15.567 student project, competitive behavior in the korean ... · new platforms allow for greater...
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Competitive behavior in the Korean search market
MIT Students
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Table of contents Firm background
Challenges facing the firm
Strategy
Technology
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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
Portal Search
CafeE-Mail
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Daum’s business is mostly ad-driven
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52% 50% 47%56%
51%
42% 44% 46%39%
44%
6% 6% 7% 5% 5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2Q09 3Q09 4Q09 1Q10 2Q10
Search Display Transaction
Daum % of revenues by business segment
95% ad-
driven
in MRQ
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It competes in a two-sided market
Network effectNetwork effect
More information
Platform providerInternet portal site
More traffic
$
Price
Quantity
Price
Quantity
New Q New QOld Q Old Q
Old PNew P
Old PNew P
User Demand Advertiser Demand
Increased advertiserdemand from sitetraffic explosion
Users Advertisers
Image by MIT OpenCourseWare.
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In the past, strategic focus drifted…
1995~2001 2008~2009
Search Local Search
Daum media
• News
• Open community
• Try to globalize Mobile
2009~2002~2005 2006-2007
Open the Korean Internet world
• Free email
• Online community
Daum UCC media
• Video service
• Open community
Multi-window
NAVER
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… and now must play catch up with the competition
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0
5
10
15
FY06 FY07 FY08 FY09 FY10
Daum Naver
0%
10%
20%
30%
40%
FY06 FY07 FY08 FY09 FY10
Daum Naver
Revenues Net Profit Margin
Daum: 108.2bn won
Naver: 928.7bn won
Market capitalization 8.6x difference
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Daum has begun gaining ground
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan
-06
May
-06
Sep
-06
Jan
-07
May
-07
Sep
-07
Jan
-08
May
-08
Sep
-08
Jan
-09
May
-09
Sep
-09
Jan
-10
May
-10
naver.com daum.net empas/nate yahoo.co.kr Others
64.56%
22.24%
Search Market Share (by query) Aug 2010 Monthly UV/PV
Domain UV PV (000s)
Naver 31,031,414 24,590,337
Daum 28,925,149 17,356,675
Nate 24,652,649 7,322,468
Yahoo! 16,514,010 2,137,653
PVs (000s)
Domain News E-mail Café
Daum 3,152,332 2,313,115 5,586,706
Naver 1,379,158 1,585,868 5,166,377
Nate 1,865,440 1,027,160 497,766
Yahoo! 580,500 165,767 -
Share of search queries is
growing…
…and share of Unique Visitors and
Page Views is highly competitive
~14%
~74%
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Daum’s new strategy has 3 elements
1 2 3 IPTVKioskMobile
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
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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
3.13
9.85
21.05
0
5
10
15
20
25
2009 2010(E) 2011(E)
IPTV
MAP_data/API
Signage AD
Local Search AD
Total
(Unit: KRW billion)
Local Business
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A new ad bundling strategy will unlock additional revenue
Initial Strategy: Bundling across platforms
Q
P Web ads
Q
P Kiosk ads
Q
P Mobile ads
Q
P IPTV ads
Bundled ads
Follow-On Strategy: Introduce individual platform option
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Local search designed to tap Longtail ad market
ln(Sales) = 17.33 - 0.7615 * ln(Rank) ln(Sales) = 15.59 - 0.47628 * ln(Rank)
Monthly recontract rate = 25%
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0 100 200 300 400 500 600 700
1. Real Estate Advertising
R2 = 0.83
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
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
2. Local Advertising
R2 = 0.69
Image by MIT OpenCourseWare.
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Questions?
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Appendix
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Mobile service offeringsm.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
1
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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
2
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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
3
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MIT OpenCourseWarehttp://ocw.mit.edu
15.567 The Economics of Information: Strategy, Structure and Pricing
Fall 2010
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