A CASE STUDY ON KAKAO’S RESILIENCE: BASED ON FIVE LEVERS OF RESILIENCE THEORY

SONG MINZHEONG

Hansei University E-mail: [email protected]

Abstract- The purpose of this study is to prove the Korean Internet company, Kakao’s resilience capacity. For it, this paper reviews the previous literatures regarding Kakao’s business models and discusses ‘resilience’ theory. Then, it organizes the research questions based on the theoretical background and explains the research methodology. It investigates the case of Kakao’s business and organization.The case analysis shows that five levers of resilience are a good indicator for asuccessful platform business evolution. The five levers are composed of coordination, cooperation, clout, capability, and connection: First lever, coordination that makes the company to restructure its silo governance in order to respond to actual business flow starting from the basic asset like game and music content; second lever, cooperation where the firm provides creative people with playground for startups such as KakaoPage; third lever, clout where the company shares its data by opening its API of AI and chatbot to 3rd party developers; fourth lever, capability where the firm establishes AI R&D center, KakaoBrain as the function of multi-domain generalist for developing diverse platforms tackling customer needs; and the last fifth lever, connection where the firm continues to expand its platform business to the peripheries, O2O businesses such as KakaoTaxi, KakaoOrder, KakaoPay, and KakaoBank. In conclusion, this study proposes Internet companies to be a resilient platform utilizing those five levers of resilience in order to form successfulplatform. This study contributes to the agileinnovation of Internet platformcompanies with ecological sense.

Keywords- Kakao, resilience theory, business model, agile innovation

I. INTRODUCTION Internet companies confronting those business environments should be resilient and there are two Internet firms are expanding their business domain concepts in business and organizational resilience. The from PC and mobile applications to Internet of Things first is the physiological significance. In physics, the (IoT) and Artificial Intelligence (AI). For such firms, resilience of matter refers to the force that is overseas expansion is inevitable, given the limited transformed by external forces and then returns to its growth potential of the domestic market. In this original shape and size. Likewise, the firm’s resilience environment, global players are investing in human also means the ability to restore the firm’s damage resources and mergers and acquisitions (M&As). from an unexpected change back to its previous state. However, overall the business environments are Resilience in this respect is focused on strategies or compressed with the keywords such as complexity, competencies that can quickly return to a certain level high-tech, agility, openness and slowdown [1]. of performance. The second is the resilience of an As the complexity of modern society increases, the extended meaning that develops new competencies information flowis easier as information and beyond the recovery and creates new opportunities. It communication technology (ICT) develops. In is the resilience of ecological meaning. Firms with addition, changes in laws and regulations, the roles these resiliencies continue to evolve as they have the and policies of governments, changes in the capacity to transform change or unanticipated competitive structure due to M&As, diversification challenges into opportunities. A resilient company and globalization of consumer needs, and technology does not focus solely on solving the difficulties that it convergence are also increasing the complexity of faces by using resilience as its core competency, but modern society. turning it into an opportunity to build a successful This is an important task in business management. future. From the perspective of corporate resilience, it Due to the rapid convergence of ICT-based industry is necessary to focus more on the development through convergence andthe creation of new value, companies overcoming the crisis rather than merely restoring the need to develop products and services that state before the crisis. As a result, firms with high arecompletely different from the existing ones and levels of resilience in the ecological sense successfully they must strive to secure superiority. Corporate overcome the risks associated with a complex innovation is related to the strategies and resources economic and business environment and effectively that the firm pursues and the core competencies it has. achieve the firm’s ultimate goals. As a method, the integration of production processes, With solid growth in its core revenue sources of ads, products, services, technology, and industry can be content, and commerce, Kakao is enjoying the growth considered. Companies are in a position to spur on of revenue and operating profit thanks to the mobile ad building sustainable competitive advantage and revenue. However, game revenue growth was sluggish, achieving substantial results by establishing strategies as Kakao platform games were overshadowed by the and using resources related to the utilization of ICT. popularity of mobile MMORPGs. Kakao tries to

