[Initial Moment] The Era of Winner-Takes-All

Kim Beom-su, Chairman of Kakao, attended the National Assembly's inspection of the Fair Trade Commission held by the National Assembly's Political Affairs Committee on the 5th, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Ji Yeon-jin] If we were to name the biggest beneficiary of COVID-19, it would undoubtedly be Kakao. As the unprecedented pandemic swept across the globe, the policy funds released by various countries led to a stock investment frenzy, significantly boosting Kakao's corporate value. Kakao's market capitalization was 13.5462 trillion KRW in January last year but grew more than fivefold to 69.6969 trillion KRW by June this year. During this period, its ranking in the KOSPI market capitalization jumped from 23rd to 2nd place. Meanwhile, platform competitor Naver's market cap only roughly doubled in the same timeframe.

The soaring value of Kakao was driven by the growth potential of its platform based on KakaoTalk. Starting as a messenger app, Kakao expanded its business by acquiring Daum and branching into commerce, mobility, finance, gaming, and music. However, last month, with the government's platform regulations taking effect, Kakao's stock price plunged nearly 25%. Kakao Pay, preparing for a KOSPI listing, had its IPO schedule postponed due to concerns over potential violations of the Financial Consumer Protection Act related to its financial intermediary services.

Government regulation of platforms is not unique to South Korea. In June, the United States saw bipartisan introduction of an 'antitrust package' bill by Democrats and Republicans. China began enforcing platform regulations in earnest after releasing an antitrust amendment draft in January last year. Europe proposed the Digital Services Act last year, which includes measures to regulate platform content moderation, enhance transparency in online advertising, and recommendation systems. Big tech companies have faced growing criticism for strengthening their dominant market positions by acquiring small businesses and startups through mergers and acquisitions (M&A), thereby eliminating potential competitors.

Monopolistic companies grow by increasing users and market share, effectively stifling competitors. Platforms, whose influence grows with the number of users, operate in a winner-takes-all structure. Therefore, fostering free market competition is one of the government's key roles. Yet, the government has long acted as a strong supporter of the sprawling expansion of platform companies. An analysis by Yoon Kwan-seok, a member of the National Assembly's Political Affairs Committee from the Democratic Party, of corporate merger reviews for Kakao and Naver affiliates over the past five years from 2017 to the first half of this year found that all 76 merger reviews?44 for Kakao and 32 for Naver?were approved. Kakao further expanded its size in the first half of this year by establishing or investing in 18 companies and currently has 128 subsidiaries.

While Kakao has indeed improved our quality of life with innovative services, indiscriminate business expansion and winner-takes-all profit models should be approached with caution. For example, Kakao Taxi, which initially offered free rides to ease the hassle of catching a taxi late at night and rapidly increased its user base, now generates revenue by charging extra fees for faster taxi bookings. It has been criticized for discriminating between affiliated and non-affiliated taxis and imposing excessive commissions, sparking controversy over infringement on local businesses. This is reminiscent of Naver's withdrawal from real estate listings, restaurant recommendations, and food delivery services in 2013 due to similar local business infringement issues.

What is regrettable is the timing of the government's and ruling party's sudden move toward comprehensive platform regulation. With the presidential election approaching next year, it is easy to misunderstand this as an attempt to control platforms that could influence public opinion.

This content was produced with the assistance of AI translation services.