Asia Business Insight

SK Communications
Younjin Raju Wu Shin Chloe Darshani Edwin

Contents

SK Communications Group hierarchy Company Introduction Timeline of history Services and Offerings Main Service : Cyworld Cyworld Introduction Financial Performance Stock Price Decrease (1Y) (Hacking issue) What Went Wrong? Business model analysis Business model instruction Revenue breakdown Business model analysis (Questions) ->New business model: E-commerce Concepts Failure in Korea (Feature) -security -global reach (distinct sites for different regions) -ubiquity (mobile app) -sophisticated service: real-time streaming video Failure in U.S. (Culture) Business model transferring (childish) Richness: Korea vs. US, pros & cons (value-added) Complicated UI (Feature) -amateurish localized content -3D design Recommendations for the better performance (How) -Business Model Perspective -Organizational Culture Perspective

Understanding SK Communications

SK communications
Profile A globally competitive online service provider that delivers new concepts in Internet service CEO: Lee Joo Sick

Vision "People that leads change on the Internet Customer Speed Maintain a close relationship with world

Mission To be the true global leader through continuous challenge for innovative service, continuous pursuit of global and continuous growth and concentration to be No. 1 service provider
Resources-2011 Sk communication financial report

Timeline of SK communication

animition

Released NateOn Talk, a high-quality mobile messenger

SK Communications, Released apps for Smartphone Cyworld, Exceed 1 billion Cys SK Communications and Empas made final decision on a merger SK Communications, Conditional transfer agreement with Egloos Cyworld, Established US corporate, Opened Cyworld service for China SK Communications, and <Cyworld> Merged Nate.com, Renovated as a portal site, Launched SK Communications Co Opened community service Cyworld

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SK comms. Services

Search portal

Best messenger

Koreas largest social network

Communit y for a

bloggers

Introduction to Cyworld

Created by 4 students from the Korea Advanced Institute of S cience and Technology (KAIST) in 1999 First of its kind in Korea, with the minihompy service allowing users to express themselves Due to phenomenal growth, bought over by SK Communicatio ns in 2003 Opened German & US offices in 2006, both of which later clos ed Currently has Korea, China and Vietnam services running

How a Minihompy Looks Like

Cyworlds Exponential User Growth

Acquired by SK
Source: http://yongyeol.com/profile/pdf/cyworld.pdf

Cyworlds Past Success Factors in Korea

Free membership

Strategic Alliances (Nate)

Wide appeal

3D Minihompy homepage

1chon Friendship System

Virtual goods

Financial Performance of SK Communications

Financial crisis
Reasons for fall in stock price in 2008 Financial Crisis Competition from facebook

Source: ycharts.com

Net Income (in KRW mn)

30,000 20,000 10,000

0 2005 -10,000
-20,000 -30,000 -40,000

2006

2007

2008

2009

2010

2011

2012

NI(KRW mn)

SK Communications Revenue Breakdown

Source: http://www.skcomms.co.kr/

Revenue Model of Cyworld

What Went Wrong? SK Communications

3 Main Reasons

Core Service Lose Appeal

Example_Cyworld

No more new business model

Organizational Culture Problem

Recommendation

1. Core Service Lose Appeal Analysis_Cyworld

Increased competition from Facebook, Twitter

Due to market trends and changing user demographics, Cyworld is recently facing a stagnation in users and may lose its No.1 SNS status in Korea.