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 1 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory develop new businesses like KakaoMobility. It was secured about 210,000 drivers, which meant that 85% recently launched and Kakao has a 69% stake in this. of taxi drivers in South Korea employed it. On March KakaoMobility plans to further monetize KakaoTaxi 2016, the first anniversary of launch, calls via by advancing into B2B taxi services and also launch a KakaoTaxi reached 80 million. The calls broke 310 parking app called KakaoParking. Recent KakaoBank million in Feburuary 2017 and KakaoTaxi has been in which Kakao owns a 10% stake, has displayed considered an innovative service to solve a mismatch impressive growth since its launch. Kakao plans to between supply and demand in the taxi industry, and link KakaoBank to its KakaoPay service. also regarded as a symbolic model in the O2O The purpose of this study is to prove the Korean business. Based on the conjoint analysis, this study representative Internet company, Kakao’s resilience draws three attributes: Convenience, informativeness, capacity. For it, this paper will firstly review the and trust. Convenience was defined as a convenience previous literatures regarding Kakao’s business for consuming a product or a service, and models and discuss ‘resilience’ theory. Then, it will informativeness was a feature to help consumers and organize the research questions based on the providers recognize the others’ information before theoretical background and explain the research selecting them. And, Trust was defined as an attribute methodology. With this backdrop, it will investigate to make customers use taxi service without concerning the case of Kakao’s business and organization. safety.The result of this study reveals that trust is served as the most influential factor, meaning that taxi II. THEORYAND RESEARCH DESIGN consumers put a lot of weights on trust compared with the others. Also, informativeness is evaluated as a 2.1 Previous research about Kakao during powerful factor no less than trust. This implies that 2012~2016 removing opacity of existing taxi service is regarded The investigation period “2012~2016” is based on the as a significant change. Lastly, this study found out diversification strategy of KakaoTalk from instant that convenience functions as a meaningful factor in messaging (IM) to Social Network Service (SNS). estimating customers’ welfare resulted from During that time, lots of the academic research paper KakaoTaxi. about Kakao can be found. So, the research about Kakao is firstly introduced in this paper. In terms of 2.2Theoretical background the diversification strategy, Chung[2] has dealt with “Resilience” is a term with the meaning ‘to jump back’ SNS evolution with KakaoTalk. As of 2012, it was or ‘to spring back’, derived from the Latin word evolving into a SNS company based on its IM service, ‘resilio’. It means a property that returns to its original has successfully established various services such as state when an impact is applied and deformed. In 1961, photo-based KakaoStory, game marketing platform, the American Psychologist, Norman Garmezy began game center, etc. and it was also evolving into a social to study the theory of resilience, which was used media platform through news, avatars and app stores academically. In the plenary panel at the 2013 meeting through friends. of the International Society for Traumatic Stress Han and Cho [3] alsohandled use case of Kakao’s Studies, S.M. Southwick et al [5] discussed about the Kakaotalk as platform business model in 2015. This resilience researches and multidisciplinary experts study discussed how to create a value proposition and provided insight into several questions, and most of how organizations using the platform can cooperate the proposed definitions included a concept of healthy, and the use case indicated, a preparation, spread, adaptive, or integrated positive functioning over evolution (PSE) curve is a successful platform thepassage of time in the aftermath of adversity. The business evolution. This curve is composed of three panelists agreed that resilience is a complex construct phases: a preparation phase that establishes the andit may be defined differently in the context of platform and sets the target group, a spread phase individuals, families, organizations, societies, and where the firm provides killer content, such as cultures.With regard to the determinants of resilience, KakaoGame, a low pricing strategy, and there was a consensus that the empirical study of this reinforcement of the platform rules in the early stages constructneeds to be approached from a multiple level of the platform; and an evolution phase where the of analysis perspective that includes genetic, platform continues to evolve. This study proposes a epigenetic,developmental, demographic, cultural, platform evolution pattern that involves the PSE curve economic, and social variables. in order to form successful platform. This study In addition to psychology, there is a wide variety of contributes to the innovation for social platform topics such as sociology, social ecology [6], crisis businesses. management[7], urban planning, international Kim’s study [4] in 2017 is to find out effects of development, and engineering, as well as taxi-service employing online to offline(O2O) psychological research on ‘resilience,’ which refers to structure on consumer welfare. KakaoTaxi has a the ability to adapt to the situation. Ranjay Gulati of dominant mobile messenger service named Harvard Business School in his book “Reorganize for KakaoTalk occupying 96% market share in South Resilience” [8] said “resilient companies break down Korea. After launching in March 2015, KakaoTaxi internal barriers that impede action, build bridges

