
Korea’s Platform Economy: Lessons From The U.S. And The Path Forward
On August 5, 2024, the U. S. District Court for the District of Columbia issued a ruling against Google. This occurred amid an ongoing antitrust lawsuit in which the United States Department of Justice (DoJ) alleged Google’s monopolistic control over the online search market. As the case unfolds, DoJ prosecutors have hinted at requesting a divestment order, forcing Google to break up parts of its business. This trial has captured global attention, speaking to a growing trend: governments worldwide are reassessing the unchecked growth of platform tech giants like Google, Meta, and Amazon and exploring strategies to counter their dominance. In Korea, this global trend has sparked discussions about regulating domestic tech giants. Naver, Kakao, and Coupang are some of the first companies that come to mind, each a giant in the industry of search engines, social services, and e-commerce. They correspond to Google, Meta, and Amazon, respectively. Both countries face similar challenges in regulating big tech companies, but the playgrounds in which these companies thrive are quite different. Why exactly are they different? For starters, both countries have had decades of their own unique history of platform economy. It stands to reason if the situations are so distinct, the regulations imposed should be different as well. But when it comes to regulations, the U. S. acts as a global standard that other countries tend to follow. As we will see later on in the article, the Korean platform economy is still in an early stage of development, and the government faces a decision. Should it pursue strict regulations or adopt a more lenient approach? The U. S. government has been taking aggressive antitrust actions—should Korea follow suit?Before moving forward, what exactly is a platform economy? According to Wikipedia, a “platform economy encompasses economic and social activities facilitated by digital platforms. ” In other words, it is the aggregate of platform businesses—not just the entities themselves, but also all the interactions and the results that are incurred by them. Hence, one important feature of the platform economy is the network effect. As more users join a social network, more people outside the network will want to join. As more search queries pile up, search engines can output more accurate responses. This virtuous cycle has enabled businesses like Google and Meta to become the giants they are today. Brief Historical Overview of the Two Platform EconomiesU. S. The digital platform economy in the U. S. dates back more than 50 years, with technological advances like the microprocessor in the 1970s and the Internet in the 1990s. Major tech companies emerged in the era of the Internet, including Google(founded in 1998, 90. 01% global search engines), Amazon(founded in 1994, U. S. 37. 6%, 310 million international), and Facebook (founded in 2004, currently Meta Platforms). Google revolutionized search and branched out into advertising, cloud services, and even mobile technologies with Android; Amazon started as an online bookstore but quickly grew into a global e-commerce platform and cloud computing giant; and Facebook began as a social media platform but now explores virtual reality, digital marketplaces, and beyond. Although these companies started in different industrial sectors with their own unique goals, they have some things in common. Not only have they built monopolistic positions in their respective industries, but they’ve also branched out from their original endeavors into multiple sectors. The U. S. platform economy has become both an engine of innovation and a playground of concentrated market power. KoreaKorea’s digital platform economy developed after the 1997 Asian financial crisis, much later than its American counterpart. Naver, founded in the early 2000s, became Korea’s leading search engine and diversified with blogs, portals, and a strong e-commerce presence. Kakao released its messaging platform Kakaotalk in 2010 and KakaoStory in 2012. After its merger with Daum, it quickly expanded its business model to encompass areas like payments (KakaoPay), transportation (KakaoTaxi), and banking (KakaoBank). Coupang, founded in 2010, is now Korea’s largest e-commerce platform. It is known for its fast delivery service, Rocket Delivery, and OTT service Coupang Play. Each of these companies leads its sector. According to InternetTrend, Naver has a share of 54. 26% in the Korean web search market. KakaoTalk has monthly active users(MAU) of approximately 45 million, with a market share of 93. 4% as of June, according to Mobile Index. The Korea Fair Trade Commission evaluated Coupang’s market share as 24. 5%, with Naver closely following with 23. 3% as of 2022. In fact, Coupang holds more than 14 million premium members. How Do the U. S. and Korean Platform Economies Compare? The U. S. and Korean digital platform economies both place a heavy focus on technology-driven business models. Both economies have also fostered platform giants which started from niche markets and now dominate their respective industries. However, there are differences in terms of market characteristics, language barriers, and regulations. The most apparent difference between the two platform economies lies in market size. As mentioned above, a platform economy relies heavily on the network effect. Market size is a direct determinant of the strength of that effect. The U. S. population reaches nearly 350 million, accounting for a huge consumer base. Also, the U. S. platform economy operates in English, which allows them to easily expand across borders. The potential reach of these companies spans beyond the Anglosphere and into the rest of the world, as English is a global lingua franca. On the contrary, the Korean population is approximately 50 million people, constituting a relatively smaller domestic market. While Korean is spoken by a significant global diaspora and is gaining prominence due to the popularity of K-pop and K-culture, it remains primarily spoken within South Korea. The language doesn’t have the same global reach as English or Spanish. That is why most Korean platform companies have focused on consolidating their position within the domestic market. Some platforms like Naver have indeed made efforts to expand their business to neighboring countries like Japan (such as through Line), but this remains an outlier in the broader trend. Finally, differences in market maturity between the two digital platform economies can be observed. The U. S. digital platform economy is mature and has had decades to evolve. The Korean digital platform economy is only now emerging and still has potential for growth and innovation. The Differences in Regulations Regulations are fundamentally different from factors like market characteristics and language barriers. While there is not much we can do about the latter, regulations are structured proactively by the government. Or to put it another way: we can affect the platform economy by taking different approaches to regulations. This is why deciding the path for regulations is so important!The U. S. has historically leaned towards aggressive antitrust actions against large tech companies. The most famous case in modern times is United States v. Microsoft Corp in 2001, where Microsoft was forced to carry out several measures including disclosure of