Korean IT Firms and the War over Patents

In recent years, Korean firms have registered a large number of patents in the United States. As noted by the Chosun Ilbo  IBM registered the most patents in the U.S. last year with 5,896, and Samsung Electronics rose to No. 2 with 4,551 and LG Electronics ranked ninth with 1,490 patents. Judging by the number of registered patents, Korea is a major force, but the atmosphere is quite different on the frontlines, where Apple, Microsoft, Philips and other global IT companies have launched a patent war against their Korean rivals. They have started using patent and copyright law to protect their smartphone and LED technologies and to pressure Korean IT firms. The main battleground in the patent wars is the smartphone market.

As the Chosun Ilbo points out, U.S. companies virtually control the global market for operating systems, which determine the success or failure of a smartphone. Korean companies have plenty of patents for manufacturing technology, but very few for software.

"South Korea's Smart Phone Love Affair Lures Foreign Suitors": More to the Story

I was reading the paper edition of the International Herald Tribune on an Air Canada flight to Vancouver B.C. yesterday when I ran across the Reuters story "South Korea's Smart Phone Love Affair Lures Foreign Suitors."  As mainstream international journalism goes, it was quite a good report, but it suffers from the same weaknesses that characterize most such reporting about Korea, and about its remarkable ICT sector in particular.  They include a lack of historical perspective and a shortage of data or evidence-based analysis.

First, the Reuters analysis notes that the number of smartphone subscribers in South Korea has exploded more than ten-fold to top 10 million in just 18 months, now accounting for around a fifth of the population. However, the analysis fails to note the most obvious reason for this rapid growth, the fact that development of the smartphone market in South Korea was delayed for about two and one half years by strategic corporate decisions and legal requirements. Indeed, the two and a half years preceding entry of Apple's iPhone into the South Korean market at the end of 2009 provide an extremely informative picture of how government, the major mobile service providers and Korea's handset manufacturers, led by Samsung and LG, approached the situation. The Reuters analysis, while not inaccurate per se, simply fails to provide some of this essential historical perspective.

Second,quoting a Seoul-based industry source, the report notes that smart phones have become a “Trojan horse into the Korean market” for the likes of Google and Facebook, which had a head start on local firms in optimising their offerings for smart phones. This is an insightful point, but again, the Reuters article does not go on to address the question of why the Trojan horse metaphor should apply to Korea in 2010 and 2011. The article mentions the dominance of companies like Daum, Naver and SK Communications in the South Korean market and the PC-based approach in Korea, but stops short of explaining the main reasons for this. These include both the role of language in shaping patterns of internet use and South Korea's half-decade or more lead on the U.S. and other western countries in building its fiber-based information superhighways. These two factors are keys to the dominance of Naver in search and the market leadership of Cyworld in social networking, although simple one to one comparisons of Naver to Google or Cyworld to Facebook and other social networking services are not realistic.

There is much more to all of this than can be conveyed in a blog post.  However, I could not let the interesting Reuters news analysis pass without some comment, since it touches directly on issues treated at some length in my new book, co-authored with Dr. Myung Oh, Digital Development in Korea:  Building an Information Society (Routledge, March 2011).  Those of you interested in delving further into the issues touched upon here will want to read portions that book.

"Haves" and "Have-Nots" in Korea's Smartphone Era

Right up until 1980, basic telephone service in South Korea was considered a luxury and the lack of adequate telephone networks had created a major social crisis in the country.  However, beginning in 1980, the country instituted changes designed to build modern networks.   From the very beginning, these networks were considered incomplete until they were equally available to all citizens nationwide, reaching the most remote farming and fishing villages in the nation.   This emphasis on universal service, from the start of construction on Korea's digital networks, is described in detail by Dr. OH, Myung and me in our new book, Digital Development in Korea:  Building an Information Society (Routledge, March 2011).

South Korea's experience with the utter lack of phone service during the 1970s may explain partly why it worked so hard for so long and invested so much to build the worlds most extensive and fastest digital networks.   This meant that, while the debate about "network neutrality" flourished in the U.S. and Europe, not much was heard here in South Korea.  Until the end of 2009, when the Apple iPhone finally arrived, there was an excess of network capacity and major industry players were concerned about how to increase use of data services!

This background explains why I read with great interest the Joongang Daily's article entitled "Haves and have-nots in the Smart Phone Era."  As shown in the accompanying graphic, (click to see full size version) ownership of smartphones in Korea currently has a great deal to do with level of education, financial status and residence location.  This information is based on a 2010 survey, but it is sure to cause concern among senior policymakers here in South Korea.  However, the problem may soon be ameliorated by the rapidly decreasing cost and increasing power of the so-called smart phones.  In the near future, it may be that "haves" and "have-nots" will be distinguished by the cost of the mobile broadband services they can afford, rather than simply smart phone ownership. 

