Cash-strapped

Kakao Talk, Line struggling to find revenue models

Social networking services (SNS) have cropped up like mushroom in Korea, but many have soon perished or lost their ground for a lack of solid and sustainable revenue model.

The country’s leading SNS providers such as Cyworld, Kakao Talk, Line, and, My People, have tried hard to keep afloat, but their endeavors to find cash cows have yet to bear fruit.

Analysts said the four have managed to survive thanks to their relatively affluent user base and cash reserves. But they warned these elements will become helpless soon, saying their longevity hinges on how well they develop sound business models.

Cyworld, once an SNS phenomenon here in the early 2000s before losing ground to Facebook and Twitter, posted an operating loss of 8.2 billion won ($7.23 million) in the second quarter, the third consecutive quarter of deficits. It posted 54 billion won in sales in the April-June period, down 19.5 percent from a year ago.

A major culprit behind the poor performance is declining sales of “Dotori,” cyber cash available in Cyworld to buy decorative items for one’s homepage. Cyworld earned more than 100 billion won in 2009 selling Dotori, but now the sales have halved.

Cyworld has employed various paid services, including live music streaming and video on demand services, but none of them are as successful as the cyber cash.

Kakao Talk made its brilliant debut in March 2010 as the country’s first mobile messenger service. It saw more than 50 million subscribed users in one year, becoming the undisputed kingpin in smartphone-based messenger services.

In June, Kakao Talk launched its own cyber currency called Choco, available to buy emoticons at the firm’s app store.

It’s too early to say whether it is a successful tool in money-making. But many analysts seem positive, raising speculation that Kakao Talk will widen the use of Choco to other soon-to-be-released platforms such as games and social commerce.

Two rising competitors — Line and My People — will face similar challenges, analysts said.

Line, run by the country’s largest portal Naver, has nearly 40 million subscribed users. Another messenger My People, run by second-largest portal Daum, has more than 22 million users. The two currently run smoothly without financial trouble thanks to their rich operators.

But analysts said it’s a matter of time to see them flexing their corporate muscles to come up with a revenue model.

“An increase in the number of users of Line and My People will lead to an increase of cost to maintain services. Considering this, their operators will eventually seek ways to make money,” said Lee Sun-ae, a researcher at IBK Securities. <The Korea Times/Park Si-soo>

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