Kakao’s co-chief resigns over messenger app service outage

Kakao’s co-chief executive Namkoong Whon has resigned after an hours-long outage of the company’s mobile services sparked a public backlash against South Korea’s dominant messaging app provider.

His resignation came after President Yoon Suk-yeol said that South Korea’s antitrust watchdog would examine Kakao’s market dominance after the incident highlighted the country’s dependence on the company’s mobile services.

“Although the network is run by a private company, it’s practically national communications infrastructure,” President Yoon told reporters this week. “If a monopoly or an oligopoly causes market distortions and acts like national infrastructure, I think the government should take action.”

Most of Kakao’s services — including messaging, mobile banking and gaming — were restored following a fire at the company’s data centre just outside Seoul on Saturday. Kakao will be run by its remaining chief executive Hong Eun-taek.

But the outage spurred calls for tougher scrutiny of the country’s leading platform operators, including Kakao and Naver.

KakaoTalk, Kakao’s messaging service, launched in 2010 and has become South Korea’s most ubiquitous mobile app, with 47mn active users in the country of 52mn people. On the back of its popular chat app, Kakao has rapidly expanded into online payments, mobile banking, gaming, ride-hailing and restaurant booking services.

The company’s diversification has sparked accusations of taking business away from small merchants, and lawmakers are planning to discuss reinforcing government oversight of Kakao and other platform operators. The presidential office said it would set up a cyber security task force, calling the Kakao incident “a matter of national security”.

Kakao said the impact of the outage on its revenues would be limited, but negative investor sentiment is likely to weigh on the shares of the company, which is grappling with falling sales after the booming online growth during the coronavirus pandemic.

Kakao shares have more than halved this year, although they bounced back 0.8 per cent on Wednesday. Kakao Pay is down nearly 80 per cent year to date, making it the biggest loser on the benchmark Kospi.

“Trying to resolve the problem with antitrust regulations doesn’t look effective because KakaoTalk is free and people voluntarily use the app,” said Wi Jong-hyun, a business professor at Chung-Ang University in Seoul.

“It is not desirable to crack down on the platform operators on the back of public anger over the service outage, for the industry’s long-term development.”