April 24, 2024

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[THE INVESTOR] Mobile messenger operator Kakao has been boosting investment in local game firms, apparently to secure continued cash flow while its new online-to-offline business takes time to generate meaningful profits.

Kakao announced on July 20 it plans to invest in game developer Shiftu, run by a former art director of “Blade & Soul.” In May, the company also invested 3 billion won ($2.6 million) in mobile role-playing game developer Kokomo and 1 billion won in social-networking game maker V8.

Now, it is developing a new mobile game, “Destiny Child for Kakao,” with Nexfloor. 

Regarding jumping into the game market, Kakao’s official said, “We want to raise game quality because the business brings the second-largest income, after advertising.”

Kakao’s sales in its game business have seen a decline since big-name game firms such as Nexon and Netmarble moved out of Kakao’s game platforms.

Some market watchers, however, said Kakao has been investing in games to use them as a cash cow while shifting its focus into the online-to-offline, or O2O, business that draws potential customers from online channels to physical stores.

“The O2O business, which is considered Kakao’s future growth engine, needs some time to generate profits. The game business appears intended as a temporary cash cow.” said Kim Dong-hee, an analyst from Meritz Securities.

Recently, Kakao launched a series of O2O services. In May, the company launched the chauffeur service Kakao Driver and hair salon booking service Kakao Hairshop, following the taxi call service Kakao Taxi rolled out last year. The company also plans to unveil housekeeping service Kakao Home Clean and parking service Kakao Parking.

Currently, Kakao Taxi is the largest O2O service, with around 8.6 million subscribers. It does not generate any profits. The company plans to unveil a profit model later this year.

“Considering that foreign beauty O2O services such as Japan’s Hot Pepper or the U.S.’ Styleseat needed three to four years to capture a 1 percent market share, Kakao may need another year to see meaningful gains from the services,” said Oh Dong-whan, an analyst from Samsung Securities.

By Shin Ji-hye/The Korea Herald (shinjh@heraldcorp.com)