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 2 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory across divisions, and create a network of but the author is quite clear about some of the collaborators”. He also said, “the secret of corporate difficulties. “Outside in” thinking does not blindly survival today is resilience.” Resilience is also very mean following what the customer tells you to important in corporate organizations. Modern society do. Even the customers don’t know what they really is changing drastically as globalization progresses want, until the firm actually give it to them, as Steve rapidly. With the rapid development of technology, Jobs said. companies are constantly innovating to keep pace Gulati describes the five key levers that together with changing technologies. As a result, resilience is help create a resilient company: Coordination, playing an increasingly important role in the cooperation, clout, capability, and connection. Lever sustainable development of individuals, organizations, 1, coordination means aligning activities, process, and society. and information around the customer axis across units In a complex and constantly changing market with a company. The coordination means to connect, environment, only flexible, agile, changing eradicate, or restructure silos to enable swift companies can survive. In an unstable market responses. It is moving from intra-product-unit environment as well as a stable market, companies coordination to cross-enterprise coordination. There are threatened by sudden changes and paradigm shifts. are three kinds of coordination effort, informal, However, companies inherent in the organizational semiformal, and formal mechanisms. In case of last DNA can make adaptations in a variety of changes kind of coordination mechanisms, silo swapping and produce positive results. In particular, companies around a customer axis is an option and in the book, that have successfully endured and overcome difficult JLL’s business unit structure change after the situations and have overcome them can continue to restructuring is introduced. grow and achieve good results. Lever 2, cooperation means the alignment of goals, In the book, Gulati revealed how resilient attitudes, and behaviors across units with a companies prosper in both good and bad times. company.It can foster a culture that aligns all Instead of pushing their own offerings on customers employees around the shared goals of customers (“inside out”), the resilient firms work from the solutions. The cooperation is to move from “outside in.” It means to identify current and potential incentive-based to value-based and the enablers for it customer problems and then provide seamless, are redefining corporate values, reaffirming the integrated products and services that address them. importance of cooperation and attracting right people, Based on more than a decade of research in a variety giving meaning to the importance of cooperation. The of industries, this implementation focused guide research gives good examples of how the company, shows how resilient companies break down internal by working with its customers, totally changes its barriers that impede action, build bridges across business model. Best Buy, an electronics store, divisions, and create a network of collaborators. realized that in fact they had different types of The book shows, one of the main things companies customers. Until they started working with them, they should do is to break through internal barriers that thought that most purchases were made by men. In often impede action, and also ensure that there are no fact, they found, women purchased 55% of all warring divisions within the company, so that they consumer electronics, and also influenced are fighting more against themselves, rather than the approximately 75% of all purchases. Best Buy competition. The book is based on over ten years of changed its policy, towards talking to its research. It has the usual companies, such as customers. Having worked with the customer, the Starbucks, Best Buy, and Cisco, but it is also company also needs to develop cooperation. Cisco is refreshing to see French companies, like Lafarge, are also seen as being a good example of this, in that it also quoted as well. Only 60% of companies survive has broken down all the barriers and silos that exist through deep depression or drastic downturns. The within the company. Employees, when they are hired, ones that do survive have built what the author calls are expected to embrace the no-technology religion an “outside in” mindset. Rather than making approach and be agnostic to all forms of platforms products and then pushing them onto the marketplace, and standards, and keep an open mindset. Annual they begin with the consumer and try to decide what bonuses are then based on the level of customer they actually really need and what they really want, in satisfaction, revealed in one question: “What is your terms of products or services. overall satisfaction with Cisco?” Cisco reorganized The book looks at nine companies: Three in B2C the three units of R&D, sales, and marketing in each (Business to customer), Harley-Davidson, Starbucks, silo of enterprise, service provider, and small and and Target; three in B2C and B2B (Business to medium business market to reform to manage R&D business), Tribune, Best Buy, and Cisco, and last and marketing integrated and only sales unit is as three in B2B, Jones Lang LaSalle (JLL), Lafarge, and usual. GE Healthcare (GEH). This gives a broader, overall The third lever is clout. It means assignment of perspective on different types of businesses.The power and decision rights to customer-facing research deals with one particular aspect of company individuals as well as those responsible for andit seems more complex in the real business world, integration of activities across units with a company.

