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The Spinoff Samsung Regrets

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The Spinoff Samsung Regrets

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Nine out of ten smartphones in Taiwan are fitted with its Line app. It has left Google to starve in South Korea, and captured the hearts of Japanese gamers. What was Samsung thinking when it let this online juggernaut go?

The Spinoff Samsung Regrets

By Fuyuan Hsiao
From CommonWealth Magazine (vol. 508 )

A decade ago, Samsung made a costly decision, missing out on an Internet company that now pulls in an annual operating revenue of NT$55 billion, equivalent to the combined annual operating revenue of Taiwan's top five LED makers.

In 1999 the Samsung Group spun off Internet search company NHN as an independent company, and it went public on the Korean exchange three years later. At the time, Samsung was not optimistic about Internet business prospects and so promptly dumped its entire 20-percent stake in NHN. Today, NHN is not only South Korea's biggest Internet company and biggest online gaming portal, it's also the country's most valuable Internet company (in excess of NT$350 billion). NHN shares hover in the NT$7,200-plus range, more than four times the price for shares in old-school chaebol LG.

About an hour's drive from Seoul into surrounding Gyeonggi Province lies the largely residential city of Seongnam and its upscale Bundang District, a favorite with South Korean celebrities. Soaring high above the surrounding cityscape is a green glass and steel office tower known as the "Green Factory," the English letters "NHN" casually displayed across the building's facade as if from matchsticks arranged across a green screen.

"Samsung really regrets it now. It has to be their worst decision ever," says former judge and current CEO of NHN Sang Hun Kim, unable to suppress a chuckle as he sits in his minimalist office.

Founded only 13 years ago, NHN is the pride of South Korea in Internet circles.

NHN offers three main products, all of which are, if not the biggest Korean brand, soon to be so: the Internet search engine "Naver," the online gaming portal "Hangame" and NHN's "Line" instant messaging software.

The group's flagship Naver search engine accounts for half of its operating revenue. "In Korea, it's far, far ahead of Google," Kim says, with around 70 percent of the market, compared with just two percent for Google.

As Kim sees it, Naver's besting of global titan Google has nothing to do with Koreans' much-vaunted patriotism, but is rather because "we put the demands of our users first."

Naver's formula for success has been to exhaustively analyze user habits to provide integrated search services. For example, in searching for a certain person's date of birth, academic background, publications and other details, all relevant information would appear on a single search page, like a complete individual database.

"You'd be really hard pressed to find any content provider in South Korea that doesn't cooperate with us," Kim boasts.

Yet in another sense, NHN would never have gotten where it has so quickly without a massive infusion of governmental might.

With the Internet really beginning to take off in the late 1990s, the South Korean government was enormously supportive of the Internet industry. Government spending on basic infrastructure created the world's fastest broadband network with the most extensive coverage, and made South Korea the most wired nation on the planet.

"The South Korean government always stays ahead of market demand," Kim says, adding that government efforts to develop the Internet industry were not direct subsidies targeting specific companies but rather creating the conditions under which the companies themselves could thrive.

Another key to NHN's success during its decade-plus in the arena has been in taking its battle plan to the "regional theater" right from the start.

Japan has become NHN's first overseas beachhead. Since becoming available to the avid gamers in the Japanese market, NHN's Hangame portal now has some 35 million Japanese subscribers. In other words, something like one in every four Japanese subscribes to Hangame.

The group's latest killer offering is its "Line" instant messaging/chat software, which allows users to chat and transmit audio, video and image files for free.

NHN's Japan unit developed the Line software and launched it in June of last year. Within two months, the service already had more than 20 million users, setting a new record for social media software. Global social media giants Twitter and Facebook took 34 months and 38 months, respectively, to reach 20 million users.

"As of this morning (18 Sept), the number of Line users has reached 63 million," says NHN senior manager Lee In Sik, who pores over the latest figures all day. In Taiwan, Line now has 8.2 million users, with roughly nine out of every ten smartphone users having Line installed, Lee says.

What is the magic formula? Line's grand slam came in the form of the endearing designs of its emoticons, says Kang Hyun Bin, director of business operations for Line. Their core strength lies in a group of designers who came up with, for example, nine different visual variations depicting "crying" alone.

Feng Yan-wen, founder of Taiwanese mobile instant messaging app company Cubie, says at first glance the emoticon strategy appears easy to replicate, but it's a lot harder than it looks.

"It requires a sense of taste," he emphasizes, saying consumers are now embracing the Line mascot to virtually the same degree as Hello Kitty.

In summary, Feng says companies should take heart that Line's success relied upon electronic stickers rather than some powerful function, the lesson being: "You may only need to make a small change to make users look at your products in a whole new way."

Today Korea, Tomorrow the World

NHN would be the first to admit they are a world apart from the traditional Korean corporate giants, but they do share one major common aspiration: to always challenge the biggest players. Hangame is now competing in the Chinese, Japanese and U.S. Markets, Naver has its sights set on Google, and Line is sizing up Facebook. Korea alone will not be a big enough pond to satisfy NHN.

As he waxes eloquent, Sang Hun Kim, who once served as general counsel for LG Group for 11 years, suddenly retrieves two "Asia Law" awards from his desk to offer as proof that he was indeed named best corporate general counsel in Asia two years running.

"I spent every moment thinking of how to innovate," Kim says, immaculate in his crisp, starched white shirt and sharply knotted necktie, displaying not a hint of the casual, up-and-coming technology maverick but rather his solid, fiercely competitive, in-it-to-win-it Korean genes.

Translated from the Chinese by Brian Kennedy

Keywords:

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