Small Businesses Worry as Kakao Expands Grasp

Mobile messaging giant Kakao is expanding its iron grip on online commerce in Korea from payments, shopping, webtoons, insurance and financial services to courier and chauffeur services, flower deliveries, hair and nail shops, English crammers, indoor golf ranges and valet parking.

Kakao has exploded into a major conglomerate with assets totaling W20 trillion, and smaller businesses worry that it will display all the bad habits of its older cousins, squeezing suppliers and trying to kill or gobble up the competition (US$1=W1,155).

Many small and mid-sized companies are losing customers due to the expansion of Kakao, whose strategy has been to enter an existing market and eliminate rivals by underbidding them -- before it predictably hikes prices.

Kakao Taxi is a prime example. It now has an 80-percent share of the cab-hailing market and recently began offering paid membership for cab drivers, which critics say is exploitation of the most vulnerable. It has been using the same strategy since 2016 to expand its presence in the beauty shop market, where it faces criticism for charging excessive commissions for bookings.

One 47-year-old owner of a beauty shop in eastern Seoul said, "When a customer pays W160,000 to get a perm and dye, I only see around W100,000." Kakao charges an exorbitant 25-percent commission and shops have to pay another 3.3 percent on credit-card payments. "Young customers primarily use Kakao, so I have no choice but to accept them," the beautician added.

Couriers are also worried about Kakao's delivery service that will be launched soon. It has announced lower fees than rivals but is likely to try and make back the difference by charging higher commissions and hiking prices once the competition is gone.

According to the Fair Trade Commission, Kakao has no fewer than 118 subsidiaries, second only to the SK Group. When it merged with Daum seven years ago, Kakao only had 26, but now it uses the money it makes from listing affiliates to expand business.

To name a few, Kakao Bank, Kakao Pay and Kakao Webtoon plan to go public soon, while Kakao Games made its successful debut on the Kosdaq in September last year.

"Kakao affiliates, with the exception of Kakao Bank, are 50-percent owned by Kakao's headquarters," an analyst said. "That means Kakao's corporate value grows as affiliates increase in number."

Critics say Kakao needs to start assuming greater social responsibility befitting its size. One source said, "If an older conglomerate expanded like Kakao, it would cause a tremendous backlash from society. Instead of using innovation as an excuse, Kakao needs to think about how to make Korea a better country."