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 3 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory It means to redistribute power to “bridge builder” and need to create a journey towards the integration of customer champions. It is to move from product different best practices that will help a company leader’s decision making to customer-owner’s create an “outside in” mindset. Since markets, coordination. The author suggests five key tactics for competition, and technologies will change, customer redistributing clout: Redistributing formal authority, needs will change as well and, to stay in business, strengthening the influence of boundary spanners, companies will need to reinvent themselves and the raising visibility and recognition of silo busters, way they organize within. The bottom line is the road stipulating ownership of the customer, and to greater customer centricity and mapping the maximizing access to information. One of the key journey to greater resilience. enablers is to foster greater sharing of customer information. Examples in the book are JLL and GEH. 2.3Research design Lever 4 is capabilities, development of In a business context, the resilience is about being customer-facing generalists along with product tough on outmoded ways of thinking and definitely specialists, it emphasizes developing the skills to not about being tough on people in the sense of cope with changing customer needs. It is to move seeking to control them. That means, the resilience from product innovation to customer solution theoryby Gulati is related to the customer centric innovation. Enablers are cultivating and developing approach to the business. The business needs to be multi-domain, boundary-spanning generalists with designed in a way that leverages the customer centric clear roles, career pathways, and incentives and principles [9].As mentioned above, Gulatidiscusses activating informal social networks across silos. In five key levers for creating resilience withcustomer resilient company, the generalist’s role is more centric approach to business. important than specialist. The firm should create new In the cross-enterprise coordination, businesses types of competencies focusing on generalist, want to be customer centric. Customers are the integrative behavior and set out clear career pathways revenue streams, not the products or services. for people within the new organization. Companies Kakao’s silo swapping activity will be investigated. should raise the visibility in recognition of people In the values-based cooperation, businessactivities are who work across boundaries, and in different customer focused. Kakao’s collaborative activities departments, and it should strengthen their will be investigated. In the clout driven by influence. From there, greater capabilities will be customer-owner, empowering customer champions is made, through coordination and a stronger corporate the key. The value from these customers determines culture. Building a powerful set of capabilities can the sustainability of the business. Value is the be a critical aspect of an “outside-in” company combination of fees for service and product, plus model. Since they are not going to arise their level of advocacy.Kakao’s sharing of customer spontaneously, they must be developed in a data will be investigated. For the customer solution systematic fashion. innovation capacity, the skills to cope with changing Once this has been done, a company must actively customer needs are more important than product seek to create connections, both inside and outside knowledge. Everything within the business like the the company. So, fifth lever is connection.The author systems, people, functions, processes, products and gives the example of Apple, which offers only a small services work as a collective capacity that delivers number of applications for itself, simply because its value. This is perceived by the customer and this partners can offer thousands more. Lever 5, perception of value is the predictor of future customer connections are forging external links to stay focused needs. Based on these collective needs, the business and agile. It means to expend the source of inputs and will survive.Kakao’s efforts to cultivate future also complementary offering beyond internal customer needs will be investigated. In the production units to external strategic partners. It is to connections expanding the periphery where is the move from protecting the core to shrinking the core need for progressive improvement. Kakao’s business and expanding the periphery. Indeed, an Industry philosophy to enable coordination and cooperation in Week survey of manufacturers showed that 80% of external partnerships will be investigated. companies say they have made significant progress By using the levers to drive how the business is towards world-class operations, and thereby operate designed and structured will support business with a significant number of partners. So, connection resilience and success.This study focuses on the means blending partners’ offerings with the resilient Korean representative Internet company, Kakao and firms to provide unique customer solutions. The book research questions related to the 5 levers of resilience gives one excellent example of Bharti Airtel, in approach are as follows: his leading wireless phone company, that did reverse Question 1. In the cross-enterprise coordination, outsourcing by signing off its telecommunications what is Kakao’s silo swapping activity? network to Ericson, Siemens, and Nokia. It was a Question 2. In the values-based cooperation, what difficult process, but was a very successful one in the is Kakao’s behaviours attracting right people and end for the Indian company. providing incentives? This resilience theory in the book emphasizes the Question 3. In the clout driven by customer-owner,

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 4 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory empowering customer champions, what is Kakao’s The basic asset of the cross-enterprise coordination sharing of customer information? for the businessis related to the content Question 4. In the customer solution innovation business.Kakao’s three major businesses are media capability, what is Kakao’s effort to cultivate (including advertising), content, and online to offline multi-domain generalists with clear roles and (O2O).The media business is improving by the rise of incentives? usertraffic, and increase of advertisers. The content Question 5. In the connections expanding the business is expanding on the basis of Kakao’s periphery, what is Kakao’s business philosophy to messaging platform, KakaoTalk andLoen’s music enable coordination and cooperation in partnerships? platform, Melon offering interlinked services for Themain work of this study is to find successful KakaoTalk users andcontent market platform, resilience practices by analysing Kakao as a KakaoPage as well. For the O2O business, Kakao representative example. Kakao has created the islimiting directly-managed operations to mobility dominant platform in Korea, and it has tremendous services such as KakaoTaxi, KakaoDriver influence on start-ups in the mobile app ecosystem. (driver-for-hire service), and KakaoParking, and So, there are some field meeting for obtaining focusing on its role as aplatform for other indirect company data. This method is quite effective and services in a strategic shift toward selection appropriate for the qualitative research. It is also andconcentration on key businesses. So, the O2O necessary to scrutinize the details of data released by business is just external connection with other secondary sources, such as turnover, brief history, industries. Figure 1 shows, as of 2016, Kakao’s and CEO’s creed and former achievements. In business ishas been composed of media, content and particular, the information released by newspaper and O2O. Media business composes of KakaoTalk, press release was thoroughlyexamined and academic KakaoStory, and Daum. Content business composes journals, periodicals, and financial report from stock of KakaoGame, Melon, and KakaoPage. O2O market were also analysed.In orderto effectively business composes of KakaoTaxi, KakaoNavi, and implement the case analysis, the data was collected KakaoDriver. As of 2017, Kakao is still putting a from Kakao’sinformation, various data released in greater focus on platforms, but itstarts to expand its newspapers, in-person interviews with related content investment, because Kakao knows, even if specialists, and several in-depth discussions with the three top’smonthly unique viewer (MUV)s on relevant parties. Kakao’s major mobile apps are media business, the content is the important asset to maintain the media III. RESULTS AND DISCUSSION platform sustainable. Kakao already restructured and rebrandedits video services. It integrated Daum’s 3.1Restructuring silosto enable swift responses in tvPot intoKakaoTV and it also introduced live TV the cross-enterprise coordination and adopted the vertical format for video content. Daum Communications was established in 1995 and Kakao is providing KakaoTV’s video content and its Kakao launched KakaoTalk in March 2010. Kakao subsidiary, Loen’s music content (provided by the expanded its footing in mobile services with Melon streaming platorm) via KakaoTalkplatform. KakaoTalk Gift Shop in December 2010, KakaoStory By connecting KakaoTalk’s account to Melon, and KakaoGame in 2012, and KakaoMusic in 2013. KakaoTalkusers can add music to their profiles. The two companies merged in October 2014 and in Melon has also launched a joint marketing September 2015, the company changed its name to campaignwith KakaoFriends. Kakao is planning to Kakao. KakaoPay and BankWalletKakao were expand the portfolio of Loen to include the provision launched in 2014 and Internet-only bank, KakaoBank ofvideo content based on its artist line-up and content initiated services in August 2017. Kakao also production staff. It is providing content, such as launched KakaoTaxi and acquired Loc&All, a startup music videos and concert footage. Podotree is a navigation app, Kimgisa, in 2015, and launched consolidated subsidiary for content business. KakaoDriver in 2016.

