Kakao counts on Japan’s Manga love to break through overseas

Bloomberg

Asia’s messaging apps have a history of becoming huge in their home market before struggling to gain traction overseas. South Korea’s Kakao Corp. is counting on the Japanese love of manga comics to break that trend.
Amassing 43 million users at home has driven Kakao’s market value to $7.2 billion but it’s little known outside Korea, a factor that’s contributed to a 33 percent share price slump from a peak in August 2014. Earlier efforts to add customers in Southeast Asia and Japan have foundered as it ran head-first into dominant apps like WeChat and Line.
To attract customers in Japan, and compete against a host of rivals in the $4 billion manga market, Kakao’s Piccoma app adopted a new business model. Instead of charging per book, it sliced them into chapters to provide smaller and cheaper offerings and win over casual readers rather than just hardcore fans. Not only has that added users and boosted revenue, but is helping it develop a platform in the country as it actively considers a Tokyo stock listing in 2020.
“Kakao hasn’t seen this kind of growth before outside Korea,” Kim Jaeyong, the chief executive of Kakao Japan Corp., said at the company’s Tokyo headquarters. “We have a chance here.”
The Japan unit, an office of less than 35 people, first introduced Piccoma last April offering a few dozen comics series. The service now features over 1,000 items, with themes spanning from romance to fantasy. The number of daily readers, a key metric for manga apps, reached 900,000 for the fledgling service as of August, and monthly users have exceeded 2 million. Downloads topped those operated by Japan’s largest publishers and Line Corp. for three months since May.
It made other innovations as well, including taking inspiration from its popular Anipang game in South Korea. While the home version gives users extra chances to win with a day of waiting, for Piccoma it allowed readers to access free chapters after 24 hours.
Kakao’s ultimate aim is to take the success of Piccoma and build a stronger user base in Japan like it already has in South Korea. For analysts, that’s the key to success for instant messaging apps, especially as they morph into other services that generate revenue such as games for an otherwise free app.
“Any overseas business is going to be very difficult,” said Jung Hoyoon, an analyst with Eugene Investment & Securities in Seoul. “It has to be based on a platform, and they are pretty much fixed by now, globally, like how it’s Line for Japan.”
Jung recommends buying the stock on Kakao’s potential to branch out in mobile services, including banking, with its firm grip in South Korea. While Eugene is one of more than a dozen brokers with a buy rating, none cite potential overseas expansion as a reason.
For now, Kakao’s Japan strategy is based on getting its manga formula right, especially as online growth surges and fewer consumers get their fix from printed versions. Kakao Japan has a long way to go.