How did Korea’s messaging app KakaoTalk make enough money to go public?

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Korea’s biggest messaging app — KakaoTalk — is about to become a public company by default. It bought Korea’s second biggest Internet company Daum Communications, which was already public. The new Franken-merged company, Daum Kakao, will list on the Korean stock exchange in mid October and is expected to have a market cap of roughly $10 billion.

It’s a coup for the app that started out as an SMS product, and one more sign that messaging is the way of the social-network future. It was also a boon for venture capital investment firm DCM, which placed a Series A bet on the company.

“When they launched [KakatoTalk] in 2010 they were purely a messaging service, very similar to Whatsapp,” Osuke Honda, general partner of DCM, told me. “When I initially heard about it I was like, ‘Is that really going to work?’” Years later, with 152 million registers users to its name, KakaoTalk has proved to be a stalwart business.

Statistic: Number of KakaoTalk's registered users from September 2010 to August 2014 (in millions) | Statista

Its success provides another primer for the Western messaging companies eventually hoping to make money. Just like China’s WeChat, the key to Kakao’s revenue stream was to diversify. It started as a free chatting product, hooking readers through the service. It sold stickers and emotions, then branched into games on the app. Once it grew big enough, Kakao cultivated partnerships with brands for advertising, and started dabbling in commerce. At the moment, people can send each other physical gifts — like flowers or gift cards — when chatting in the app. Kakao is also considering introducing a flea market sales application, like an [company]eBay[/company].

“From the get go, the team was thinking about monetizing early on and we didn’t see that from other companies in the space,” Honda said. “The product is so engaging that the ROI (return on investment) is much higher.”

The aggressive expansion into other products is what sets Asian messaging apps like China’s WeChat, Japan’s Line, and Korea’s KakaoTalk apart from their Western counterparts like WhatsApp, MessageMe, Kik, and GroupMe. It’s not entirely clear whether such a multi-pronged product strategy would work for the American consumer base — Asian users are an entirely different beast, with their own cultural values and mobile habits.

But for KakaoTalk and its other competitors, it’s proved to be a lucrative path. After all, it’s not everyday that a private chatting app buys out a big, publicly traded company.

Post and thumbnail images courtesy of Shutterstock user Kostenko Maxim.

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psdjung

I think culture and economics play a big role. Majority (close to 90%) of Internet traffic in Korea is with top2 sites. We couldn’t imagine Google and Facebook taking that much.

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