Naver challenged by Facebook

February 21, 2014

By Kim Yoo-chul

Facebook is likely to stand in the way of Naver’s attempt to become a major force in the global mobile messenger market because the U.S. firm’s buyout of WhatsApp is expected to limit the global expansion of its messaging app Line.

The concern arose after U.S. SNS giant Facebook Thursday announced its decision to purchase the rapidly growing messaging startup WhatsApp for $19 billion.

WhatsApp is the largest free messenger service provider in the North American region with a user base of 450 million.

Naver has been betting on Line to ensure future growth and its reliance on the business is growing, meaning that if Line loses growth momentum, it is highly probable that Naver will be impacted due to a lack of an alternate growth engine.

Naver is Korea’s dominant web portal. Line has become its biggest cash-cow with the total number of users exceeding 340 million thanks to explosive additions in Asia, Latin America and Europe. Line is now seeking to expand its presence in North America.

Market experts said that the buyout is not likely to affect Line business in the short-term but it is possible that it will have a negative effect on Naver’s long-term globalization strategy.

“As WhatsApp is competitive in North America and Europe, the two markets that Naver is keeping a close watch on, concerns are high that Naver will face a dilemma in growth momentum abroad,” said Choi Yoon-mi at ShinYoung Securities.

Choi added growth curve for customers using WhatsApp chat program is much steeper than that of Naver Line.

Naver posted sales of 2.3 trillion won last year, an increase of 28.5 percent from the previous year with Line business generating 454 billion won in revenue, a seven-fold increase year-on-year.

Naver downplayed the concerns over WhatsApp, saying that it has started analyzing the effects of the deal.

Facebook is falling behind in mobile phone messaging apps in emerging markets, where many are using the Internet on growing 3G networks for the first time on mobile devices, said analysts.

“We’ve analyzed all possible scenarios over the effects of the Facebook-WhatsApp deal. Basically, this is no surprise. It’s cautious to say; however, the effects about the deal for us will be limited as our application business is diversified,” said an official at Naver by telephone, Friday.

Analysts said that the Facebook-WhatsApp deal may freeze Naver’s ongoing bullish moves for Line’s global expansion as the deal will trigger more competition between other free messaging application services.

They said that diversification is a key differentiating factor for the Korean web portal that can offset concerns over the Facebook-WhatsApp deal.

“In the long-term, competition will be getting fiercer in the global social network service industry, hurting profit margins of the industry’s major players,” said Samsung Securities analyst Park Jae-seok.

“However, if WhatsApp sticks to continue an existing chat messaging service business model just like what it said after the announcement, then Naver is looking safe to expand its global share powered by rich content and applied services,” he added.

WhatsApp is available on a host of platforms including Apple’s iOS and Google Android and acts as an alternative SMS service. WhatsApp has over 450 million users and boasts a higher level of engagement than Facebook.

WhatsApp’s users are expected to reach 1 billion by 2015 as the chat program’s users are more active and the chat program is much stronger than Facebook Messenger in Europe, Latin America, Africa and Australia.

“Facebook is attempting to integrate the startup’s technology into Facebook’s own messenger client, which recently gained SMS-style phone number-based messaging,” said another official at Naver.

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