Figure 1. Kakao’s business portfolio (2016)[10]vs. actual business flow (2017)[11]

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 5 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory

Figure 2. Kakao business history and stock price trend [12]

Figure 2 is Kakao business history and stock price commercial success of music content. In Korea, the trend. Kakao has been restructured in 1st quarter of vast majority of subscribers are price insensitive. This 2017. Among content business, KakaoGame and means price competition is not effective in gaining Loen is the current key assets for platform business. market share. With a few things to differentiate Figure3 is Kakao’s restructured corporate governance services, strong brand power helps Loen to attract as of August 2017. subscribes more easily. So, Loen’s content is Kakao’s Loen Entertainment (Loen) has recorded high key asset. Kakao’s media businesses can retain their profitability and cemented its market leadership aided customer with killer content like music, and game by a strong brand, high switching costs, and library. Kakao generated revenues of $42m in 2012, reinforced network effect. Revenue sharing ratios are largely from its popular social gaming platform, so it determined by Korean government guidelines and clearly has the credentials to successfully monetize Loen controlling more than half the market has strong game content. bargaining power as the key player that dictates the

Figure 3. Kakao’s corporate structure [13]

Kakao also starts spin-off strategy. Spin-offs entail either the securing of investments or IPOs, thus significant benefits, in terms of both operations and easing their financial burden on headquarters. (cross-)enterprise value. From an operational In September 2016, Webtoons were spun off into perspective, spin-offs enable companies to implement Podotree (previous KakaoPage) which is a content independent management to fit each business, to subsidiary of Kakao. After it, Kakao is more speeding speed up decision making, and to minimize conflicts up the spin-off activities.In February 2017, the AI of interest with headquarters, thus increasing business research subsidiary, KakaoBrain has been established. opportunities. In terms of enterprise value (share In March 2017, new subsidiary, KakaoMakers has prices), spin-offs should allow companies to carry out been transferred the order production platform separate assessment of individual spun-off entities, business of Kakao headquarters.In April, KakaoPay which could potentially lead to improvement in the was also spun off into a separate subsidiary. In May, total (cross-)enterprise value. In addition, spun-off Kakaohas launched a business related to mobility companies can raise capital on their own through such as taxi, driver agency, navigation, etc., on

