The recent move by Daum, South Korea’s second-largest web portal, and Kakao, the country’s top mobile messenger service provider, to merge has everyone on the edge of their seats.

The merger agreement has caused Kakao founder Kim Beom-su’s share value to hike over 1 trillion won ($982 billion), but more importantly, there is great anticipation over the fact that the Internet-mobile duo might just have what it takes to rival Naver, the nation’s largest web portal.

While South Korea prides itself on being a leader in information technology, a wider perspective reveals that the country’s IT industry has staggered over the past few years.

Although the overall size of the industry has grown thanks largely to first-rate smart devices and memory semiconductors manufactured by Samsung Electronics, in reality, the strength of the industry may be gradually waning, according to industry watchers both at home and abroad. 

This becomes evident through comparing it with the state of IT industries in other countries.

For instance, the IT-affiliated billionaires from the United States or China are rapidly and steadily expanding their territory in all of the industry’s core sectors ― software, e-commerce, IT services and online games ― whereas more and more promising and wealthy figures are rising from even Japan’s gaming industry, which had been considered trailing South Korea’s.

Reflecting this downward cycle, of the 1,600 people on Forbes list of the world’s billionaires that was released in the first quarter, only three were from South Korean firms purely devoted to IT or other technology fields.

Nexon founder and chairman Kim Jung-ju ranked highest among the three at 1,028th place with $1.8 billion, followed by Naver founder Lee Hae-jin in 1,433rd place with $1.2 billion and NCsoft chief executive Kim Taek-jin in 1,517th place with $1.1 billion.

Those affiliated with Samsung Group, including group chairman Lee Kun-hee, were classified by Forbes as “diversified,” and the same applied to other business tycoons who are partly involved in the IT industry but whose primary businesses lie elsewhere.

Communication chaebol that are known to enjoy an oligopoly thanks to the high entry barriers that are typical for industries requiring national protection, were separately categorized as part of the “telecom” industry.

Thus only those who have achieved success purely in the IT industry through fundamental ideas and technologies were evaluated as IT billionaires.

And in such a context, South Korea fell short of its competitors in sheer numbers.

The United States and China had a total of 62 and 22 billionaires, respectively, in the IT sector, while even Japan, whose IT field had been thought less advanced, had six IT tycoons. Even Israel, whose economic scale is considerably smaller than these countries, had four.

Similarly, 12 percent of the 512 U.S. billionaires were IT-affiliated, with 16.3 percent for China and roughly 23 percent in the case of Japan, while in South Korea only 11 percent ― or three of 27 billionaires ― were from the IT industry.

India was one country that had a lower proportion than South Korea at 10.3 percent, yet it had considerably more tech-savvy moguls who are closing in on the billion dollar mark.

Though the number of billionaires is not the whole story, it can nonetheless be a good indication of how much capital and human resources are being focused into a particular industry.

South Korea’s IT sector depends too much on smartphones

Examining the global IT leaders in more detail, the reality of South Korea’s IT industry becomes even clearer ― it is still heavily manufacturing-driven.

The United States easily exceeds the rest of the world not only in numbers, but also in diversity, size of the industry and influence.

Microsoft’s Bill Gates, one of the world’s richest men with assets worth some $78 billion; Oracle’s Larry Ellison, a business software and hardware systems developer with assets of up to $51.5 billion; Larry Page and Sergey Brin, the founders of search giant Google with assets of $30.8 billion and $30.5 billion, respectively; and Jeff Bezos of Amazon, the world’s largest e-commerce website, who owns roughly $28.9 billion in assets, are some of the renowned U.S. IT billionaires.

But what is perhaps even more admirable about the U.S. IT industry is that it is bolstering the IT service sector.

Jan Koum, CEO and cofounder of mobile messenger WhatsApp, worth $6.4 billion; Eric Lefkofsky, CEO and cofounder of social commerce company Groupon, worth $1.4 billion; Jonathan Oringer, CEO and founder of popular stock photo service Shutterstock, worth $1.1 billion; and Nicholas Woodman, the CEO and founder of high-definition personal camera maker GoPro, worth $1.3 billion, are some of the emerging leaders of IT services.

Similar trends can also be observed in China, India and Japan.

Surprisingly, while China may still be “the world’s factory,” those at the top of China’s IT industry are more service-oriented than manufacturing-oriented.

For instance, Liu Qiangdong is the founder of JD.com, a popular Chinese e-commerce website, and his assets are estimated at $14 billion. Jack Ma of Alibaba.com, also an e-commerce company, has about $9.1 billion.

Ma Huateng, the owner of Tencent, a Chinese investment holding company involved in mass media, entertainment and value-added services for Internet and mobile, has assets worth $13.5 billion. Although it has only been 16 years since he founded the company, his wealth is rumored to surpass that of Lee Kun-hee, which shows the power of low-cost yet highly efficient IT services.

India, on the other hand, has IT billionaires in software and systems ― such as the owners of Wipro and Infosys ― while Japan is beginning to excel in the gaming industry.


Why South Korea lacks IT billionaires

The main reason why there are so few so-called IT billionaires in this country appears to be the “business mindset,” or lack thereof.

Instead of pursuing business philosophies that encourage global expansion, the young entrepreneurs of South Korea’s IT industry seem more concerned with making quick and easy money.

In fact, it is not uncommon to see new e-commerce or social commerce businesses quickly rise only to be acquired by foreign capital, although there do appear to be a plethora of valid reasons for this.

Many are of the belief that the government and the political community do not have a complete understanding of the IT industry ― how it works and what is needed.

As a result, there are too many regulations and restrictions facing the IT industry.

Moreover, it is also true that there is less of a drive in South Korea to list a company or attract investment than there might be in other countries, not to mention that the heavyweight chaebols also stand in the way of promising IT firms.

Such obstacles may be why most IT startups choose to be bought out by foreign investors, and why a growing number of local IT companies are securing a foothold abroad.

For instance, Nexon’s chief businesses are based in Japan and other countries, while Naver’s mobile messenger Line, the company’s latest growth engine, also relies heavily on Japan.

“Last year, while the media and the government were concerned with whether Naver is a monopoly and discussing what should be done about the game addiction act, the IT industry was internally more hyped about Amazon entering the Korean market and whether Tencent would acquire a Korean gaming company,” said an industry source. “Compared to the IT giants abroad, Korean companies are still like SMEs.”

Some also argue that the industry lacks the right type of human resources.

While there are more technologically skilled people, there are not enough who are familiar with liberal arts or sociology.

“IT services will ultimately be used by people, meaning that developers must have a good understanding of people’s mentalities, desires and intuitions,” said one official from a foreign-based technology investment company.

“Korea is still having a difficult time promoting various talents as a creative economy should be doing. As a result, many are busy trying to duplicate already-successful models instead of producing new innovations. It will be difficult to forge global companies under such infrastructure,” the official added.

By The Korea Herald Special Investigative Team
Hong Seung-wan
Sung Yeon-jin
Do Hyun-jung
Bae Ji-sook
Kim Joo-hyun