Mobile Advertisement Market and

Platform Business Trend in Korea

3. BM of Mobile Advertisement Platform

Market Size

2. Summary of Mobile Advertisement and

the Advent of Smart Phones

[ Table of Contents ]

1. Change of Mobile Advertisement Market with

Jaepil Kim (kimjaepil@kt.com)

Jeongwook Heo (rama@kt.com)

Minhyeon Seong (smh0115@kt.com)

Business & Economics Research Center

1

2

EExxeeccuuttiivvee SSuummmmaarryy

□ Mobile advertisement market emerged as a new competition ground for the hegemony of the platform business The current domestic mobile advertisement market size is about 200~300 billion

won (including voucher market), and is expected to grow to 1 trillion won around 2015. (Source: Frost & Sullivan)

With the vitalization of wireless internet, mobile web (Web) + mobile app (App) advertisement market rapidly emerges as a new competition ground for the hegemony of the platform business.

Daum, Future Stream Networks (FSN), LGU+, Google, etc. are providing platform services.

kt and SKT are also planning to launch mobile advertisement platform in the first half of 2011.

□ Trend of platform service providers in domestic mobile advertisement market Portal Service Providers: Spread wired market portal competitiveness to wireless

platform

Mobile Carriers: Focus on app advertisement platform based on subscribers and mobile carrier app stores

Naver - Separated platform from portal by establishing Naver Business Platform(NBP) - Intensifying mobile web competitiveness through converting wired portal core services for mobile

Daum - Taking the lead in mobile advertisement market through AD@m, which is an advertisement platform specialized for mobile

- Spurring on killer app for mobile (Daum TV Pod, Daum Map, My People, etc.)

kt - Planning to launch olleh Ad in the first half of this year - Attract customers with popular app such as olleh Market, Pudding Camera, I’m In, etc.

SKT

- Divided to SK Communications and SKT, simultaneously targeting mobile web and app

- SK Communications made alliance with Daum to link between services and to share advertiser pool

- SKT made alliance with Future Stream Networks to promote In-App advertisement in T Store app

□ Implications for successful mobile advertisement platform strategy

Service differentiation needs to come first to strengthen advertisement platform competitiveness.

Concentrate to secure killer app utilizing open developer ecosystem to develop differentiated services such as advertisement using location information

Secure ‘ad-network’ capability to secure economy of scale

I. Change of Mobile Advertisement Market with the Advent of Smart Phones □ With the advent of smart phones, as wireless internet is vitalized,

mobile advertisement market is getting attention as a new competition ground for the hegemony of platform business

The number of smart phone users in Korea is over 10 million, and as mobile

advertisement traffic increases accordingly to more than 50 times1 of the previous

year, portal and communication service providers started to focus on mobile

advertisement market as a new field to secure hegemony of platform business.

Online advertisement market size in Korea is about 1.5 trillion won, and mobile

advertisement market is estimated to be 200~300 billion won, but it is still in initial

phase.

While the current domestic mobile advertisement platform market is led by Daum

‘AD@m’ and Google ‘Admob’, and kt, SKT, and LGU+ are also developing or planning

to develop their own advertisement platform businesses.

□ Intensified competition between portal service providers and mobile carriers for mobile advertisement platform

Portal service providers: Try to spread competitiveness in wired market to wireless

platform

Mobile carriers: Promote new business based on smart terminal subscribers, and

provide advertisement infrastructure to attract superior app within mobile carriers’

app stores. (kt olleh Ad, SKT T Ad, LGU+ U+ Ad, etc.)

□ Vitalization of App Market centered around mobile advertisement platform

Mobile advertisement platform promotes win-win and development of the overall

mobile eco-system, and by returning most of the advertisement profit to the

developers, virtuous circle structure is established to vitalize App market.

3

1 Domestic mobile advertisement traffic grew 50 times or more than previous year, which is the

highest in Asian countries. (During the Google Korea Meeting Presentation, 2011.4.12)

II. Summary of Mobile Advertisement and Market Size □ Mobile Advertisement: advertisements that are inserted into smart

phone, Tablet PC App, and mobile web, and delivered Mobile marketing tools that deliver the contents in various forms such as voice, text,

and video through mobile devices without limitations of time or place to target

customers are defined as mobile advertisements.

