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Korea's NHN to Drop Yahoo's Internet Search Service, Use Own Technology
NHN Corp., owner of South Korea’s largest Internet search engine, will discontinue using Yahoo! Inc.’s online search-advertising service and replace it with its own technology.
NHN will use its Click Choice service after the company’s contract with Yahoo’s Overture Services Inc. expires in the second half of this year, Seongnam, South Korea-based NHN said in a statement today. Chief Executive Officer Kim Sang Hun said the Korean company “desperately” needs a more flexible system that’s suitable for Korean advertisers.
The move is a blow for Yahoo’s business in Asia’s fourth- largest economy, where NHN’s Naver search engine controls an estimated 65 percent of Web queries. Overture may lose all its business in South Korea’s 1 trillion won ($836 million) online advertising market as it is replaced with local technologies, said Choi Chan Seok, a Seoul-based analyst at KTB Securities.
“From an advertiser’s point of view, it’s inconvenient to use a platform that NHN doesn’t use,” Choi said. “Their opportunities will be reduced in the next two or three years, as it doesn’t have competitiveness,” he said of Overture.
Overture said in a statement it will continue to work with Korean companies.
Desperate Need
“We desperately need an advertising platform that’s more flexible and effective, with closer ties to the local market to respond to advertisers’ expectations promptly,” NHN Chief Executive Officer Kim said during a conference call.
Daum Communications Corp., which owns the second-most popular Internet search engine in South Korea, signed an agreement with Overture last year to use its service and has no plan to replace it, company spokesman Lee Yong Wook said.
NHN gained 2.9 percent to close at 196,500 won on the Korea Exchange, after rising as much as 4.2 percent following the announcement.
“I expect higher profitability as NHN can now absorb costs internally,” said Jay Park, a Seoul-based analyst at Samsung Securities Co. “They will be able to manage the quality of advertisements more systematically, and it could lead to an improvement in quality.”
Advertisement Fees
Advertisements through Overture’s service look like Internet search results, except that websites label them as “sponsored links.” The links appear on the top section of search results on Naver, which costs advertisers more than links placed lower in the page, said NHN Spokeswoman Ryu Han Na.
Overture receives advertisement fees for this service from search engines based on the number of clicks on links it generates, according to the company’s Korean Web site.
KTB’s Choi said Overture typically gets about 20 percent of sales from links it provides for its partners, while Ryu declined to say how much Naver pays Overture in fees.
Yahoo Chief Executive Officer Carol Bartz, in the second year of a turnaround effort, is planning to use Microsoft Corp.’s Bing search product on its sites and sell ads next to the results as part of a 10-year agreement.
Yahoo, owner of the second-most popular U.S. Internet search engine, reported in July that its search-based advertisement sales fell 8 percent in the second quarter from a year earlier, after a 14 percent decline in the previous quarter. Display ad revenue, including banner ads, rose 19 percent in the second quarter.
Yahoo bought Overture in 2003 for $1.63 billion to increase revenue from Web advertisement search and compete with Google Inc. Overture was started in 1998 by Internet investor Bill Gross and first became profitable in 2001.
To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net
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