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 6 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory August 1 with KakaoMobility. These activities are for 8,000items of content and downloaded 100,000 times the O2O business. in thefirst month of service.Kakao aims to capitalize on the large-scale social graph and high engagement 3.2Attracting right people & providing levels of its existingservices, including KakaoTalk, to incentivesin the values-based Cooperation gain exposure and salesfor its KakaoPage content It is about the corporate culture to be willing to solve partners. It plans to utilize its social graph in three the customers’ inconvenience. The customer can be key ways as follows: 1) Viewing together: A user consumer, solution developer, and content provider as who purchases content through KakaoPage is given well. Kakao’s key behaviours are attracting content the option ofsharing the content with one KakaoTalk creators to the Kakao’s content market platform such friend. 2) Free if you recommend: Some Pages give as KakaoPage,Webtoon services of Internet portal. users the option of receiving the content for free ifthe Firstly, KakaoPage belonging to Podotree now is a user recommends it to between two and eight content marketplace for smartphones. Launched KakaoTalk friends. The friends also receivethe initially only in South Korea,the application offers a content for free. 3) Social posting: Users can post wide range of mobile content, all of which is information about KakaoPage contents on the provided by content creators. Kakao avoids KakaoStorysocial networking service. competing with its content creator partners by not Kakao’s well-known Korean content partners creating any content itself. include the media company CJ E&M, the comic KakaoPage is likely to take some time for South author Heo Yeong-man, the singer Yoon Jong-shin, Korean consumers tobe accustomed to paying for the author Jeong Ee-hyeon,and the hair designer Cha content that has traditionally been free.One risk Hong.KakaoPage offers paid content, which doesn’t facing KakaoPage is the potential for future changes conform to the prevailing global trend to leading app stores’ policies on in-apppurchases. towardfreemiummodel. Kakao continues to pursue KakaoPage relies heavily on Apple and Google’s app this modelwithin its separate social gaming platform stores for its distribution, and anychanges in their because it is ideally suited to digital games. policies relating to content purchases made within However,providers of other types of content, video individual applications couldhave a very significant and music, for example, have generally found it impact on its revenue-generating muchmore difficult to monetize their potential.KakaoPage’s first innovation is the services.KakaoPage users pay for the content they integration of a mobile content market with a purchase using Kakao’s virtual currency, Choco. leadingmobile messaging application. Messaging OneChoco costs $0.09, and the minimum price for players have launched several kinds content is five Chocos per item.Revenue is split three ofcomplementary services in the past, including ways between the content partner, Kakao, and the narrowly defined content offerings such as relevant app store operator.The content partner socialgaming platforms and premium emoticon receives a 50% share, Kakao receives 20%, and the stores. app store operator 30%.Kakao charges its content Unlike these previous efforts, KakaoPageoffers a partners yearly membership fees: $46 for individuals wide range of content types, and virtually anyone and$92 for companies. (including any amateur individuals) can submit Next one is the webtoon services of Daum portal. It theircontent for distribution via the is initially basedon an ad-based business model, as it market.KakaoPage is the first player to move into the generated ad revenue based on the inflow of mobile contentmarket space and it is followed by trafficarising from webtoon content. The revenue Line and WeChat who launched similar services in sources from Webtoon have beendiversified through the near future.KakaoPage is a mobile content market online communities and business partnerships. In application for smart devices. The content types addition, Freemiummodels like KakaoPage’s service itsupports include anything like text, images, music, model have been introduced to Webtoonservices, and video.For a nominal annual membership fee, basically offering each episode free of charge, but virtually anyone can upload content to the market charging for the three mostrecent episodes. using thepage editor tool within the application. All Portal’sWebtoon businesses will likely go content is reviewed by Kakao before being added to increasingly global in 2017.Now, Kakao operates themarket. KakaoPage and Daum Webtoon via its subsidiary, The content offered via KakaoPage is divided into Podotree. In early 2017,Kakao signed a contract to two categories: Page is an individual piece of content offer 20 webtoons to Chinese users via Tencent. and series page is a collection of content, a TV series, for example offered as a singleproduct for a single 3.3Sharing customer information in the clout price. KakaoPage is initially available only in South empowering customer champions Korea for Android devices and aniPhone version has Empowering customer champions means been followed. It is astandalone application (a Kakao redistributing power to customer owners. Sharing of ID is required), and accessible through KakaoTalk. customer information must be fostered. So, open The service was launched in April 2013, with application programming interface (API) is very

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 7 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory important. AI and chatbot are good examples, offers convenience to users, as it allows users to gain because it is based on the shared data. The AI is the information via chatting without the need toopen a simulation of human intelligence processes by mobile app. Companies providing services including machines, especially computersystems. Based on order placementand customer response via chatbots intelligence, humans can infer, decide, and act in can enjoy benefits, such as increased given circumstances.Machine learning is the science platformutilization, higher purchase volume, and of getting computers to learn without being labor cost reduction.Kakao has made the API for explicitlyprogrammed. The most prevalent types of KakaoTalk’s chatbotprogram available for developers machine learning are supervised learning, to createthe relevant ecosystems, with the aim of deeplearning, and reinforcement learning. Supervised developing personal assistant toimplement concierge learning always has a specific presetoutcome that is services. Based on it, Kakao apps can continue to determined by a human before the machine begins to transform into aplatform integrating a wide variety of learn. As forunsupervised learning, however, the apps (e.g. news, maps, search, shopping,payment).If algorithm doesn’t receive clear determination oninput chatbotevolves into a one-stop service platform, data. Kakao can gain dominant positions in the mobile The technology is mainly used for clustering. In service market. reinforcement learning, amachine’s actions and the rewards they produce affect the subsequent data it 3.4Developing multi-domain generalists in the receives.Therefore, it continues to complete the task capability of tackling customer needs in a way that maximizes rewards.Deep learning is a In order to move from simple product innovation to subfield of machine learning that is concerned with customer solution innovation, skills for tackling algorithms inspiredby the structure and function of customer needs should be developed.Critical the brain, called artificial neural networks. The capabilities in resilient company are new type of technologyrefers to the formation of multiple layers competencies focusing on integrative behavior.These of neural networks for more successfullearning and are usually related to marketing skill. In addition to prediction, or a machine’s in-depth learning to find a customized content recommendation skill, Kakao also pattern of input data.AI has already reached or even plans to launch KakaoMoment in September 2017, a exceeded human intelligence. targeted ad marketing platform utilizing and Among cognitive activities, AI has reached human analyzing user data from KakaoTaxi, KakaoPage, levels in speech and visual recognition. Forcomplex KakaoMap, KakaoGift, KakaoGame, and other calculation and strategic inference, AI surpassed Kakao services. The target ads are set to be applied to human intelligence. Goingforward, the development all the ads carried by Kakao and Daum. of the technology is expected to give rise to the Kakao’s multi-domain generalists are diverse AI emergence ofsuper-intelligence.Through the adoption and data analysis skills.Mobile content services are of this AI technology, Kakao can improve the adopting personalized recommendation platform such qualityof existing platform services. Higher quality as Rubics. By applying targeting technologies to services should lead to an increase incustomer’s mobile services, Kakao can boost per-user content service usage and growth in revenue, resulting from and service consumption. In fact, after applying AI, greater satisfaction foradvertisers, as well as a Rubics, per-user consumption of mobile news content reduction in processing time and costs. increased by 20% for Daum. That means, user As a core area of cognitive science, various interest reflected in news content. It is related to the subfields of AI, encompassing machine learning,deep target marketing and advertising. Another platform learning, voice recognition/synthesis, translation, and example is KakaoMoment that will offer targeted multimedia recognition/processingtechnologies, are advertising based on diverse platform data such as being applied to a wide array of existing services, KakaoTaxi, Gift Shop, and Daum. namely search and newsservices.Since June 2015, Kakao has applied Rubics, a real-time user For developing platforms tackling customer needs, AI behavior-based interactivecontent recommendation R&D subsidiary, KakaoBrain is the capability itself. system, to its Daum service. The AI system analyzes It allows Kakao to renew its focus on expanding users’social trends and personal interests in real time, services on its platforms by enabling on-demand and places customized news content forthem. Rubics services through AI. KakaoBrainintends to leverage developers account for around 70% of the Daum staff. bots and AI to grow on-demand services on Kakao’s Daumnews traffic appears to have increased since the platforms.It leads a clear evolution of chat apps introduction of Rubics.Kakao’s Rubics platform toward AI. In order for chat apps to customizes news recommendations by age, gender, succeed,(콤마넣으세요)they need to add media and and interests. After the application of Rubics to Daum, services to their platform. They will look to launch the number of news articles on Daum app’s front bots and AI on their platform as this is a quick way to page increased 3.5 times, while news impressions expand to other services and become a platform for grew up to 5.5 times. media and services rather than purely for Chatbot is a mixture of AI and messaging service. It communications.