Application Programming Interfaces(APIs) in its operating system and the creation of an independent compliance committee. The disclosure of APIs forced Microsoft to share technical information it had kept proprietary with third-party developers, while the committee had access to internal Microsoft documents and oversight authority. The ongoing United States v. Google case clearly shows us that the U. S. is still pursuing such measures. What about Korea? Although the Korean Fair Trade Commission (KFTC) did address the dominance of conglomerates during the 2000s by introducing regulations limiting cross-shareholding, the Korean platform economy didn’t receive much attention until 2020. One important milestone was the passage of the “Anti-Google Act” in 2021, which prohibited app store operators like Google and Apple from forcing developers to use proprietary payment systems. However, concerns have arisen that such may have unintended consequences like higher transaction costs for developers and disruption in the app store ecosystem, potentially leaving small developers worse off than before. The Way Forward: Do We Need Strict Regulations in Korea?For approximately a year now, the Korean Fair Trade Commission has been pushing for an amendment to the Fair Trade Act to target “near-monopoly platforms that have the power to affect the entire platform economy”. Regardless of the reaction to the approach, the government is willing to pursue harsh regulations against digital platforms with power. While the intention behind such regulations is to prevent monopolistic practices, there are concerns. Let’s take a look. 1. Hindering innovationThe foundation of Naver and Kakao’s rapid success was innovation. Restrictive policies imposed may stifle and discourage companies from exploring new technologies, services, or business models. Google and Facebook had the opportunity to scale freely in their early ages, primarily due to the lack of early regulation on the internet and a business-friendly environment that prioritized fostering innovation. It is true that the playground has drastically changed and that we cannot give Korean tech companies a regulation-free environment. This is where the bottom-up approach, which will be discussed shortly, becomes crucial. It will play a key part in setting up an environment that facilitates innovation. 2. Reverse discriminationAnother concern is the possibility of reverse discrimination against domestic tech companies. Unlike the global tech giants, which operate in multiple markets across the world, Korean platform companies primarily operate within the domestic market. U. S. tech giants can better absorb the impact of regulations in Korea while continuing to thrive elsewhere. For example, U. S. tech giants have frequently combated regulations in the European Union by reducing or even threatening to pull their business altogether. U. S. tech giants can even wait it out until the regulations become more lenient, or change their business structure to avoid being designated as a monopolist. Korean tech giants do not have the financial flexibility to hold out or an alternative consumer base to turn to in such situations. The Alternative: Bottom-Up ApproachIf strict regulations are problematic, what can the Korean government do? Surely the solution isn’t turning a blind eye to the issues that may likely emerge. There is just one key objective here: keeping the Korean platform economy healthy. The Korean government should focus on supporting small businesses that can innovate within the platform ecosystem. This would act as a counterbalance to the dominance of Korean tech giants without dismantling them or letting foreign entities dominate the market. Let’s look at some approaches that can help achieve this ideal outcome. a. Expand financial assistance: Incubators and AcceleratorsKorea has already established a solid environment for startups. The Ministry of SMEs and Startups, after its formal establishment in 2017, has played a critical role in fostering this environment. It ensures that critical components like Incubators and Accelerators can do their part in assisting startups. Incubators are organizations that focus on helping early-stage companies refine their business ideas by providing various resources. Accelerators focus on helping companies scale quickly, providing support such as mentorship and educational components. For example, Korea has developed initiatives like the Creative Economy Innovation Centers and launched TIPS (Tech Incubator Program for Startups) to function as both Incubators and Accelerators. Utilizing these well-developed initiatives, the digital platform economy could be improved as well. Instead of imposing regulations on a specific company in a specific industry, the government could provide more support to small companies through these initiatives. b. Collaboration: Big platform companies and small firms can collaborateIt almost sounds too good to be true, but establishing a genuinely mutually beneficial and non-exploitative framework is essential and possible. We’re accustomed to seeing big companies exploit small companies, as those cases usually end up in headlines on the news. But successful cases like Naver’s D2 Startup Factory (D2SF)exist as well. D2SF supports startups in various areas such as AI, robotics, and cloud computing. Small companies gain mentorship and infrastructure, and in return, Naver gets the external innovation it needs. With the right government support to incentivize the big platform companies, this mutual framework can be expanded to the digital platform economy as well. The relationship has to be mutually advantageous to both the big and small companies: if this resembles a mere handout from the big to small companies it cannot be sustainable. D2SF is mutually beneficial to both Naver and the small companies, which made the program so successful – since its establishment in 2015, D2SF has successfully partnered with more than 110 startups. For such relationships to be established, a program should aim for long-term collaboration where both parties can invest in the growth of one another. It is important to note that the two solutions above are fundamentally different from strict regulations. While imposing harsh regulations and supporting small firms both aim to enhance competition, they achieve the goal in vastly different ways. Imposing strict regulations focuses on controlling the power of tech giants, which may risk stifling innovation and cause companies to become overly cautious. Considering the traits of the Korean platform economy discussed above, this could have unintended downsides. On the other hand, supporting small firms focuses on building up smaller firms to level the playground. In the long run, this approach may create a more sustainable and competitive market. Future of the Korean Platform EconomyThe Korean platform economy stands at a crossroads, as the government begins to respond to the growth of the platform economy in general. While what the U. S. has been doing to big companies may seem promising, we don’t have to take that path. Instead of taking a page out of their book, let’s use the resources and frameworks available in our own startup industry. By deploying financial support to small firms with potential and fostering collaboration between large platforms and smaller firms, Korea has the chance to further develop a robust platform economy.