KakaoTalk to adopt full-screen ads as sales, profit growth stunted

Kakao Corp., the operator of South Korea’s dominant messenger and chat app KakaoTalk, is set to introduce full-screen advertisements on the chatting platform as it is reeling from stagnating sales and profit growth.

According to industry sources on Monday, KakaoTalk will test full-screen ads on the KakaoTalk interface from mid-October. These ads will be displayed on the Open Chat tab, upon request from select advertisers.

During a second-quarter earnings conference call last month, Kakao Chief Executive Chung Shina said the company plans to launch full-screen display ads on KakaoTalk’s profile and Open Chat in the latter half of this year as a mid-to-long-term growth strategy.

The move comes as Kakao struggles with falling sales and worsening profitability from its KakaoTalk business.

After peaking at 537.6 billion won ($402 million) in the fourth quarter of last year, the mobile app’s revenue has declined for two consecutive quarters, posting 513.9 billion won in the second quarter.

KakaoTalk’s monthly active users (MAUs) reached 54.2 million in the second quarter, up only 1.3% from a year earlier.

DOMESTIC USER BASE GROWTH STAGNATES

Industry officials said Kakao has already secured more MAUs than its primary user base in Korea, making it difficult to expand without venturing into international markets.

Kakao has been focusing on broadening its advertising business by leveraging KakaoTalk’s user base.

Ad revenue from banner ads displayed at the top of the KakaoTalk Friends and Chat tabs and from KakaoTalk channels reached 307 billion won in the second quarter, accounting for 60% of KakaoTalk's total revenue.

Its advertising business has become all the more important as KakaoTalk's e-commerce revenue dropped 8% to 207 billion won in the second quarter from 244 billion won in the first quarter.

"Kakao's operating profit margin fell to 6.3% in the first half from 10% at the end of 2021, which adds pressure to expand its advertising business,” said an industry official.

NAVER’S AD STRATEGY

Korea’s top internet portal operator Naver Corp. is already benefiting from its advertisement services.

Naver has been running full-screen ads called "Showcase Ads" on its mobile app since last year.

This format maximizes advertising effectiveness by exclusively displaying a single brand's ad across the entire app interface.

The company counts Samsung Electronics Co., Apple, Dyson, Netflix, K Bank Co. and Nexon Co. among its clients that use such ads.

The cost for such an ad is known to be around 50 million won a day.

Thanks to the full-screen ad business, Naver's display ad revenue in the second quarter rose 8.1% to 235 billion won from 217.4 billion won a year ago.

YOUTUBE, VIDEO PLATFORMS RUSH TO FIND AD SPACE

Video platforms such as YouTube are also eager to find new spaces for ad placement.

According to The Verge and ZDNet, YouTube launched an ad product earlier this month that displays ads when a streaming video is paused.

When users pause a video, the screen shrinks and a banner ad appears on the right side of the screen.

This ad format is currently applied to smart TVs, not mobile devices. YouTube Premium subscribers can avoid seeing these ads.

YouTube has already seen the profitability of such pause ads during a trial run last year.

US-based streaming services like Hulu, AT&T and Sling TV have been running similar pause ads.

Industry officials said intense competition among over-the-top (OTT) services like YouTube, Netflix and Disney+ has made it difficult to competitively increase subscription fees, pushing them to introduce new ad formats to boost revenue.

Write to Ju-Hyun Lee at deep@hankyung.com


In-Soo Nam edited this article.