During the feature phone period, due to spam-like push advertisements, effect was

low compared to cost, but with recent prevalence of smart phones, it evolved to

information type advertisement, which is more accepted, and rapidly emerges as a

charming advertisement channel.

Most of the mobile advertisements are currently search and banner advertisements,

but as it comes over to smart phone period, video and app advertisements gradually

started to receive attention.

[ Types of mobile advertisements ]

Search advertisement Led by portal service providers, and expected to grow together

with mobile web

Banner (Display) advertisement

Mobile web or banner advertisement inside App. High attention

of the customers with low repulsions

Video advertisement Exposed before and after watching video or TV. Interactive

advertisement is possible.

Message advertisement

SMS/MMS type advertisement. Possible to apply to all mobile

phones. It is highly spam-like and inefficient.

App advertisement Advertisement suitable for smart phones. Companies distribute

by themselves as ‘brand app’ type, or developed as brand app

being installed inside the platform.

□ Domestic market size: expected to grow to the market size of 1 trillion won or more after 20152

Worldwide mobile advertisement market is expected to grow to about 19 billion USD

size by 2012. (CAGR 43%)

- In U.S, mobile advertisement market share of Google is rank 1 with 19%, and

Apple is rank 2 with 18.8%.

Domestic mobile advertisement market is expected to grow to 450 million USD in

2012 size. (About 500 billion won)

- The internet advertisement market growth rate as of 2009 was 0.93%, but mobile

advertisement market showed a high growth rate of 27% If this trend is

reflected, it is expected to grow to be about 1 trillion won or more around 2015.

2 If CAGR 27% based on Frost & Sullivan prospect is maintained, domestic mobile advertisement market

will achieve 1 billion USD.

4

[Worldwide & Domestic mobile advertisement market size trend(Unit : 100 mil. USD)]

5

45.9 73.8 111.8 152.5 191.5

0

500

08 09 10 11 12

Worldwide Mobile Advertisement

Market Size

1.7 2.1 2.8 3.5 4.5

0

5

08 09 10 11 12

Domestic Mobile Advertisement

Market Size

(Source: iResearch) (Source: Frost & Sullivan)

III. BM of Mobile Advertisement Platform

□ Previous online advertisement vs. mobile advertisement

In the existing advertisement market, because ‘Media(TV, portal, etc.)=platform’, the

media business had a powerful influence, but as smart phone prevails and app

becomes popular, app, which is a media, is separated from platform area, and a new

business opportunity called mobile advertisement platform is created.

Because of the prevalence of smart phones, existing advertisers rapidly became to

have more interest in mobile advertisement in terms of advertisement mix, and the

borders of the existing advertisement areas started to be ambiguous.

- For media lab businesses that took charge of online advertisement, as the needs

of the existing advertisers for mobile advertisement increase, they officially

established mobile business teams and expanded the market to mobile.

[Comparison of the existing online advertisement and mobile advertisement]

[Daum’s mobile advertisement platform AD@m ]

6

□ Mobile advertisement profit sharing process

Profit sharing is different for each platform service provider, but generally, 15~20% of

the total advertisement fee is collected as a fee.

- In Korea, it is 150~300 won per touch, and 2000~3000 won per 1000 exposures,

and platform service provider collects 10~20% of the total advertisement fee as

the fee revenue.

[Comparison of profit sharing process between existing advertisement and mobile advertisement]

7

IV. Trend of domestic mobile advertisement platform service providers

(1) Naver: Promotes stable spread of wired web competitiveness to mobile

□ First company to achieve advertisement revenue of 1 trillion won as a single media among domestic media (TV, newspapers)

Based on the dominant position in search and blog services, it secured overwhelming

UV(Unique Visitor) and PV(Page View) competitiveness over the competitors.

- In search area, it has 1.5 times UV and 4 times PV over rank 2 company, Daum.

- Going over the absolute power player(M/S 70%) in online advertisement market, it

also exceeded the revenue of 1 trillion won for the first time as a single media, by

taking 14$ M/S in overall advertisement market in Korea including TV/Newspapers.

