With $200 Million in Revenue, South Korea's Top Messaging App Is All Smiley Faces

The KakaoTalk messaging app. Courtesy KakaoTalk Close

The KakaoTalk messaging app. Courtesy KakaoTalk

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The KakaoTalk messaging app. Courtesy KakaoTalk

In South Korea, there's no escaping KakaoTalk. The country has a smartphone penetration rate of 73 percent, according to research firm EMarketer, and of those people, 93 percent use the mobile messaging app Kakao, says Nielsen.

Kakao expects its app will generate about $200 million in revenue this year, according to the company's forecasts. That's compared with $42 million last year, with a profit of $6.5 million.

But with little room left to grow in its home country, Kakao is looking elsewhere. That's harder than it seems. Nearby Asian countries have already picked their favorite messaging apps. Line is wildly popular in Japan, and Tencent's WeChat dominates China with more than 230 million users.

So, Kakao Co-CEO Sirgoo Lee aims to take a piece of Indonesia, the Philippines and Vietnam before his rivals can spread there. The company started to actively market its software in Southeast Asia last year.

"We're looking at markets where there isn't a predominant player, but smartphones are on the rise," Lee says in an interview.

Seoul to Manila is about a three-hour flight, but there are countless cultural differences between the two. That's why Kakao adapts its software to each market by recruiting local artists to make virtual stickers sold through the app and by bringing on local businesses. Lee is mulling further localization techniques.

"Customization is key," he says. "Currently, our yellow color really works in Korea, but maybe people in Indonesia like orange. So we'd change our color to orange, and the user interface might become different."

Kakao's strategy is starting to pay off. The application has 130 million users. Korea's population is 50 million.

But the startup is picking its battles carefully. Kakao pulled back its efforts in South America because marketing there proved to be too expensive. Europe is culturally fragmented, and his customization strategy could be too cumbersome. WhatsApp, based in Santa Clara, California, said last week that it has 400 million active users globally, and other Silicon Valley companies, including Facebook and Twitter, have made forays into mobile messaging. Kakao isn't rushing into that skirmish.

"The culture there is very different," Lee said. "It's a huge market, and we don't think right now is the right time to spend the marketing dollars."

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