No of users

Business model innovation: Appstore

Launched in 2009 to reposition Cyworld/Nate with open social pl atform technology to provide new user experiences 70% of revenue goes to developers, 30% to SK Communications

Cyworld Appstore Is Not Doing Well

Apps downloads and sales were up from 2009 - 2011, after which they came crashing back down, impacting revenue greatly

Security Issues and Implications

In 2011, Nate and Cyworld were hacked 35 million users personal information such as social security numbers and email addresses were leaked Users filed a lawsuit against SK Communications and won the 1st round in April 2012, causing financial damage to the company Currently, it is entering the 2nd round

Lets Evaluate Todays Cyworld

Social Technology

Ubiquity

Personalization

Global Reach

Interactivity

Universal Standard

Richness

A Case In Point: The Fall of Cyworld US

Entered US in 2006

Investment never happened

Planned to invest USD110M in 2007

Laid off US staff in 2008

Closure of Cyworld US in 2009

Bad Strategic Decisions Global Reach?

US users unable to link to Korea users Distinct sites for different regions with no interconnectivity

Richness?
Lack of open API for 3rd party apps No value-added features from users limits network effect

Ubiquity?
Slow development of mobile app for iPhone & Droid OS Instead chose to focus on Windows (predominant in Korea)

Universal Standards?
One-Size-Fits-All
US users not as keen on avatars & minihompy Inward-looking, family & friend based SNS not in line with outgoing US users Blood type segmentation wont work in US, unlike Korea Registration requires social security number infringement of users privacy

Complex User Interface

Complicated UI compared to competitors FB, MySpace Cute-looking interface perceived as childish by some Amateurish localized content with grammatical errors shows insincerity 3-D design not preferred over simple 2-D homepages

Recommendations

Social Network Industry ANALYSIS

Revenue models for online websites Advertising Subscription Transaction Fee Sales Affiliate
The company gets paid for putting up advertisements of other organizations

The company collects fees from the subscribers in exchange for access to content or services

The company charges commissions for enabling or executing a transaction

The company collects revenues from sales of goods, information, and/or services

The company gets paid for referring people to other services/companies

Porters 5 forces analysis : SNS

Potential Entrants (Medium) Low capital Low product differentiation Low IP rights Low exit costs

Buyer Power Supplier Power (Low) Server providers Apps providers Industry competition (high) (High) Low switching costs Advertising companies User Base

Threat of substitutes (Medium) New technologies New ideas YouTube Google

SWOT of Cyworld -- YJ
STRENGTHS
First mover advantage Strong alignment to Korean culture

WEAKNESSES
Security problem Low flexibility in International markets

OPPORTUNITITES
Influential Korean contents

THREATS
Competition from Facebook

Cyworld FUTURE

CYWORLD
Still has over 20million subscribers It is in the decline stage

Crucial for the company to establish new market strategies to survive

Strategic success factors

Design ease of use and attractiveness Focus target market and activity focus

User engagement retain user minutes

User transactions innovative applications, likes, pokes etc.

Privacy
Localization Key Business Goals Increase advertising revenue Increase user engagement

CYWORLD Recommendations
Map user engagement to revenues Continuous improvement and innovation in design Increase people-to-people interaction with new features Increase applications available Increase user engagement

INTERNAL Create young and innovative culture within the company Expand target segment and become a social network for life

Value chain analysis

Industry Model for Social Media

Transactions

Social media can be broken down into the below 3 components to effectively analyze its competiveness It needs to be able to do all three with varying competencies
Function of Repeat transactions

Targeting

Time

T-Factor Transactions

Question to be asked Does the transactions on your site, make a difference to the users life? Are they repeated?

Targeting

Can the site distinguish between the preferences, likes/dislikes of two users?
Do your users spend time on your site? Are you an industry leader in user engagements?

Targeted Advertisements and Content

User Engagement & Content

Time

Recommendations
Monetization
Use the user updates to deliver targeted advertisements Deliver local advertising based on user locations GO TO BRAZIL or emerging markets C2C e commerce LOCK IN effect Security concerns Focus on Korean youth and become a social hub Give user interface options Partner with SK telecom to leverage on user base and technology for mobile Branch out with new offerings like linkedin Improvement in technology integration between email, chat and mobile platforms Solve the problem of how businesses can contact customer looking for services in a manner that does not infringe privacy

Application

Communications

THANK YOU !