Academic journal article Academy of Entrepreneurship Journal

Merger and Spin-Off of Hangame: Implications for Internet Portaland Web Game Industry

Academic journal article Academy of Entrepreneurship Journal

Merger and Spin-Off of Hangame: Implications for Internet Portaland Web Game Industry

Article excerpt

ABSTRACT

NHN Corp. is a top Internet portal operator in Korea. The Internet giant was created by merging Naver, the search engine company, with, Hangame, the game portal company, in early 2000s. The merger was evaluated as one of the most successful M&A s in Korea. Large user base and good cash flow of Hangame helped the creation of the various services for Naver. Then the portal site secured the market leader position not long after the merger and has held a market share of over 70% since 2011.

As the smartphone ecosystem is becoming an important business platform after the advent of iPhone in 2009, the giant portal came to face the challenges for both Internet portal and game businesses. Many cast doubt on the growth of the company's Internet advertising as the people's eyeballs move from PC screens to mobiles. Furthermore, new types of mobile games have emerged such as the games that are integrated with Kakao Talk, a free messenger service for mobile devices. Moreover, the negative social perception on the addiction to games drives the game company to deal with the issues of social responsibilities and restrictions by government regulations.

Considering these challenges, the current case study discusses the driving forces for the merger and spinoff of the game company. Through this case study, we hope to provide readers with the opportunity to understand the web game and Internet portal industry and have a prospective on the influence of technology and regulation on business.

Keywords: Web Games, Internet Portal, Merger, Split-Up, Case Study

"The company now runs like a large corporation forgetting the 'spirits' of ventures. Not a small number of employees mistake the company for a morning soccer club."

Haejin Lee, Chairman of NHN Corp, The company speech, April 2012.

INTRODUCTION

In February 2013, NHN Corp., top Internet portal operator in Korea, announced the plans to spin off Hangame, a game division it acquired in the year of 2001. The Internet giant of NHN created by merging the search engine of Naver with the game portal site of Hangame would eventually be disband after 13 years.

Smartphone gaming is emerging rapidly around 2012 and changes the rules of game industry. KakaoTalk, a mobile messenger developed by the Hangame founder after he left NHN, gained ground so fast. The mobile messenger's platform hitting over 70 million users has made games virally spread and boosted the games into the worldwide top 10 lists on Google Play, the mobile application market for Android. In some cases the Kakao games generate $1 million downloads a day. The Google Play in Korea generates more than 95 percent of its revenue from games, mostly Kakao games. NHN Corp. perceived that the large corporation would not be able to cope with the changes in the mobile industry and decided to split their businesses of search engine, mobile and game into the small companies to deal with the changes to meet diverse user demands in mobile communication environments.

Furthermore, the regulations of Korean government are getting stricter on web board games to deal with the (continuously raised) immersion issues. The Ministry of Culture, Sports and Tourism (MCST) that has authorities to execute regulation policies on game industry, would limit a game player's purchasing power and maximum bet per game, remove automatic betting, and require personal identification. Consequently the revenue and profits have been decreasing gradually for the recent couple of years.

The merger between Naver and Hangame has been evaluated as one of the best synergy deals in the Internet industry in Korea. The market for games is identified bigger than those of other online contents (such as films and music) and the potential for a game business is enormous. Furthermore, Naver has secured 30 million registered users in Korea after the merger and become the biggest portal site in Korea, winning over Yahoo! …

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