Notes on Korea's Leading Search Engine and the Global Leader in Online Casual Games
I've been meaning to write about the online casual gaming space along with NHN's coming entry into the U.S. market ever since I read a post at alarm:clock about PlayFirst's $5 million round a few weeks back. Of course, I'm swamped with our product launch, so things get easily pushed back.
Anyway, Mingi sent me an article in this week's BusinessWeek about NHN, so it served as a catalyst for me to try to blog about NHN again. First, here's the article:
NHN: The Little Search Engine That Could
Korea's NHN thumps Google at home, and it's teaching the big dogs a new trick
Quick. What's the hottest Internet search company on earth? If you answered Google, you'd be wrong by at least one metric. While the Silicon Valley sensation doubtless had a great year in 2005, shares of a Korean rival -- NHN Corp. -- have done far better. Google Inc.'s (GOOG ) stock climbed an impressive 103% in 2005, to nearly $415, but that paled beside NHN's 218% gain to $267.
But in its home market, NHN's Naver.com search engine trounced Google's offering. Google's 4-year-old Korean-language search service accounts for less than 2% of search page views and search-related ad revenues in Korea. Under CEO Kim Beom Su's adroit direction, NHN sold about $228 million in online ads last year, nearly 40% of the country's total. "In the vibrant and volatile Korean Internet sector, NHN is clearly the star," says Jay Park, an analyst at Samsung Securities in Seoul. "NHN's user-friendly approach outshined its rivals." Google declined to comment for this story.
"Google has a superb search engine," says Choi Jae Hyeon, NHN's search chief. "We have, however, built up knowhow and a database by extracting knowledge from users' brains."
GODS AND MORTALS
What he's talking about is a three-year-old initiative called "Knowledge-In." The program lets users ask and answer questions on anything from recipes for kimchi to the composition of rocket fuel. Readers judge the responses, and the millions of folks who have answered questions are ranked as "ordinary," "knowledgeable," "highly knowledgeable," "supernatural," or -- for 22 truly prolific answerers -- "gods." "Naver is great because you get all sorts of detailed information in very specific questions and answers," says Song Han Sil, a 25-year-old pianist in Seoul. "Many of my friends don't even know that Google offers Korean-language service." The database now has some 37 million questions and answers that can get returned with search results. The idea is so popular among Koreans that most other search engines in the country, including Yahoo! Korea (YHOO ), now offer their own versions of Knowledge-In services. (full article)
I've posted about NHN Corp before, but in bits and pieces so I'll give you some more information. I know NHN through my friend who has work their since its early days and because they were my client when I was at iRG, a boutique investment bank.
NHN is an interesting story because it was the marriage of two hot Internet properties in Korea back in 2001. One was Naver.com, a leading portal and search technology company, and the other was Hangame, the leading online casual gaming company in the world. Hangame was just starting its paid services and generating some incredible revenue numbers (i.e. $30,000/day from average user payments of 50cents) when Naver.com came in with a merger offer. The two decided to merge with Naver.com in the driver's seat since it was an already a mature Internet company and the expectation that Hangame was still developing. Within the first year of their merger, Hangame exploded and revenue from this side exceeded Naver.com. Over the past couple years, the revenues have been generally split since Naver.com's search technology group has been leading the charge.
As with many innovations in Korea, I believe the ubiquity of broadband and wireless was a catalyst. While recent startups, such as Wink and RawSugar, try to build community-based search services, as described in the BusinessWeek article NHN has been doing this for over three years and built it to such an incredible degree that Google can barely penetrate the fifth largest online advertising market in the world.
What the article misses is that Google was late in establishing any real operations in South Korea for years. While I lived in Korea, some friends and I would discuss once in a while how Google was missing an opportunity to capture the Korea market. If they invested beyond a couple sales people a few years back, this might be a different story.
Another important factor to note in NHN's search success was that the rapid growth and continuous activity of its "Knowledge-In" service was partially fuel by the integration of its casual gaming property, Hangame. One incentive for Naver.com users to build up its community search database was giving "Hancoins" as rewards. This is the currency that people can use to play various online casual games, such as Battle Tetris, poker, and virtual pool. Brilliant move by NHN.
Since I'm a former video gaming addict born from Atari's 2600 through the first Nintendo system and beyond, I had a bit of snobbery towards the Korean gaming market since I thought a vast majority of their games were poorly designed with horrible graphics, such as NCSoft's Lineage. Hangame was an exception. The quality of their graphics, design and gameplay was beyond any U.S. counterpart from 2001 to today, so it will be interesting to see how well NHN's online gaming effort does in the U.S. as they set to launch sometime this year.