In Korea, NHN Makes Google a Midget
Song Ji Won checks Google to look for English Web documents, but that's once in a long while. When the 20-year-old college student wants quick search results in her everyday life, she goes to her favorite portal: Naver, run by South Korean company NHN, No. 19 on this year's BusinessWeek Asia 50. "None of my friends pays any attention to Google when it comes to information in Korean," says Song.
Few would question Google's (GOOG) dominance in the U.S. and Europe, where the company rules Internet search (BusinessWeek.com, 6/17/08). Not so in northeast Asia, particularly in Korea, where Google is just a minnow. The benchmark search engine here is Naver. After eight years of Korean-language search service, Google accounts for less than 2.5% of search page views in Korea. That compares with 74% for Naver, which is expected to earn about $580 million in search-related ads this year.
One reason for Google's poor performance is the lack of abundant Web documents in Korean. Recognizing their advantage, NHN executives made concerted efforts to create their own content and build up Naver's database with partnerships with content owners. To keep its edge, NHN blocked rivals from accessing the trove. "Under such an environment, Google simply doesn't show relevant results appealing to local users despite its excellent search engine," says Wayne Lee, Internet analyst at brokerage Woori Investment & Securities.
Meeting the Net Needs of Koreans
One weapon NHN has used to slay Google is the ability to convince users to create content within its system. Take its six-year-old service called Knowledge-In. The program, since copied by other local portals, lets users ask and answer questions on anything from cooking recipes to life sciences. Readers judge the responses, and the millions of people who have answered questions are ranked as "ordinary," "knowledgeable," "highly knowledgeable," "supernatural," or "gods." Naver's database now has about 95 million questions-and-answers that can get returned with search results.
Knowledge-In is just one of many initiatives Naver has taken to get ahead of the pack. During the Beijing Olympics in August, for example, the Korean portal relayed every single development of popular baseball games virtually in real time in text for those unable to watch TV—updating the game every 10 seconds together with comments by two popular local coaches. During the final game, in which the Koreans won the gold medal, some 100,000 readers responded with their own comments, many of them to cheer the players.
NHN execs believe the company's dominance in Korea is thanks to its focus on identifying local Netizens' needs and ensuring they are met. "Our services during the Olympics are just one example of our strength in planning to differentiate ourselves," says NHN Director Kim Sang Hun. "It's a victory through thorough planning." The company has also forged partnerships with 800 organizations owning rich databases—including the government's Office of Statistics, the Parliamentary library, and the Korean Film Council—to make their data, images, and video available on the Web. It set aside nearly $50 million this year to finance such campaigns.
Asia Expansion Push
Google acknowledges that Korean portals' policy of preventing rivals from accessing their internal data has limited its growth. But more important, the U.S. search juggernaut has been slow in getting serious in Korea, where it set up a research and development center only late in 2006. "It takes more than a year for the R&D center to bring out localized services," says Google Korea spokesperson Lois Kim. "We are confident our presence in Korea will soon begin growing in earnest."
Yet with the prospect of a major economic slowdown at home and abroad, NHN investors seem to be taking a grim view of the hitherto star performer. NHN stock has plunged 37% so far this year, much worse than a 25% fall in the Seoul bourse's benchmark Kospi index. Woori Investment expects the company's operating profit to rise 36% to $481 million this year on revenues of $1.14 billion, up 37% from last year when sales grew a much faster 61%.
NHN insiders put on a brave face. Execs believe the company's new emphasis on its online games, which account for about 30% of its revenues, and a renewed push overseas will give it a fresh impetus for growth. Already in Japan, it is the largest game portal with 27 million subscribers. There NHN plans to reintroduce its search service later this year after pulling back in 2004 following four years of a disappointing experiment. If Japan proves a fertile ground for its search business, it will move on to China where it owns half of Ourgame.com, a large game portal there. "We don't think Google is a serious threat in Korea," says NHN Director Kim. "The challenge for us is our push overseas."