Kakao’s disruption in South Korea raises security concerns and monopoly

SEOUL – In South Korea, cocoa is ubiquitous. Almost everyone, from schoolchildren to seniors, uses the Korean tech firm’s apps for messaging, taxis, navigation, and payments. It’s Facebook Messenger, WhatsApp, Uber, Google Maps, and Venmo all rolled into one.

So when a fire broke out in the building where the company’s servers run this weekend, disabling its apps, people joked that the country would shut down.

But the disruption has forced a serious showdown on security and monopoly issues in Korea, where a handful of giant conglomerates hold dominance over the country’s economy. (Hyundai, known for its cars in the United States, operates apartment complexes and department stores here; Samsung, the tech giant, also sells insurance and owns a high-end apparel company.)

Kakao said in an investor presentation in August that its customer base has grown to 53.3 million active users, with 47.5 million in South Korea, gaining dominance in a country of over 51 million. Many shops accept Kakao Pay, most taxis in the Seoul metropolitan area run on Kakao T, the company’s calling app, and friends, businesses, and even the government use Kakao Talk to message each other.

It’s not uncommon for websites and apps to experience disruptions – Amazon Web Services, Slack, Facebook, WhatsApp and Apple have all made headlines and panicked consumers – but they usually last hours, not days, and often don’t affect that many parts. of people’s lives.

While Kakao was still putting some of his services online on Monday, President Yoon Suk-yeol said his administration would investigate whether Kakao had a monopoly on the market. If so, with Kakao becoming “national infrastructure,” Yoon said, “then the state must take the necessary measures for the good of the people.”

On Sunday, Yoon’s spokesperson Kim Eun-hye said the disruption “not only damages people’s livelihoods, but also causes fatal problems to national security in an emergency.” Resilience in the face of such incidents, Kim said, “is a corporate responsibility and a social promise.”

Kakao shares plunged 9.5% on Monday morning before closing nearly 6% lower than the close on Friday.

“Risk management in Korea is not a strength of most companies,” said JR Reagan, an American cybersecurity consultant in South Korea who runs the consulting firm IdeaXplorer Global. “They don’t like planning things that haven’t happened yet.”

Kakao’s first problem, he said, was that there didn’t seem to be any backup generators to compensate for the power outage. According to him, “you don’t put all your servers in one location, you distribute them out,” so that an incident, like fire, doesn’t cause an outage that’s so widespread and slow to resolve, he said. He added that US tech companies have “learned their lesson” there.

Because Korean companies are forcing their workers to use English names

Kakao and SK C&C, a conglomerate that manages Kakao’s servers, did not respond to requests for comment on Monday. Kakao said in a statement Sunday that he had created an emergency response committee to deal with the incident. Some features, such as messaging and Kakao T, were restored as of Sunday evening, the statement said.

Hong Eun-taek, co-managing director of Kakao, said: “We sincerely apologize for the inconvenience this incident has caused and we are currently doing our best to normalize the service.” He added that the company was working to prevent similar incidents from happening again and that it was preparing a “compensation policy” for those affected.

Korea University student Tammy Lee turned 21 on Sunday. “When the break happened the day before, I started getting super nervous,” Lee said. In Korea, young people often use cocoa to send birthday gifts; the recipient receives a message and can choose the color or size of the item and confirm the delivery address.

“When I realized I wasn’t going to be able to get any gifts this year, I was really sad,” Lee told the Washington Post on Monday (in a message from Kakao). When the gift feature went online Sunday night, “only a few people” who had texted his birthday messages had returned to send a gift, he said.

“I think the last few days show why Kakao’s dominance can be a threat, but I honestly don’t think any other ‘competitor’ will replace Kakao at this point because he’s so deeply ingrained in our lives,” he said. “I can’t imagine people abandoning an entire lifestyle just to switch to another application.”

This hasn’t stopped competitors from trying to exploit the moment. Line, a messaging app run by internet giant Naver, the Korean version of Google, has promoted its reliability. Line, Uber, and the Telegram messaging app all climbed to the top of the App Store charts in Korea. Telegram made fun of Kakao Twittersaying, “We welcome our new Korean users and hope they will appreciate the stability of Telegram’s multiple data center infrastructure.”

Hwang Lee, director of the Innovation, Competition and Regulation Law Center at Korea University, said that Kakao may be called a monopolist “strictly speaking,” but he would not go so far as to declare it a monopoly on antitrust enforcement.

Korea’s Fair Trade Commission “has been keeping an eye on cocoa and other monopolistic digital platforms for a long time,” Lee said. But “their efficient services have survived government regulations so far” as the government weighs the pros and cons of the well-integrated platform, she said.

However, the outage was a wake-up call for Koreans, Lee said. “They realized the potential dangers of a platform monopoly, which have been overlooked.”