As Facebook buys WhatsApp, Korea’s top messaging app preps for an IPO

Kakao Corp., developer of Korea’s favorite messaging service and social platform, Kakao Talk, will be listing its stock publicly in May.

This follows the recent news that SundayToz also successfully listed its stock in August, 2013, and demonstrates further growth in the Korean tech industry, which has been attracting much attention in the international press recently.

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What’s more interesting, though, is the potential opportunity that Facebook has presented following news that the social giant will be forking out an enormous $19 billion for WhatsApp.

The Kakao Corp. we know today has a long story that began with a number of unsuccessful web 2.0 projects between 2006 and 2009.

Things began to change for the fledgling organization when the first smartphone was introduced in Korea in 2009. At this time the team saw the potential of the smartphone as a platform to build a world-class smartphone application.

Kakao Corp. was founded in 2010 by Beom-su Kim (founder of Hangame and former CEO of NHN – Korea’s largest Internet corporation) to fulfill this opportunity. Joining him were Sirgoo Lee and Jae-Bum Lee, who now serve as co-CEOs, with Beom-su Kim acting as chair.

Beom-su was also the initial financier, bringing to the table $100 million of his own capital.  Despite this enormous boost in its early days, CEO Sirgoo Lee commented that the company has true startup DNA at its heart and went through great uncertainty as the team wrestled with finding a way of leveraging new opportunity.

The team developed and market-tested a total of 52 smartphone services before Kakao Talk was eventually created by a team of four people in just two months.

To bolster the company’s growth, prior to the implementation of a robust monetization strategy, Kakao received its first round of outside funding in August 2011 from Maverick Capital (U.S.) and Cyber Agent Ventures (Japan).

The burgeoning organization then received another huge injection of funding in May 2013 in a series B round from Tencent (China). This round, worth $62.9 million, gave Tencent a 13 percent stake in the company and was used primarily for Kakao’s overseas expansion. Worthy of note is that no Korean investors have a stake in the company, seemingly missing out on one of Korea’s most noteable investment opportunities.

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Kakao Talk began as a simple messaging application that gained immediate popularity in Korea. There have been a number of services added that aim to build out a full social network for its users. For its pioneering efforts in this respect, Kakao Talk is seen as one of a number of new global social platforms that are predicted to have a major impact on smartphone usage in the future.

The major breakthrough in revenue generation was achieved in the summer of 2012 with the release of the hugely successful Kakao games platform. Within a year of its release the games platform had hit 30 million users and 400 million game downloads. This was achieved through the competitive social nature of the games distributed through the platform, which encourage users to compete against each other in weekly rankings which are posted publicly. In addition, game distribution through the platform is simple yet powerful, with viral uptake of new games being achieved through effective sharing between Kakao contacts.

In the first year of its release, being listed on the Kakao Games platform practically guaranteed game developers instant success, though as larger numbers of titles are added competition has increased and additional marketing activity has become necessary. Currently there are over 300 games on the platform, mostly by Korean developers, and in 2014 there is expected to be a large influx of games from outside Korea.

Kakao’s place in the Korean startup ecosystem:

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I have been working with Korean startups for over a year now and everyone has been yearning for a big exit to help fuel a ‘virtuous circle’ in the Korean startup ecosystem. Korea has many of the ingredients for building a thriving startup hub, including a population with an exceptionally high level of education, an increased appetite for risk by budding entrepreneurs, a powerful work ethic, an ambitious community of world class developers, and healthy levels of investment capital for new ideas, and a hugely supportive government that has made $3Bn available for startups in 2014 and has served to legitimize entrepreneurship in a traditionally conservative country.

One of the key elements that is missing in Korea is a pool of experienced entrepreneurs who can mentor and lead the next generation of startups. Additionally, there is a particular lack of entrepreneurs with experience of building successful services for the global market. It is hoped that with the Kakao IPO, this last piece in the puzzle will be slotted into place, and will help to fuel an injection of early capital and a pollination within the domestic scene of a new breed of Korean entrepreneur with global experience.

Key Milestones in Kakao’s development:

• March 2010: Kakao Talk Launched by Kakao Corp.
• August 2011: Series A investment from Maverick Capital and Cyber Agent Ventures
• March 2012: Kakao releases Kakao Story, which bacame the most popular social networking service in Korea. It still has more Korean users than Facebook.
• July 2012: Kakao releases its first game, Anipang, which becomes an immediate sensation in Korea.
• August 2012: Kakao hits 55M users, 50% of whom are Korean.
• December 2012: Kakao passes 70M users, more than 50% of whom are now outside Korea.
• 2012: Kakao’s first profitable year, following successful launch of their games platform
• February 2013: Kakao releases its games platform on iOS
• May 2013: Series B funding raised from Tencent
• June 2013: Kakao CEO, Sirgoo Lee, outlines his vision of the Future of mobile platforms
• July 2013: Kakao passes 100M global downloads
• September 2013: Kakao releases Angry Birds on its platform, their first overseas title
• October 2013: Kakao releases it’s music streaming service and achieves 2M downloads in 4 days
• February 2014: Kakao Corp. announces date of IPO

Kakao Talk’s main services and features:

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• Kakao Talk, a social messaging application for mobile and PC
• Kakao Story, a social service like Facebook where content can be shared
• Plus Friends, a service that connects fans to their celebrity idols
• Free calls and conference calls
• Photo, video, and contact information sharing
• Kakao Games, a social mobile gaming distribution platform
• Kakao is currently available in 12 languages
• Kakao plans to release a news service later this year

Kakao has enjoyed rock-star success in its native Korea, but the company has struggled to gain the same traction overseas. When I spoke with CEO, Sirgoo Lee, he freely admitted that they were late in their international strategy, opting to focus first on creating a powerful platform before expanding their user-base overseas. This strategy has meant that while Kakao boasts a market leading social platform, the company is now playing catch-up in overseas markets. WeChat is China’s domestic messaging app that dominates China and has considerable take-up in SE Asia. Line, released nine months after Kakao Talk, dominates the Japanese market, as well as Indonesia, other parts of SE Asia and Latin countries including Spain and South America. WhatsApp and Viber have also risen to dominance in the West, and are adding some of the features of Kakao Talk, such as gaming and stickers.

Messaging Platforms are Hot

As has been clearly demonstrated in the last week, messaging apps that can become a part of a social platform are exceptionally hot property these days. Only last week Rakuten bought Viber for $900M in order to build out its digital empire. And today news that Facebook has acquired WhatsApp for an incredible $19Bn.

This story originally appeared on BeSUCCESS. Copyright 2014

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