[Advertisement market size of each media in2010]

Category Terrestrial TV Newspapers online

Market Size 1.9000 tril. Won 1.6500 tril. Won 1.5800 tril. won

Revenue of

major players

MBC 820 bil. won

KBS 580 bil. won

SBS 500 bil. won

Chosun 250 bil. won

Jung-Ang 210 bil. won

Dong-A 180 bil. won

NHN 1.100 tril. won

Daum 345.5 bil. won

The total domestic advertisement market in 2010 is estimated to be 8 tril. Won size.

It terminated cooperation with Overture in advertisement market in Jan. 2011, and

tries to expand the role and revenue in online advertisement value chain through its

own NBP system establishment.

- In May 2009, a separate company, NBH(NHN Business Platform), is established to

perform the role of the media lab such as providing IT infrastructure service

integrated with advertisement marketing platform and online advertisement sales.

- In Jan. 2011, it broke up with Overture3, which provided sponsor link at the top of

the screen during keyword search, and unified all keyword search advertisement

media lab into NBP.

[Change in search result and trend of securing advertiser after unification to NBP]

3 A global search advertisement company(media lab), entered Korean market in 2002, made sponsor link alliance with

Naver from 2004, and currently provide sponsor search service to Daum and Nate, etc. (Merged to Yahoo in 2003.)

8

□ The strategy of expanding wired market hit services to wireless market in the long term perspective

(자료: NHN)

Concentrates on the spread of wired market web competitiveness to wireless service,

and focuses on strengthening the compatibility with existing services rather than fast

launching of new services.

- Services such as search and blog, etc., that Naver shows to have advantages, and

competitive contents such as web-toon are provided to mobile with priority to

promote the strategy of maintaining the rank 1 in wired market.

- Rather than releasing mobile services fast to secure competitive edge in wireless

market, even though it is slow, it tries to form the virtuous circle structure to

secure competitiveness in mobile market in connection with the existing services

and to expand contents/service pool again within wired portal through this.

[Mobile applications released by NHN]

Rather than approaching the market in the perspective of short term revenue increase,

it focuses on charming service development that can attract customers with long

breath.

- With the characteristics of advertisement that revenue is decided by the size of the

users, after certain period (1~2 years) from the launch of hit services such as

Knowledge-in and blog service, etc., revenue increase effect is generated through

these.

- NBP separation established the environment to focus on services by separating

advertisement sales and portal service provision, along with the effect of

intensifying financial advantage such as revenue and equipment amortization and

sales capacity.

9

[Total revenue of NHN and trend of advertisement revenue portion]

※Source : NHN public notice reconfigured

(2) Daum: focuses on securing service leadership in mobile area

□ Target of revenue growth by 40% and Generation of 30 billion won revenue in new growth power such as mobile advertisement

In 2010, yearly revenue of over 300 bil. Won for the first time, and high growth rate

of above 20% also expected in 2011 - It is due to stable growth in search and display advertisement market. (about

+40% compared to the previous year)

- The advertisement revenue of search per query compared to NHN grew from 59%

in 2009 to 67% level in 2010, and display advertisement revenue per page view

even exceeded NHN in the last quarter.

- As the profit from new growth power such as mobile service and social shopping

becomes full scale in 2011 (30 bil. Won revenue target), revenue is expected to

grow 20% compared to 2010 (※ Dongyang Securities, 2011.2)

[Comparisons of Yearly Result of Daum] (Unit: 100 mil. won)

10

Category 2008 2009 2010 2011(E)

Total Revenue 2,340 2,446 3,455 4,265

Sales Profit 459 446 979 1,287

Profit Ratio 20% 18% 28% 30%

[Search advertisement revenue per query] [Display revenue per page view]

(※ Source: Korean Click, LIG Securities)

□ Major Axle of New Growth Power of Daum, Open advertisement platform ‘AD@m’

In Dec. 2010, it released mobile advertisement platform ‘Adam(AD@m)’, entering

mobile advertisement market most actively among portal service providers.

- Monthly page view exceeded 3 billion views in 2 months. (Average 375 exposures

per 1 smart phone user)

- Formed the biggest advertisement network in Korea, by securing more than 400

media (app/mobile web site).

