South Korea’s Kakao Pushes Boundaries of Social Media; Far From Keeping Things Simple, Ventures Include Basic Messaging, Gaming and Celebrity ‘Friending’

South Korea’s Kakao Pushes Boundaries of Social Media

Far From Keeping Things Simple, Ventures Include Basic Messaging, Gaming and Celebrity ‘Friending’

JONATHAN CHENG 

Feb. 25, 2014 2:15 p.m. ET

WhatsApp’s Jan Koum next to Kakao’s Sirgoo Lee (right) on Monday. Kakao

BARCELONA— Jan Koum, WhatsApp Inc.’s chief executive, vowed this week to keep his messaging service simple, despite a $19 billion deal to be swallowed up by Facebook Inc.

Sirgoo Lee, co-chief executive of South Korea’s Kakao Corp., is making no such promises. With 133 million registered users, Mr. Lee is rolling out dozens of services—from basic messaging, mobile gaming, Instagram-style photo sharing, and online shopping—all on a user interface that is bursting with bright colors.

Amid a frenzy among messaging platforms that have either agreed to sell themselves or are seeking investor cash in public offerings, Kakao stands out as a laboratory of experimentation in the nascent medium.

“We’re trying all kinds of different things and services,” Mr. Lee said in a recent interview. “You can call it our survival instinct.”

Earlier this month, Cyprus-based messaging app Viber Media Inc., which has 300 million registered users, but doesn’t yet make money, sold itself to Japan’s RakutenInc. 4755.TO -0.65% for $900 million. Days later, WhatsApp said it had agreed to be acquired by Facebook.

Line Corp., Japan’s dominant messaging platform, has been exploring a public offering. Kakao itself is close to signing bankers to lead its own planned IPO, which could value the company at more than $2.5 billion, according to people familiar with the matter.

Outside investors in the company, whose service runs on 93% of South Korea’s smartphones, include China’s Tencent Holdings Ltd. TCEHY -0.42% , maker of its own widely popular messaging service, WeChat.

Mr. Lee said he’s actively experimenting with seven or eight new projects, in search of fresh streams of revenue. He said not all of the company’s initiatives have yet translated into moneymakers, but Kakao has found at least three businesses so far that are generating steady sales.

Its biggest moneymaking hit, he says, is Kakao’s gaming platform, which has become the mobile gatekeeper for South Korea’s gaming industry. South Korea is one of the most gaming-crazed countries in the world. Kakao parlays its access to users’ list of phone contacts to pit friends against one another on an array of diversions, from Sunday Toz Corp.’s “Anipang” to “Candy Crush Saga,” developed by London- and Stockholm-based King Digital Entertainment PLC.

Anipang shares revenue from things like in-game virtual goods and other features with games developers. The popularity of Anipang, which users play through Kakao’s messaging platform, helped Kakao notch up about $6.5 million in profit, on $42 million of sales, in 2012, through in-service purchases of virtual goods. The privately held company hasn’t released any financial data for 2013.

All but three of the top 25 revenue-generating apps on Google Inc. GOOG +0.62% ‘s mobile Play Store in Korea are games running on Kakao’s platform, according to Google.

Another big success for Kakao: a service called “Plus Friend,” which allows users to become virtual friends with retail brands, media outlets and celebrities, such as McDonald’s Corp. and “Gangnam Style” singer Psy. Through Plus Friend, participating brands and stars send a set number of monthly messages, coupons and real-time information to their followers—for a fee. Since Plus Friend launched two years ago, it has become Kakao’s second-biggest moneymaker, according to Mr. Lee.

And Kakao’s third big sales engine is virtual and real-life goods, allowing users to buy cartoon images to send to their friends, or to pay for real-world gifts, ranging from cups of Starbucks Corp. SBUX -2.77% coffee to Swarovski AG diamond necklaces, with the click of a thumb.

During the Christmas-shopping season, Kakao sold 400,000 cakes through Paris Baguette, a ubiquitous chain of French-style bakeries in South Korea. For Valentine’s Day, Mr. Lee said, it sold a large number of $600 diamond necklaces, though he didn’t disclose the exact number. In each case, Kakao took a cut of the sales.

Mr. Lee says that the company’s freewheeling approach is driven by the frontier-like frenzy surrounding mobile messaging.

Kakao has to tap markets other than South Korea, with a population of 50 million, to keep growing. 

The service is also all but barred from two markets that would seem a perfect fit, geographically: Japan and China. Both countries have their own entrenched messaging champions.

Kakao is now making a play for Southeast Asian markets, including Malaysia, the Philippines and Indonesia.