Why the Rise of Tablets?

Interesting article in the Chosun Ilbo English edition today, entitled "PC Market Stung by Rise of Tablets."  Indeed, the rise of tablets, not only in the South Korean market, but globally, is not at all surprising.  The reason for this is simply that, all other things equal, human beings prefer a mobile device, untethered by wires, to the old fashioned, wired desktop computers.  This is expressed succinctly in the so-called "Law of Mobility" or "McGuire's Law."

Having said this much, South Korea presents a special case in point.   I believe that Koreans are, culturally speaking, much more mobile than, for example, Americans.  Here I mean mobile in the sense of the percent of their average day spent outside the home.  I have no empirical data to present on this, but would appreciate observations.   Those of you who have ventured into the central district of most American cities after working hours might think of comparing that to any of Korea's cities when work in the office is finished.  Or, as the accompanying illustration (click to see full size version) shows, consider the average commute via public transportation in Korea versus commuting in a private vehicle in North America.  Comments welcome.

Some Data on Mobile Data Use in Korea

The Joongang Daily, in an article entitled "Telecom Data Use Booming," provides some data to show the increase in mobile data usage with the arrival in Korea of smartphones. (click on the accompanying graphic to see a full-size version)  As the article notes, users of tablet devices use more data services than users of smart phones, probably about two times as much.

The Latest on "Smartphone Shock" in South Korea

As readers of this blog already know, I've been fascinated by the shock created when the Apple iPhone finally reached the South Korean market, after more than two years of delay. (for example, see this earlier post)  Now a Google study has released some fascinating data about the rapid spread of mobile broadband usage here in South Korea.  As reported in The Wall Street Journal  smart phone usage has grown so much that Google is now tracking more than 100 million "ad requests" a day in South Korea.

In the study, Google found that nearly 60% of people using mobile devices accessed the internet on their handset at least five times a day. And 35% said they spend more time online via a mobile device like a smartphone or tablet PC than they do watching TV. That seems startlingly high, but TV watching is reduced for many South Koreans by long working hours, after-work outings and lengthy commutes.

The Mobile Broadband Revolution in Korea

Two articles in the Joongang Daily this morning provide further evidence of the mobile revolution that is sweeping the nation since the arrival of Apple's iPhone in late 2009.  The first article, entitled "Smartphone craze spurs location-based apps" explains a variety of location-based services that are taking off in Korea.  One will allow a woman to track the location of her boyfriend, another allows parents to follow the location of their children, and so forth.

The other article, describing how credit card companies and mobile carriers are vying for mobile payments business also presents some interesting data on the rapid diffusion of such services here.   (Click on the graphic to see a full-size version.)

Location-based services and mobile payments are but two examples of the types of services that become possible once broadband goes mobile.

Cheap Smartphones and the Mobile Broadband Revolution

The modular character of digital devices is becoming very apparent in the worldwide diffusion of smartphones.  Although the mainstream press often reports that the Apple iPhone is "manufactured" in China, this is really a misnomer.  Instead, it is assembled in China, rather like putting together lego blocks, while the highly sophisticated components are manufactured in Korea, Japan or elsewhere.

The Chosun Ilbo this morning carried an article headlined "Cheap Chinese Smartphones Poised for World Conquest."    It notes that ZTE, which ranked fourth in smartphone shipments in 2010, is selling its San Francisco smartphone through Tesco Mobile of the UK for 80 pounds per unit (about 145,000 won) based on prepaid calling plans.  By contrast, LG Electronics sells a phone which is almost identical, with better finish and trim, for 150 pounds.  Samsung, the article notes, has plans to release a lineup of cheaper smartphones later this year.

So the familiar pattern underlying the information revolution continues, the cost keeps decreasing while the computing and communications power increases!

Rapid Adoption of Smart Phones in South Korea

I'm in Seattle near the end of the AACRAO (American Association of Collegiate Registrars and Admissions Officials) conference, which explains the lack of posts over the past few days.  However, during a few free minutes before my departure for SeaTac I had a chance to catch up on some reading, including an interesting article in the Chosun Ilbo documenting the extremely rapid adoption of smart phones in South Korea.  According to the article, the number of smartphone users has skyrocketed from fewer than 1 million early last year to 9.7 million or some 20 percent of all 50 million mobile phone users.  At this rate, most users will have switched to smartphones by 2015.  Furthermore, as the article notes, it is likely to become difficult to purchase the less expensive feature phones by 2013.

