3/18/20111Competitive behavior in the Korean search marketMIT Students3/18/20112Table of contents Firm background Challenges facing the firm Strategy Technology3/18/20113Firm background Founded in 1995, Daum is the 2ndlargest web portal in South Korea, offering services such as e-mail, search, online communities, maps, shopping, news, and much morePortalSearchCafeE-MailDaum’s business is mostly ad-driven3/18/2011452%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%2Q093Q094Q091Q102Q10SearchDisplayTransactionDaum % of revenues by business segment95% ad-driven in MRQ3/18/20115It competes in a two-sided marketNetwork effectNetwork effectMore informationPlatform providerInternet portal siteMore traffic$PriceQuantityPriceQuantityNew QNew QOld QOld QOld PNew POld PNew PUser Demand Advertiser DemandIncreased advertiserdemand from sitetraffic explosionUsersAdvertisersImage by MIT OpenCourseWare.3/18/20116In the past, strategic focus drifted…1995~20012008~2009SearchLocal SearchDaum media • News • Open community• Try to globalize Mobile2009~2002~20052006-2007Open the Korean Internet world• Free email • Online communityDaum UCC media • Video service• Open communityMulti-windowNAVER… and now must play catch up with the competition3/18/20117051015FY06FY07FY08FY09FY10DaumNaver0%10%20%30%40%FY06FY07FY08FY09FY10DaumNaverRevenues Net Profit Margin Daum: 108.2bn won Naver: 928.7bn wonMarket capitalization8.6x differenceDaum has begun gaining ground3/18/201180%10%20%30%40%50%60%70%80%90%100%Jan-06May-06Sep-06Jan-07May-07Sep-07Jan-08May-08Sep-08Jan-09May-09Sep-09Jan-10May-10naver.comdaum.netempas/nateyahoo.co.krOthers 64.56%22.24%Search Market Share (by query) Aug 2010 Monthly UV/PVDomainUVPV (000s)Naver31,031,414 24,590,337 Daum28,925,149 17,356,675 Nate24,652,649 7,322,468 Yahoo!16,514,010 2,137,653 PVs (000s)DomainNewsE-mailCaféDaum3,152,332 2,313,115 5,586,706 Naver1,379,158 1,585,868 5,166,377 Nate1,865,440 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%3/18/20119Daum’s new strategy has 3 elements1 2 3IPTVKioskMobile Each is a part of a broader “multi-screen” strategy Focus is on providing more targeted local services, and expanding untapped network of local advertisers3/18/201110New 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 growth3.139.8521.05051015202520092010(E)2011(E)IPTVMAP_data/APISignage ADLocal Search ADTotal(Unit: KRW billion)Local Business3/18/201111A new ad bundling strategy will unlock additional revenueInitial Strategy: Bundling across platformsQPWeb adsQPKiosk adsQPMobile adsQPIPTV adsBundled adsFollow-On Strategy: Introduce individual platform option3/18/201112Local search designed to tap Longtail ad marketln(Sales) = 17.33 - 0.7615 * ln(Rank)ln(Sales) = 15.59 - 0.47628 * ln(Rank)Monthly recontract rate = 25% 9,000,0008,000,0007,000,0006,000,0005,000,0004,000,0003,000,0002,000,0001,000,0000 100 200 300 400 500 600 7001. Real Estate AdvertisingR2 = 0.8340000003500000300000025000002000000150000010000005000000179157235313391469547625703781859937105110931171124913271405148315611639171717952. Local AdvertisingR2 = 0.69Image by MIT OpenCourseWare.3/18/201113Questions?3/18/201114AppendixMobile 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 services1Digital signage / Metro Kiosks Currently ~900 digital signs placed in 117 subway stations  Daily average traffic of ~6mm people Exclusive business rights from Seoul Metro2IPTV Optimized marketing platform for local advertisers Expanding rapidly with the growth of digital TVs Collaboration with KT Qook, CJ Cable, and LG’s IPTV3MIT OpenCourseWarehttp://ocw.mit.edu 15.567 The Economics of Information: Strategy, Structure and PricingFall 2010 For information about citing these materials or our Terms of Use, visit: