Shares of Korean internet giant Kakao slide after fire disrupts service

Shares of Korean internet giant Kakao slide after fire disrupts service

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South Korean internet giant Kakao’s share price fell on Monday after a fire at a data center knocked out power on Saturday, causing several service malfunctions.

The fire at the SK C&C data center, which houses the servers of Korea’s two largest internet companies – Kakao and Naver – has disrupted Kakao’s messaging, carpooling, payment and gaming apps, as well as search services and internet news from Naver, over the weekend.

Some disruptions are ongoing, mainly affecting Kakao services.

On Monday morning, Kakao’s share price fell more than 9%. Its counterpart Naver also slipped 2% at the market open before recovering.

As of this writing, Kakao said it has restored KakaoTalk, the country’s dominant messaging app, with over 46 million monthly active users in South Korea as of September 2022 and 53 million worldwide. On Monday afternoon, he also said he had completed the recovery of his financial services. But some other services are still down.

Meanwhile, Naver, which faced partial disruption following Saturday’s fire, quickly restored most of its operations on Sunday.

According to a report by Bernstein, Kakao’s slow recovery process was caused by the lack of company-owned server infrastructure and its “heavy reliance” on the SK C&C data center. This also highlights Kakao’s lack of a well-distributed save system. The report pointed out that Naver was able to resume its main services quickly because it had a well-designed server infrastructure and backup process.

KakaoTalk remains the dominant messaging service in South Korea and the Bernstein report predicts that it will maintain its position despite the outage, given its rivals’ market share lag. Additionally, he points out that Kakao’s messaging app is tied to other services such as Kakao Bank, payment and ride-sharing services, so users are unlikely to replace the app with less expensive alternatives. complete like WhatsApp or Telegram, according to the report.

The second largest messaging app after Kakao in South Korea is FaceBook Messenger, but it only has 3.9 million MAUs in September 2022; Naver’s messaging app, Line, has around 1.6 million monthly active users.

Korea Internet and Media by Bernstein

Picture credits: Bernstein

In his Saturday night statement, Kakao said the fire started around 3:30 p.m. (local time). He added that he was investigating the matter.

A statement from Naver on Saturday afternoon said it was aware of issues affecting its services following the fire.

South Korean President Yoon Suk-yeol also made public comments on Monday after the incident – noting that a private company operates KakaoTalk but describing it as a national communications infrastructure. Yoon called on the government to investigate the exact causes of the fire. “I respect the autonomy and creativity of enterprises, but this is based on the principle that the market reasonably allocates resources and income in a system of fair competition,” Yoon said. “If a monopoly situation results in market manipulation, the government should take systemic action.”

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