3/18/20111

Competitive behavior in the Korean search market

MIT Students

3/18/20112

Table of contents Firm background

Challenges facing the firm

Strategy

Technology

3/18/20113

Firm background Founded in 1995, Daum is the 2nd largest web portal in South

Korea, offering services such as e-mail, search, online communities, maps, shopping, news, and much more

Portal Search

CafeE-Mail

Daum’s business is mostly ad-driven

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52% 50% 47%56%

51%

42% 44% 46%39%

44%

6% 6% 7% 5% 5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2Q09 3Q09 4Q09 1Q10 2Q10

Search Display Transaction

Daum % of revenues by business segment

95% ad-

driven

in MRQ

3/18/20115

It competes in a two-sided market

Network effectNetwork effect

More information

Platform providerInternet portal site

More traffic

$

Price

Quantity

Price

Quantity

New Q New QOld Q Old Q

Old PNew P

Old PNew P

User Demand Advertiser Demand

Increased advertiserdemand from sitetraffic explosion

Users Advertisers

Image by MIT OpenCourseWare.

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In the past, strategic focus drifted…

1995~2001 2008~2009

Search Local Search

Daum media

• News

• Open community

• Try to globalize Mobile

2009~2002~2005 2006-2007

Open the Korean Internet world

• Free email

• Online community

Daum UCC media

• Video service

• Open community

Multi-window

NAVER

… and now must play catch up with the competition

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0

5

10

15

FY06 FY07 FY08 FY09 FY10

Daum Naver

0%

10%

20%

30%

40%

FY06 FY07 FY08 FY09 FY10

Daum Naver

Revenues Net Profit Margin

Daum: 108.2bn won

Naver: 928.7bn won

Market capitalization 8.6x difference

Daum has begun gaining ground

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan

-06

May

-06

Sep

-06

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

naver.com daum.net empas/nate yahoo.co.kr Others

64.56%

22.24%

Search Market Share (by query) Aug 2010 Monthly UV/PV

Domain UV PV (000s)

Naver 31,031,414 24,590,337

Daum 28,925,149 17,356,675

Nate 24,652,649 7,322,468

Yahoo! 16,514,010 2,137,653

PVs (000s)

Domain News E-mail Café

Daum 3,152,332 2,313,115 5,586,706

Naver 1,379,158 1,585,868 5,166,377

Nate 1,865,440 1,027,160 497,766

Yahoo! 580,500 165,767 -

Share of search queries is

growing…

…and share of Unique Visitors and

Page Views is highly competitive

~14%

~74%

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Daum’s new strategy has 3 elements

1 2 3 IPTVKioskMobile

Each is a part of a broader “multi-screen” strategy

Focus is on providing more targeted local services, and expanding untapped network of local advertisers

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New platforms allow for greater focus on local search

Customers segmented by geo-targeting, geo-location keywords, and IP addresses across multiple platforms using “Rainbow System” for local ad sales

– Mobile, IPTV, Kiosks

Expose right customers to right ads

Expected to drive significant revenue growth

3.13

9.85

21.05

0

5

10

15

20

25

2009 2010(E) 2011(E)

IPTV

MAP_data/API

Signage AD

Local Search AD

Total

(Unit: KRW billion)

Local Business

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A new ad bundling strategy will unlock additional revenue

Initial Strategy: Bundling across platforms

Q

P Web ads

Q

P Kiosk ads

Q

P Mobile ads

Q

P IPTV ads

Bundled ads

Follow-On Strategy: Introduce individual platform option

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Local search designed to tap Longtail ad market

ln(Sales) = 17.33 - 0.7615 * ln(Rank) ln(Sales) = 15.59 - 0.47628 * ln(Rank)

Monthly recontract rate = 25%

9,000,000

8,000,000

7,000,000

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 100 200 300 400 500 600 700

1. Real Estate Advertising

R2 = 0.83

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0 1 79 157

235

313

391

469

547

625

703

781

859

937

1051

1093

1171

1249

1327

1405

1483

1561

1639

1717

1795

2. Local Advertising

R2 = 0.69

Image by MIT OpenCourseWare.

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Questions?

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Appendix

Mobile service offeringsm.daum.net Strategic Apps

Optimized for mobile environments, including iPhone & Android

Currently offering 25 services on m.daum.net(email, café, news, dictionary, stock and more) and 8 application based services

1

Digital signage / Metro Kiosks

Currently ~900 digital signs placed in 117 subway stations

Daily average traffic of ~6mm people

Exclusive business rights from Seoul Metro

2

IPTV

Optimized marketing platform for local advertisers

Expanding rapidly with the growth of digital TVs

Collaboration with KT Qook, CJ Cable, and LG’s IPTV

3

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15.567 The Economics of Information: Strategy, Structure and Pricing

Fall 2010

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