Are tech firms picking up the chaebols bad habits?
A few months ago, Kim Beom-su looked like the face of responsible capitalism in South Korea. In March, the billionaire founder of Kakao, which runs the country’s most successful messaging app and a slew of other digital services, promised to give away half his wealth for charitable causes, the second Korean tycoon to make that pledge. Now he is making headlines for some less salubrious reasons. Antitrust officials have reportedly set their sights on his private holding company for allegedly failing to report properly on its shareholders and affiliates.
The apparent move against Kakao’s founder is the latest salvo in an ongoing battle. Like their counterparts in America and China, South Korea’s technology giants have come under scrutiny. Officials worry that as firms such as Naver, which began life as a search engine, and Kakao have expanded into anything from ride-hailing to personal finance, they have picked up the bad habits of the chaebol. These sprawling conglomerates were instrumental in making South Korea rich and continue to dominate its economy. But they are notorious for murky governance structures, oligopolistic business practices and close ties with the political elite.
Over the past few weeks, politicians have ramped up the rhetoric. “Kakao has turned from a symbol of growth and innovation into a symbol of old greed,” Song Young-gil, a leader of the ruling Minjoo party, told the National Assembly this month. “We will find a way to stop its rapid expansion and help it coexist with small-business owners,” he warned.
The same day regulators ruled that some financial services offered by Kakao and Naver violated consumer-protection laws because the platforms were not registered as intermediaries. The two companies will now be required to abide by brokerage regulations. Spooked investors dumped Kakao and Naver shares, shaving a tenth, or $11bn, off their combined stockmarket value.
Korean trustbusters, for their part, are investigating allegations that Kakao’s taxi-hailing service favours its own pricier cabs. They want e-commerce platforms to draw up proper contracts with third-party sellers, and specify what commissions they earn. In August, Coupang, the country’s biggest e-commerce firm, was fined 3.3bn won ($2.8m) for pressing suppliers to lower prices. South Korea’s largely unregulated crypto-exchanges will have to register as legal trading platforms.
The techlash is not limited to domestic tech darlings. On September 14th, regulators fined Google $177m for not allowing versions of its Android operating system to be installed on locally-made smartphones. And last month South Korea became the first country to oblige Apple and Google to accept alternative payments systems in their app stores.
App developers like Epic Games, which suffered a courtroom defeat against Apple in America on September 10th, welcomed the move. The maker of “Fortnite” invoked the South Korean law to try to get its app reinstated on Apple’s app store, from which it had been booted for breaching rules that barred such in-app payments. Apple has refused.
Lim Jung-wook, a venture capitalist, applauds the government’s instincts to protect consumers and small suppliers. But he reckons stricter rules will do little to curb the tech companies’ power in the long run. “These firms’ services are too convenient for them not to keep growing.”
Nonetheless, faced with sinking stock prices, the Korean firms have begun to respond. On September 14th, Kakao announced a new 300bn-won fund to help small suppliers and promised to scrap new services such as flower delivery that compete with mom-and-pop businesses. Mr. Kim promised that the company would “throw away” its old growth model and replace it with one that fostered “social responsibility”.
Coupang has chosen a more combative approach. It insists that its platform has made it easier for small firms to get their products to consumers. And it is appealing against the antitrust fine, claiming that the penalty serves to protect chaebol such as LG, which brought the complaint.