?
- NHN's operating profit margin ratio 29% is higher than Apple’s 26%
- ‘Dinosaur portal’ Naver vs The Media and Politicians of S.Korea
MACCINE Korea CEO, Han Seung-bum
Naver launched its search ad business in 2001 while expanding its market share with knowledge search. I also began to put paid ads at Naver in the early 2000s. When I first encountered Naver search ads, I was absolutely impressed. Customers were also satisfied with products advertised through paid ads on the internet, where scams and false information are prevalent. It indicates that reliability of products advertised via offline media such as TV, radio, and newspaper was also applied to cyberspace. As a result, the success of Naver was guaranteed, which made me tempted to buy the company stocks, although I never buy any shares.
My Naver search ad was extremely profitable. As advertisers heard through word-of-mouth that Naver search ads are a ‘gold mine,’ Naver has attracted numerous advertisers since the mid 2000s, like a ‘gold rush.’ However, as competition among advertisers became fierce, profitability of the search ads plummeted. Whereas Naver was enjoying its maximized sales, advertisers were struggling with dwindling profits from ads.
I once called a Naver ad official at the headquarters to request a brand search ad in 2011. However, the response was that advertisers without an advertising agency are not entitled to place ads, according to Naver policy. When I strongly complained that it is a discrimination against direct advertisers, the employee promised to find out more about it and get back to me. But I held out little hope, assuming that the company policy of ‘offering brand search ads only to advertising agencies’ would never change.
However, I was told by the Naver employee a few days later that the company policy was changed to offer brand search ads to direct advertisers after a review. I was really surprised. The fact that a big corporation like Naver changed its policy based on one advertiser’s opinion demonstrates that it is not a ‘dinosaur enterprise.’ I was even intimidated by the fast innovative movement of a company that changes like a chameleon, and it had no arrogance of ‘dinosaur,’ as a giant with over 70% market share. It got me thinking that “No one could beat Naver.”
In November 2011, I attended that invited around 200 VIP advertisers. Among them, I was selected as one of eleven 'Advertisers with Naver Keyword Ad Success,’ and my company video was played in front of everyone.
As far as I know, events conducted by corporations or government agencies are only joined by a handful of relevant officials and top officials. In addition, most of such events are conducted by event planners and celebrated by only a small number of people from the organizers.
However, NHN’s event was joined by lots of its employees, as if half of the attendees was Naver employees, while the other half was advertisers. Furthermore, all advertisers were joined by Naver employees at each table who talked to them in a friendly manner, doing their best to serve them.
During the event, I asked about ‘Facebook’ and ‘KakaoTalk’ to a Naver employee at my table. “New social networking services are a threat to Naver.” He really seemed to care about the future of Naver.
Domestic market share of NHN is now absolutely remarkable. It accounts for 78% of the online search market and over 80% of the entire search ad sales. The operating profit margin ratio is 29%, which is higher than Apple’s 26%. Nearly monopolized market share of NHN has led to increasing criticisms recently after concerns from outsiders.
Following harsh criticisms from the media and politicians with comments such as ‘dinosaur portal Naver ’ and ‘reckless expansion of Naver, ’ government departments including the Ministry of Science, ICT and Future Planning and Fair Trade Commission geared up for strong regulations. It has escalated into a war on the reputation of NHN between its supporters and opponents, both online and offline.
However, my impression is that Naver is not a dinosaur or reckless. There is a famous quote from a legendary boxer Muhammad Ali, “Float like a butterfly, sting like a bee.” Naver is always very active like a butterfly. No matter how high its market share is or how much it earns with enormous sales, it never gets stagnant. Rather, it becomes even more active. Naver is a genius at transforming itself like a chameleon. We call it ‘innovation.’ Some have denounced Naver as a copycat that has stolen the ideas of small and medium sized companies. However, nothing is truly original in today’s era. Naver is engaging in fierce competition to survive, like most other companies.
I think criticizing its business as a reckless expansion is far-fetched. The fact that Naver has a search market share of 78% indicates that its chances of success is 78%, no matter what business it starts.
In other words, NHN could easily increase its profits by creating an offline real estate agency using its strong data collection, processing, and analysis capabilities and could even control real estate prices in a particular area. In addition, NHN could change the dynamics of Korean restaurant industry by establishing a restaurant franchisor if it wants to. It could even accomplish a new breakthrough by launching a new retailer across large retailers and convenient stores fairly easily. It even has the potential to succeed in any type of business, using its capability to control the reputation of particular politicians or political parties.
Such practices would be reckless expansion. However, NHN has never expanded beyond its search engine and Hangame business. The company has a total of 53 subsidiaries that are under vertical systematization. Therefore, it is far from the reckless expansion of Korea’s domineering conglomerates.
I am convinced that Naver will rise to the occasion. The ultimate enemies of Naver are not the media or politicians but social networking services (SNS) that are prolific and innovative. If distracted, Naver could disappear overnight — like Yahoo Korea. Being well-aware of it, Naver is striving to transform itself day after day.
Naver is an innovative chameleon enterprise.
Next: Post Naver, Who could replace Naver? ②
MACCINE Korea(www.maccine.net) - Online Reputation Management Services
MACCINE Korea not only monitors the ‘online reputation’ of people, companies, and brands but also provides a service that actively manages it. MACCINE Korea’s ultimate goal is to change a crisis in the customer’s reputation into an opportunity
Han, Seung-bum (Ph.D in political science)
President of the MACCINE Korea
Former Assistant Professor at Hanyang University
< Awards >
A letter of commendation awarded by Naver Keyword Advertising, 2011
A letter of commendation awarded by Minister of Health and Welfare, 2010
A letter of Commendation from the Small and Medium Business Association, 2009
The Financial Times(FT), “South Korea’s K-pop takes off in the west”, February 10, 2012
The Financial Times(FT), “Talent agencies ride a wave of K-Pop”, December 14, 2011
The Financial Times(FT), “Tourists flock to Nami Island on pilgrimage to pop culture”, November 10, 2010
< Columns >
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-‘Day of Adult’, Even More Shining with Korean Clothes (Chosun Ilbo)
-Song for Russia, Who Will Sing It (Chosun Ilbo)
-‘Is Makgeolli only Korea’s Traditional Culture? (Yonhap News)
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2013년 9월 10일 10:00