Mobile Broadband is the Future

There is some interesting news these days out of the recently concluded World Mobile Congress in Barcelona.  Samsung and the other major manufacturers of smart phones have announced plans to release cheaper smart-phones that will be accessible to the masses of users around the world.  This is hardly surprising since the general logic of the digital information revolution is that semiconductors, screens and other modular devices continue to become more powerful and cheaper over the long run.

Eric Schmidt of Google gave the keynote speech in Barcelona.  As he noted in a recent article for the Harvard Business Review, we are on the cusp of a big mobile revolution that requires three developments.

• Development and deployment of fast mobile networks for the future services.


• Development of mobile money, and


• Increasing the availability of inexpensive smart phones in the poorest parts of the world.

Android and Korea's Handset Makers

There is new evidence that Android will become the dominant mobile platform worldwide, if present trends continue, and this has a powerful effect on Korea's handset makers, led by Samsung and LG.  As reported in The Wall Street Journal and shown in the accompanying graphic (click to see full-size version) shipments of Android-based smartphones surged sevenfold year-on-year in the fourth quarter giving Android a 33% share of the global market.  This year HTC, Samsung and LG Electronics, all of which made late entries into the smartphone market, plan to further their push with the introduction of new Android models in order to meet lofty sales goals.  Samsung reached its goal of selling 20 million smartphones in 2010 and more than 50 percent of those models were Android-based.  LG showed improved sales results from its Android-based Optimus One handset, selling three million units since its launch in the second half of last year.

Employment Effects of Mobile Broadband Boom in Korea

An article in The Korea Times caught my eye this morning.  Entitled "Mobile boom proving as economic catalyst?" it offered some details about the impact of the current mobile broadband boom and "smartphone shock," on employment patterns in South Korea.  In particular, government figures show that the number of creative one-person enterprises in the country increased sharply last year on the strength of the explosion in internet devices and content.  According to the Small and Medium Business Administration (SMBA), the nation's one-man enterprises reached 235,000 in 2010, up 15.7 percent from the preceding year, and the number accounts for about 1 percent of the economically active population.

The number of people who want to develop applications has been on the increase, said an instructor at a local information technology educational institution, which offers an education service on applications. Reportedly, those who are familiar with computer programming can develop an application after a one-month course.

The government report also said that more than 60 percent of those who established one-man creative enterprises had earned bachelor's degrees or higher academic qualifications.

iPhone "Invasion" of South Korea? Some Background

The Los Angeles Times story entitled "Apple's iPhone is Invading South Korea, home of Samsung's Galaxy S," is getting quite a bit of attention these days, at least in the blogosphere.  It will not surprise readers of this blog that I cannot resist commenting on the article.  For one thing, the "invasion" is already over, having taken place more than a year ago.  Just use the search feature to the right and enter "iPhone" and you'll see that I began posting on this topic back in 2008, over a year before the iPhone finally arrived here.  By that time, it had become very apparent that something was amiss in South Korea's mobile market.  It was missing out on a major global trend toward mobile broadband, epitomized by the Apple iPhone.  Even when the iPhone finally arrived in South Korea near the end of 2009, there was another months-long delay before Android-based phones began to appear.

So, it is difficult to conceive of the Apple iPhone's entry into the Korean market as described in the L.A. Times article as a "bold offensive by a foreign competitor invading its lucrative home turf with a breakthrough product."   In fact, the iPhone arrived in Korea about two and a half years after its introduction in the United States!

Some of the reasons why it took so long for the iPhone to reach this market have been explored in earlier posts on this blog.  However, it is now safe to suggest that this delay did not necessarily work toward the best overall interests of either consumers here or the large mobile handset manufacturers like Samsung and LG.  In fact, as noted in an earlier post, Korean exports of mobile handsets took a huge hit because of the delayed transition to smart phones.  Of course, the drop in exports was partly compensated for by the fact that most of the high value-added parts in the iPhone are manufactured by Korean companies.

In late 2009 when the iPhone arrived in the Korean market, many industry estimates suggested that there might be 700,000 or even a million customers for the new phone.  In fact two million iPhone handsets have been sold in just over a year since its introduction.

The larger impact of the iPhone in Korea can only be understood by looking at the broad transition that is now underway here toward mobile broadband.  In important respects, this development was artificially delayed by the obstacles that prevented a more timely arrival of the iPhone and Android phones.  Clear evidence of the rapid transition to mobile broadband can be found in various places, including the rapid uptake of Facebook and Twitter here, as touched on recently.

