Competitive behavior in the
Korean search market
MIT Students
1
3/18/2011
Table of contents
 Firm background
 Challenges facing the firm
 Strategy
 Technology
2
3/18/2011
Firm background
 Founded in 1995, Daum is the 2nd largest web portal in South
Korea, offering services such as e-mail, search, online
communities, maps, shopping, news, and much more
3
Portal
Search
E-Mail
Cafe
3/18/2011
Daum’s business is mostly ad-driven
Daum % of revenues by business segment
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
6%
6%
7%
42%
44%
46%
39%
5%
44%
95% addriven
in MRQ
52%
50%
47%
2Q09
3Q09
4Q09
Search
4
5%
Display
56%
1Q10
51%
2Q10
Transaction
3/18/2011
It competes in a two-sided market
User Demand
Advertiser Demand
Price
Price
Increased advertiser
demand from site
traffic explosion
New P
Old P
Old P
New P
Quantity
Old Q
Quantity
Old Q New Q
New Q
More traffic
Network effect
Users
Advertisers
More
information
Network effect
$
Platform provider
Internet portal site
Image by MIT OpenCourseWare.
5
3/18/2011
In the past, strategic focus drifted…
Multi-window
Daum media
• News
• Open community
• Try to globalize
1995~2001 2002~2005
Daum UCC media
• Video service
• Open community
2006-2007
2008~2009
Mobile
2009~
NAVER
Open the Korean Internet world
• Free email
• Online community
6
Search
Local Search
3/18/2011
… and now must play catch up with the competition
Revenues
Net Profit Margin
15
40%
30%
10
20%
5
10%
0
0%
FY06 FY07 FY08 FY09 FY10
Daum
Market
capitalization
7
FY06 FY07 FY08 FY09 FY10
Naver
 Daum: 108.2bn won
 Naver: 928.7bn won
Daum
Naver
8.6x difference
3/18/2011
Daum has begun gaining ground
Search Market Share (by query)
Aug 2010 Monthly UV/PV
100%
90%
~14%
80%
22.24%
70%
60%
50%
Domain
Naver
Daum
Nate
Yahoo!
UV
31,031,414
28,925,149
24,652,649
16,514,010
PV (000s)
24,590,337
17,356,675
7,322,468
2,137,653
40%
30%
64.56%
~74%
20%
10%
naver.com
daum.net
empas/nate
yahoo.co.kr
Share of search queries is
growing…
8
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
0%
Others
Domain
Daum
Naver
Nate
Yahoo!
News
3,152,332
1,379,158
1,865,440
580,500
PVs (000s)
E-mail
2,313,115
1,585,868
1,027,160
165,767
Café
5,586,706
5,166,377
497,766
-
…and share of Unique Visitors and
Page Views is highly competitive
3/18/2011
Daum’s new strategy has 3 elements
1 Mobile
2 Kiosk
3 IPTV
 Each is a part of a broader “multi-screen” strategy
 Focus is on providing more targeted local services, and
expanding untapped network of local advertisers
9
3/18/2011
New platforms allow for greater focus on local search
 Customers segmented by geo-targeting, geo-location keywords, and IP
addresses across multiple platforms using “Rainbow System” for local ad
sales
– Mobile, IPTV, Kiosks
 Expose right customers to right ads
 Expected to drive significant revenue growth
Local Business
25
21.05
20
IPTV
MAP_data/API
15
Signage AD
9.85
10
5
(Unit: KRW billion)
Local Search AD
Total
3.13
0
2009
10
2010(E)
2011(E)
3/18/2011
A new ad bundling strategy will unlock additional revenue
Initial Strategy: Bundling across platforms
P
Web ads
P
Mobile ads
Q
Q
P
Kiosk ads
P
Q
Bundled ads
IPTV ads
Q
Follow-On Strategy: Introduce individual platform option
11
3/18/2011
Local search designed to tap Longtail ad market
1. Real Estate Advertising
2. Local Advertising
9,000,000
4000000
8,000,000
3500000
7,000,000
R2 = 0.83
6,000,000
3000000
R2 = 0.69
2500000
5,000,000
2000000
4,000,000
1500000
3,000,000
2,000,000
1000000
1,000,000
500000
100
200
300
400
500
600
700
0
1
79
157
235
313
391
469
547
625
703
781
859
937
1051
1093
1171
1249
1327
1405
1483
1561
1639
1717
1795
0
Image by MIT OpenCourseWare.
ln(Sales) = 17.33 - 0.7615 * ln(Rank)
ln(Sales) = 15.59 - 0.47628 * ln(Rank)
Monthly recontract rate = 25%
12
3/18/2011
Questions?
13
3/18/2011
Appendix
14
3/18/2011
1
Mobile service offerings
m.daum.net
Strategic Apps
 Optimized for mobile environments, including iPhone & Android
 Currently offering 25 services on m.daum.net(email, café, news, dictionary, stock
and more) and 8 application based services
2
Digital signage / Metro Kiosks
 Currently ~900 digital signs placed in 117 subway stations
 Daily average traffic of ~6mm people
 Exclusive business rights from Seoul Metro
3
IPTV
 Optimized marketing platform for local advertisers
 Expanding rapidly with the growth of digital TVs
 Collaboration with KT Qook, CJ Cable, and LG’s IPTV
MIT OpenCourseWare
http://ocw.mit.edu
15.567 The Economics of Information: Strategy, Structure and Pricing
Fall 2010
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