- In Mar. 2011, it exceeded monthly page view(PV) of 3 billion views

Korea and threatens the status of the existing power player ‘Admob(Google)’.

- It grew to be the advertisement platform with the biggest level of traffic in

Daum.

Yeonhap News and mobile webs such as imbc and

Including Apps such as Chosun-ilbo and

- Major media: secured more than 400 media

and mobile web.

is an advertisement installed in mobile application

- Advertisement platform including ‘In-app ad’, which

in Korea, ‘Adam(AD@m)’ ■ The biggest mobile advertisement platform’

□ The core of Daum mobile platform strategy is the strengthening of its own services

Decisive action of ‘Subversive Innovation’ actively reacting to the change to mobile

paradigm

- There is a tendency of mobile innovation being delayed by the vested interests in

the existing PC web base and worries on self-encroaching, but Daum carried out

11

decisive mobile innovation.

- It prepared the mobile era most actively among domestic portal service providers,

and secured leadership with the anticipative launch of killer services such as My

People (messenger), AD@m (advertisement), Daum TV Pod (video), etc.

- Focuses on advertisement revenue enhancement through securing service

competitiveness and appropriate gathering of possessed resources.

The success elements of Adam, which grew to be the biggest mobile advertisement

platform in Korea, are powerful sales capability and localization strategy.

- Secured sufficient advertiser pool based on the media competitiveness in the

existing web, and provided solution fit for the needs of domestic advertisers better

than competing platform, ‘admob’ of Google.

Even though My People is a new comer, in 20 days from loading the free call service

(mvoip), it had 1 million increased subscribers, and it is assessed to have the highest

quality among domestic messengers.

- It plans to make the route that all the information shared by mobile internet users

are passed, by focusing on service differentiation such as free call, voice memo,

location sharing correlating to Daum map.

Formed the virtuous circle structure of mobile killer service and advertisement

platform.

- Strategy to secure competitiveness as advertisement media after securing the

users base by focusing on development and advancement of the mobile killer

services such as My People, TV Pod, and Daum Map.

- It enables the forming of virtuous circle structure that the vitalization of mobile

service is directly followed by the strengthening of mobile platform(AD@m)

competitiveness and increase of advertisement revenue.

[Comparison of major messenger services in Korea]

Service

Provider Release subscribers

Number of

Messages (day) Characteristics

Cacao Talk 2010.3 13 million 300 million

- Voice call not supported due to

stability problem (expected to

launch in the future)

My People 2010.6 5 million 40 million

(as of 2011. 4)

- 40% of the users use average

of 4 min. free voice call per

day

Naver Talk 2011.2

0.55

million

(as of

2011. 4)

- - Interface with its own services

such as blog/MeToday

12

(3) kt olleh Ad: Differentiation strategy through the advancement of mobile app service

□ Development of mobile advertisement services based on popular app such as olleh Navi, Pudding Camera, I’m In, etc.

Olleh Ad, which is planned to be launched in the first half, performs the role of

infrastructure providing display type advertisement through app and mobile web

based on smart devices.

- Display advertisement model through smart phone App and mobile web

- Plans to provide real time profit statistics report to the developers for the first

time in Korea and to utilize Star App

- Plans to load advertisement exchange between Apps, SNS possible for mobile

buzz marketing, and mobile payment function

Mainly with the partners and econovation developer apps that have good reaction in

olleh market or expected to be advanced in the future, it plans to select 100 or more

apps in this year, make alliance and provide profit model, and also to carry out more

effective target advertisement activity.

- When an advertiser uploads advertisement in olleh Ad, advertisement is exposed

through various Apps and mobile web sites that will be registered to olleh Ad.

- Advertisement executions are agreed with more than 10 advertisers such as

Lotteria, Family Mart, Yes24, Happy Land, KMP(Korea Music Power), Beans and

Berries, Taco Bell, and in discussion with more than 30 advertisers.

- Apps with high data traffic with many customers such as popular apps of KTH

including olleh Navi and Pudding Camera, and globally popular game(Booooly)

will be selected as apps to be registered to olleh Ad.

