Google lends name to Korean mobile startups to avoid costly “Kakao tax”; Move by Google will enable Korean mobile startups to avoid the Kakao platform, which takes a cut of 21 per cent of their revenue

Google lends name to Korean mobile startups to avoid costly “Kakao tax”

By beSUCCESS

Move by Google will enable Korean mobile startups to avoid the Kakao platform, which takes a cut of 21 per cent of their revenue

Korea has long been a brand-obsessed shopping nation. Now Google aims to assist up-and-coming app developers gain brand presence in the burgeoning Korean market, lending their brand clout to new entries in the highly competitive app landscape in Korea, the world’s most wired nation.

Brand recognition is power
Upon arriving in Korea, you will immediately notice the plethora of foreign brands that blare out their brand power in the numerous thriving shopping districts in Seoul. This is because branding in Korea is of utmost importance, in order to attract trend-conscious Korean shoppers. Consumers here are exceptionally in tune with brands before they choose to purchase items, whether physical goods, online products, or mobile applications. For Korean customers, a strong brand is equivalent to a mark of quality. This is one reason why local, ‘unknown’, app developers have trouble convincing consumers to download their games in the app markets.

Competing with dominant local players, such as Kakao, Line, Naver, and SK Telecomis not an easy task for smaller app developers. These large corporations achieve the best revenue figures because they command impressive brand power.

Kakao, the biggest mobile messenger in the Korean market, recently filled 19 of the 20 top grossing mobile apps in Korea. Unlike in Japan and China where local apps compete on a more level playing field, with breakaway success stories regularly occurring, Korean consumers rarely download games developed by local Korean entrepreneurs, unless they have an affiliation (brand connection) with a major distributor, such as the Kakao Games platform.

How it’s currently set up and how Google can change it all
Korean mobile start-ups are eagerly looking for new ways to promote their games without going through companies like Kakao. While Kakao is a sound distribution platform, 21 per cent of revenue goes to Kakao. In addition, Google and the mobile carriers also receive their cut of 30 per cent through the app stores. Under these conditions it is difficult for smaller developers to get noticed, and even reasonable success often does not translate to strong revenue as so much is siphoned off before the developers get their cut.

In order to fight back against the “Kakao tax”, Google is offering to lend its own brand to local Korean app developers. This will allow for the smaller companies to gain direct brand recognition from Google, and so increase their own exposure and build reputation. The power of the Google name will also enable local Korean players to more effectively engage in overseas markets.

The deal does come with a contingency though. Should developers choose to become a Google affiliate,the app must be exclusively offered in the play store, hindering the opportunity to expand on to other platforms later on. Overall, however, it is an appealing option for Korean startups who want to avoid the “Kakao Tax”, and expand more quickly both in Korea and overseas. Considering the importance of brand power in Korea, this may be best option for Korean startups to avoid the Kakao tax and begin controlling a larger proportion of revenue from their apps.