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 8 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory 3.5Blending partners’ offerings together in the banks are declining yields on financial service connections expanding the periphery products and deregulation.Some characteristicsof In order to move to shrinking the core and expanding Internet-only bank can be watched: Its potential the periphery, a collaborative mind-set is important. It proliferation among young “millennial” consumers, means enabling coordination and cooperation in who are heavy mobile usersand prefer partnerships. The appropriate business sector for non-face-to-face transactions, the development of Kakao is O2O business. Kakao provides a wide range distinctive servicescapitalizing on the characteristics of services such as KakaoHairshop, KakaoOrder, and of non-banking shareholders, convenient KakaoTaxi. Kakao’s success in the market can around-theclockcustomer service using chatbots, and encourage a range of smaller local players to enter the highly efficient marketing. bots and AI space in their own unique way and The mobility business has been also spun off and KakaoBrain is main capability of Kakao, as KakaoTaxi aims to expand into the B2B taxi business mentioned above. Partners can use bots to find a in near future as mentioned above. With chatbot niche in the ecosystem just as KakaoTalk has. program, KakaoTalkOrder can allow users to order KakaoTalk’s growth gives smaller partner players a food from local food franchise brands by clicking a fair impression of the market for bots and how they button within each brand’s “Plus Friends” chat room. can make the most of it. Partnering with Kakao makes sense if partners such as content providers are 4. Conclusion looking to target a particular regional demographic of The purpose of this study is to prove the Korean users. Internet company, Kakao’s resilience capacity. For it, Among O2O businesses, the financial technology this study investigated Kakao’s business activities to (fintech) industry has been gaining attention, with find how resilient this company is based on the 5 anincreasing number of Internet companies levers of resilience. Table 1 shows the key summary of separating their payment service divisions. In the result.The case analysis indicates that a resilience February 2017, Kakao announced astrategic is a good indicator for a successful platform in partnership with Alibaba affiliate Ant Financial ecological sense. There are five levers are 5C such as Services Group, which will investUS$200mn in coordination, cooperation, clout, capability, and KakaoPay, the company’s spun-off digital payment connection. The cross-enterprise coordination allows system subsidiary.Ant Financial is the operator of Kakao to restructure its existing silo governance into China’s leading digital payment service Alipay.The starting from the basic asset like game and music content. In terms of value-based cooperation, this firm fintech revolution isleading non-financial companies providesrightcontent creators with market place like such as Kakao to carry out tasks ofconventional KakaoPage. In the clout, customer owner, Kakao can financial institutions, accelerating the unbundling of drive collaboration where the company shares its data the financial industry.KakaoPay is well positioned to by opening its API of AI and chatbot to 3rd party offer an extensive network of relatedservices, given developers. The fourth lever, capability is customer the partnership with and investment from Ant solution innovation for which the firm establishes AI Financial, its ties with KakaoBank (Kakao’s R&D center, KakaoBrain as the function of Internet-onlybank), and the digital content multi-domain generalist for developing diverse subsidiaries Loen and Podotree.Internet-only bank, platforms tackling customer needs. The last fifth lever, KakaoBank operates primarily through connection means to expand the periphery where the non-face-to-face channels, and boast firm continues to create ecosystem by shrinking the pricecompetitiveness by reducing fixed costs such as core.The O2O businesses like KakaoTaxi, office rent and labor expenses and offeringhigh KakaoOrder, KakaoPay, and KakaoBank are deposit rates, low lending rates, and fee waivers. The redefining boundaries between ICT and traditional drivers behind the establishmentof Internet-only industries. Table 1. Key summary of the result