- Advertisement can be exposed regardless of OS such as iPhone and iPad App or

Android or Windows mobile OS based App, or device types.

- Clear targeting and effect analysis are possible utilizing advertiser networking

cooperation system of media lab, and sales stabilization will be established.

[Comparison of kt olleh Ad and Daum AD@m]

kt olleh Ad Daum AD@m

Provider Communication Company portal

Objective Virtuous circle structure

with olleh Market

Strengthening portal

competitiveness

advertisement

format

1st text/image banner

2nd Web/video/Audio/Call text/image banner

Provided

Media

Olleh Ad registered App, web,

Olleh Market App

AD@m registered App, web,

Daum TV Pod, Daum Shopping

How, etc.

Advertisement

fee settlement

Payment per click Payment per click

13

(4) SKT: Separated SK COMMUNICATIONS from SKT to target

web and app advertisement at the same time

□ SK COMMUNICATIONS: expanded advertiser pool by alliance with Daum and Nate

SK COMMUNICATIONS and Daum share their core service and contents, and focus on

securing medium and small advertisers in advertisement area also through alliance.

- The total of search market shares of Nate and Daum is about 30%, and for the

standpoint of advertisers, executing advertisement in one site can have exposure

in both portals, expecting relatively higher effect.

- Especially, the advertisement fees of SK COMMUNICATIONS and Daum are lower

than Naver, so it is attractive to medium and small advertisers.

The alliance between SK COMMUNICATIONS and Daum can forecast the possibility of

the merge with Daum in the long term.

- After Daum and Cauly, additional M&A is expected to strengthen advertisement

business capability enhancement.

□ SKT: Through the alliance with Korean mobile advertisement platform ‘Cauly’, it promotes In-App advertisement business for Apps registered in T STORE

Domestic venture company, Future Stream Networks(FSN) signed in-app

advertisement business alliance contract for mobile advertisement platform ‘Cauly’

can be used in SK Telecom T STORE.

- Developers can select and apply Cauly as the mobile advertisement platform when

they register smart phone application in T STORE.

- Advertisement registered in the system is automatically exposed to users, and the

profit from the advertisement is distributed to developers, SK Telecom, and Future

Stream Networks.

- When the developer applies Cauly to the developed app, advertisement is

automatically exposed, and for the executed advertisement, the profit is shared

with the developers in payment per click(CPC) method or payment per exposure

(CPM) method.

With the combination of SKT T STORE, which is marking more than 1 million

downloads per day with 3 billion won revenue per month, and FSN’s platform, mobile

advertisement market base is expanded.

By establishing a powerful ad-network with the alliance of SKT-SK

COMMUNICATIONS-Cauly-Daum, if mobile advertisement platform T-Ad is launched,

the virtuous circle ecosystem of advertiser-service-app developer will be firmly

established.

14

[Summary of mobile advertisement business by SKT-Cauly alliance]

V. Implications

Implication (1) Promotion of platform strategy based on its own core capability

Mobile carriers focus on subscriber information and their own app store vs. portals focus on mobile web/app

Daum introduced many services specialized in mobile such as My People •Daum Map • Daum TV Pod, etc., secured advertisers based on popular services among these, and this contributed to AD@m popularity again.

Kt combined advertisement with olleh Market, and SKT combined T STORE with advertisement, and attracted customers and secured advertisers through strategic killer apps with abundant customers contact points.

Implication (2) Service differentiation utilizing open developer ecosystem

Vitalization of mobile platform with advertisement strategy utilizing subscriber location information such as LBS and GPS

To achieve this, focus on securing 3rd Party killer app through opening of subscriber related information and API. - By finding the location information based on terminal information, ‘customized advertisement’ is possible. - Attract many advertisers by reducing unnecessary advertisements and enhancing advertisement effect in the standpoint of advertisers. - Provided that, study on regulations for the utilization of subscriber location information is required in advance.

15

16

Implication (3) Core of mobile advertisement platform is ‘ad-network’

The core of mobile advertisement platform is the establishment of ‘ad-network’ to secure the economy of size.

For ad-network to succeed, ability to combine various parties with interest is necessary.

By making open platform encompassing even the competitors, expand market size and secure the hegemony of the platform.