Artificial intelligence (AI) startup Upstage has moved to acquire the portal "Daum." Upstage said on the 29th that it "will apply AI technology to Daum's content data to push a transition to a next-generation platform." Eleven years after Daum merged with Kakao in 2014, the organization will be split off.
The symbolic meaning of this transaction for the internet industry is significant. It is viewed as a shift from a portal-centered internet industry structure to one centered on AI and data. An era has opened in which AI corporations operate portals. Rather than seeing Daum as a simple portal, Upstage is redefining it as an AI testbed and expects synergy.
◇ CEO Kim Sung-hoon, a new attempt after the 1995 "Kkachine" search engine
Daum is operated by AXZ, a subsidiary wholly owned by Kakao. The acquisition bid is known to have been first proposed by Upstage to AXZ. The core of the agreement is that Kakao will transfer its AXZ equity to Upstage, while Kakao will acquire a certain equity stake in Upstage. The two sides did not disclose specific equity ratios or the valuation of the corporations. However, the industry expects Kakao to dispose of all of its AXZ equity to Upstage. The securities industry values Daum's equity at 200 billion to 300 billion won. Upstage's corporate value is discussed at 2 trillion won to as much as 4 trillion won. It has not been decided whether they will exchange only equity or exchange part of the equity and pay a sale price.
Upstage CEO Kim Sung-hoon entered Daegu University and, in 1995, developed the Korean-language robot search engine "Kkachine" as part of the Computer Applications Lab. In 1997, he unveiled the email service "Kkaebi Mail." It was around the same time that Daum's Hanmail emerged. Kim moved to the United States in 2000, earned a Ph.D. from the University of California, Santa Cruz, completed a postdoctoral program at the AI and Computer Science research institute at MIT, and from 2009 served as a professor at Hong Kong University of Science and Technology (HKUST). He returned to Korea in 2017 to oversee Naver's AI development and founded Upstage in 2020. This Daum acquisition is effectively a renewed attempt at the search portal business for him.
Daum was founded in 1995 by founder Lee Jae-woong with paid-in capital of 50 million won. Based on its free email service Hanmail, the community service Daum Cafe, and its search service, it was the dominant player in the portal industry into the early 2000s. The merger of Daum and Kakao was a hot topic at the time as a combination of the No. 1 messenger and No. 2 portal. Daum's corporate value at the time of the merger was assessed at 988.5 billion won. It was the strategy chosen by Kakao founder Kim Beom-su amid the upheaval of the mobile era. But it turned out to be a mismatch that failed to restore Daum's competitiveness. Daum's market share, once near 40%, has now fallen to the 2% range. It has been overtaken by Naver, Google, and Microsoft Bing. As of September last year, AXZ's paid-in capital was 13.001 billion won. In the end, Kakao chose to hand Daum over to another party to take on a new role rather than trying to rebuild it as a growth engine. Instead, the strategy is to focus on the company's core services, KakaoTalk and its AI business.
◇ From an AI solutions company to an AI+platform company
By bringing Daum into its fold, Upstage will cover not only technology but also the portal and platform business. Upstage is currently expanding its business by developing the large language model (LLM) Solar. Upstage's existing business model was a business-to-business (B2B) structure that increased revenue by adding client corporations. Daum has data and traffic accumulated from search, news, content, and communities, and if Upstage leverages this, it can advance and monetize AI. It will also span business-to-consumer (B2C). Upstage plans to combine Solar with Daum's services to build a next-generation AI platform. For Upstage, Daum can serve as a testing ground, accelerating AI commercialization. Upstage is also participating in the government's independent AI foundation model project, and in that competition it aims to create synergy by using Daum.
Upstage last month selected KB Securities and Mirae Asset Securities as lead managers and is preparing for an initial public offering (IPO). Upstage's acquisition of AXZ equity is an advantage in the listing process. It adds tangible grounds—data, traffic, and distribution—to the abstract assessment that its technology is strong. The corporate value will also increase by as much as the AXZ equity stake. Kakao will also take equity in Upstage, so if Upstage's listing is a big hit, the value of the company's investment asset will rise.
However, the two companies, in announcing this equity acquisition, emphasized that they are "seeking growth opportunities through collaboration." In other words, this is a strategic equity acquisition rather than a simple stake purchase. Upstage also sees positive cooperation with Kakao through the equity deal. Because many of Daum's services are already linked to KakaoTalk accounts, Upstage will have an opportunity to expand partnerships across Kakao's business areas, including finance, mobility, and content. There is not expected to be a major change to Kakao's existing AI model, Kanana, business. Upstage also said that while it could collaborate broadly in relation to Kanana, this decision was not made with that in mind.
◇ "Once a portal slips to No. 2, revival is not easy"
Attention is on whether meeting Upstage will allow Daum to shed the humiliation of a 2% market share. Upstage said it "will not operate Daum as it is, but will apply AI to unveil a service of a different nature than now." However, experts say it remains uncertain whether Daum can be revived in the portal market.
Kyunghee University business professor Lee Kyung-jun said, "CEO Kim Sung-hoon, who has experience operating the portal 'Kkachine,' which was faster than Naver, seems to have lingering feelings for search portals, but this looks as difficult as a lover who found success late going back to marry an old flame." He said, "In internet business, there has never been a case where a service that was once No. 1, then pushed down to No. 2, returned to No. 1," adding, "Although it is meaningful to try many things because the AI industry is in a very early stage, historically there has been no successful case of acquiring a portal that fell to No. 2 or lower when you consider the meetings of Kakao and Daum, Empas and Cyworld."
Chung-Ang University business professor Wi Jung-hyun said, "When Kakao acquired Daum, it expected synergy between PC and mobile, but there was none," adding, "By the same logic, they now expect synergy between AI and search, but this too will likely have little meaning." He added, "Search also needs to have a monopolistic or oligopolistic character as a platform to be competitive, but Daum's market share is already at a meaningless level."