Currently, Kakao tries to redefine its business not only these areas, it isalso developing voice-recognition as a simple mobile messaging service butalso as a speakers and car infotainment based on AI distribution and O2Oplatform,starts to provide a wider technology. It is expected to eventually bring about range of content from text to video, and actively the era of the connected platform. engages in open innovation.Kakao is now turning It is found that the successful path of platform their eyes to unclaimed areas fromretail O2O to home, business model is to leverage 5C of resilience and it is car, and retail market. In order to make forays into suggested to build the business ecosystem.In

Proceedings of IASTEM International Conference, Paris, France, 13th-14th January 2018 9 A Case Study on Kakao’s Resilience: Based on Five Levers of Resilience Theory conclusion, keeping up with ever-changing [R0190-15-2027, Development of TII(Trusted environment is a decisive factor in the firm’s success Information Infrastructure) S/W Framework for and survival depends on rapid adaptation. Therefore, Realizing Trustworthy IoT Eco-system] agility in business is an important concept that includes business-strategic resilience to actively REFERENCES pursue business activities in an unstable situation where the market infrastructure is collapsed and [1] Samjung KPMG, Resilience,Samjung Insight, Issue 44, 2016. rebuilt. It is also another important concept that [2] H.S. Chung, “The Evolution of Korean Social Network Service focusing on the Case of Kakao Talk,” Journal of includes organizational resilience to resolve the Digital Convergence,Vol. 10, No.10, pp. 147-154, 2012. discrepancy between the current governance approach [3] J.H. Han and O.J. Cho, “Platform business Eco-model to the market and the ever-changing business models. evolution: case study on KakaoTalk in Korea,” Journal of The boundaries between industries have been broken Open Innovation: Technology, Market, and Complexity, Vol. 1, No. 6, pp. 1-14, 2015. down by the characteristics of openness. Competition [4] D.W.Kim, “Effects of Taxi-service Employing O2O on and cooperation among heterogeneous sectors are Consumer Welfare - Focusing on KaKaoTaxi,” Korean actively going beyond the same type of industry so Management Research(KMR), Vol. 46, No. 2, pp. 503-525, that the word “frenemy”, which is a compound word April 2017. [5] S.M. Southwick et al., “Resilience definition, theory, and of friend and enemy, is not awkward. In addition, the challenges: interdisciplinary perspectives,” European Journal convergence between ICT and traditional industries of Psychotraumatology,proceeding paper, fromplenary panel has also become prominent. Boundaries are broken at the 2013 meeting of the International Society for down in many industries, and the combination and Traumatic Stress Studies 2014. [6] M. Ungar (ed.), The Social Ecology of Resilience: A coordination of business models is prominent to create Handbook of Theory and Practice, Springer new synergies. The results of this study are subject to Science+Business Media, LLC 2012. some limitationsthat have a qualitative analysis and [7] C.D. Raab, R. Jones, and I. Szekely, “Surveillance and analyze only one company, but they also offer Resilience in Theory and Practice,”Media and Communication,Vol. 3, Issue 2, pp.21-41, 2015. significantfindings where they provide the basics of a [8] R. Gulati, Reorganize for resilience : putting customers at the benchmark analysis of the resilient capacity of the center of your business, Boston, Mass. : Harvard Business companies. Further study is suggested to compare the Press, pp. 2009. resilience between two companies in competition and [9] M. Hocknell, The Five Tenets of the Customer Centric Approach to Business, Dec 2, 2016, this research would contribute to the long-term http://customerthink.com/the-five-tenets-of-the-customer-cen platform strategies in ecosystem. tric-approach-to-business/#. [10] Kakao, Investor Relation, Nov. 2016. ACKNOWLEDGMENT [11] S.W. Yang, “Streaming services: The future is now in Korea,” Samsung Securities, July 24, 2017. [12] J.H. Moon, “Internet platform revolution,” Industry report, This work was supported by Institute for Information Mirae Asset, April 5, 2017. & communications Technology Promotion(IITP) [13] M.J. Lee, “Kakao,” Shinhan Investment Corp., August 11, grant funded by the Korea government(MSIT) 2017.

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