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This has been excerpted from Letter to Shareholders: NAVER’s Competitive Edge in the Era of AI sent out on August 21, 2023. The letter illustrates how NAVER overcame challenges and turned threats into opportunities for growth during each major wave of change in the Internet industry.

The competitive dynamics during each previous wave had involved much deeper-capitalized and better-resourced global tech giants, and presented challenges that at times may have appeared to be existential. But each time, NAVER successfully seized the opportunity to emerge as a stronger platform. We enter the AI wave better prepared than ever, as the uniquely integrated digital advertising - engagement - e-commerce platform that we have evolved into, which we believe AI will only make much more compelling.

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THE FIRST WAVE: SEARCH [1999 ~ ]

Korea’s Internet industry was highly competitive and fragmented during the early days of search, where NAVER was in fact a latecomer to a crowded market. However, we successfully emerged from this highly competitive field as the dominant player by employing a strategy focused on three key areas: localization; user intent; and community and hosted user generated content. NAVER’s unmatched localized accuracy, superior ability to infer user intent, and unique proprietary corpus of data accumulated by way of community engagement and hosted user generated content, collectively provide a compelling foundation for AI to flourish.

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THE SECOND WAVE: TRANSITION TO MOBILE [2007 ~ ]

The transition to mobile was the first time we faced risk of structural disruption. Korean smartphone makers’ reliance on Android easily allowed for the pre-installation of Google apps onto the dominant smartphone models across Korea. Despite such headwinds, by 2010 we had successfully launched 13 mobile apps and 20 mobile services by focusing on the needs of mobile phone users, as well as immersive creative content such as Webtoon. More notably, NAVER led the world’s transition to mobile advertising.

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THE THIRD WAVE: E-COMMERCE VERSUS SOCIAL [2014 ~ ]

The mid-2010s saw the rise of engagement on global social media platforms and hosted video platforms, neither of which forms of engagement were in direct competition with NAVER’s core business model – search advertising. We had begun to observe another brewing trend, one which was already negatively affecting search advertising monetization – the emerging dominance of e-commerce. We then chose to expand into e-commerce with our launch of Smartstore. As a result, NAVER currently occupies a globally unique position as a dominant search platform that simultaneously functions as a leading e-commerce channel.

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THE FOURTH WAVE: ARTIFICIAL INTELLIGENCE, AND WHY WE FOCUS ON IT

We expect that generative AI will provide a crucial opportunity for us to further expand and enhance our core capabilities. AI has also become a key element of our own core services, from our “Smart Block” search features to our shopping recommendations designed to increase conversion. In 2021, we completed the development of the first version of HyperCLOVA, one of only a handful of large language models (LLMs) in the world known today to exceed 100 billion parameters and the first that was trained primarily in the Korean language. We will continue to further refine and develop our core services and applications that it powers.

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CLOSING THOUGHTS

NAVER is the only integrated advertising + commerce channel in the world on which rests the full top-to-bottom funnel of the user journey, from discovery to intent (search) through conversion and, ultimately, payment. These competitive moats have evolved from our successful navigation of three previous secular waves, each of which had initially presented structural threats. We are now well prepared and excited to ride this next wave, AI, which we are confident will only further strengthen our existing advantages ●

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▶︎ Click here to read the rest of the letter to our shareholders!