Many in Korea, perhaps led by top executives of KT, would suggest that the arrival of the iPhone and the accompanying "smartphone shock" were less of an invasion than a blessing or "wakeup call" for South Korea's market and its exporters.

Korean Social Networking Trends in the Smartphone Era

This is a follow-on to the previous post and earlier posts about social networking in Korea.  The Joongang Daily has an interesting article with data from Metrix showing what happened to social network service traffic in Korea during the year following arrival of the Apple iPhone and the so-called "smart phone shock" here.  As shown in the accompanying graphic (click on it to see a larger version), although Korea's homegrown Cyworld still has far more members than Facebook or Twitter, the latter two services have relatively more pageviews---many more per user!

There are several main reasons for the relative success of Facebook and Twitter in the face of a well-established Cyworld that was already dominant in the Korean market and had operated here for nearly half a decade before Facebook was even invented in the U.S.   First, Cyworld was designed as a Korean language service, with Korean users in mind.   It failed in its efforts to penetrate such international markets as the U.S., Germany, Taiwan and Japan.  Second, while Facebook and Twitter took advantage of the mobile broadband and smartphone revolution, Cyworld neglected Apple's iPhone and the new Android phones, instead concentrating on the outmoded Windows mobile platform.  Finally, the internet is inherently a global phenomenon.  Such SNS services as Facebook and Twitter allow networking throughout the world, across most national borders.  As the Joongang Daily article points out, Cyworld's image of being a Korean company rather than an international one was a big obstacle.

Korea's Booming IT Exports

As noted by a report in the Joongang Daily, Korea's IT exports continue to flourish, led by semiconductors, flat screens and smart phones.  As shown in the accompanying graphic (click to see a full-size version) November marked the sixth consecutive month that IT exports exceeded $13 billion.   The information presented in this article, based on reports from the Knowledge Economy Ministry, make it clear that the worldwide boom in smartphones and other mobile devices is perhaps the major factor behind the export growth.  After all, as discussed in earlier posts here, many of the key components in Apple's iPhone and iPad are manufactured in Korea.  So, in addition to the export of Korean smart phones per se, we must consider how many of the semiconductors and screens manufactured here are sold in order to provide hardware for the transition to mobile broadband around the globe.

It is equally apparent that the new finger-slim LED television sets are selling well around the world.  In addition to the export categories already mentioned, television components was among Korea's top ten exports in November.

LG and Samsung Struggle to Crack Smartphone Market

An IHT special report published in The New York Times yesterday was headlined "Korean Giants Struggle to Crack Smartphone Market."  It caught my eye and I read it with some expectation, but it was disappointing.  It failed, as many reports in the mainstream press do, to get to the heart of the reasons why Korea suffered the "iPhone shock" or "smartphone shock" beginning about a year ago.  As readers of this blog will know, I've been caught up with attempting to explain this phenomenon for a long time.  See this post, or another here, or simply search this blog for "smartphone shock" or "iPhone."

The story of why Korea's leading consumer electronics companies are struggling with the rapidly expanding smartphone market is more complex than the IHT special report makes it seem, and it involves the following elements.

• Weakness in software and content versus hardware exports.  Smartphones themselves (the hardware) are not the key element in this wave that is sweeping the globe.  Rather it is the "apps" and the software ecosystem that count.   Not surprisingly, Google and Apple are major players.


• Language -- As I've noted in earlier posts, Korea's heavy reliance on Naver for internet search casts into stark relief the importance of language and culture in any given market.  See my posts on Naver versus Google here or here  or do a search of this blog on the topic.


• Non-tariff barriers -- The WIPI software platform adopted in Korea, while it may have originally had good intentions, eventually became a barrier to entry of the Blackberry or iPhone into South Korea's market.  I've done a number of earlier posts on this topic including this one.


• Worry about loss of Voice Revenue--Korean telecoms executives, along with some of their European counterparts, feared a massive loss of mobile voice telephony revenues if they were to allow the iPhone and other smartphones into South Korea's market.  In fact, these fears were well grounded as Korean youth had flocked to buy Apple's iPod touch, on which many of them installed the free, Skype VOIP service.

The above are just a few of the points I wish that the IHT article, published in the New York Times, would have expanded upon.

Korean Government Announces "Smart Work" Initiative

The Korean government on Tuesday announced a "Smart Work" initiative that aims to have 30 percent of public employees work from home or nearby "smart-work" centers by 2015 with smartphones, laptops and other mobile devices.  The move is hoped to boost productivity and minimize carbon emissions.

As reported by The Korea Times, the country is on the cusp of a mobile broadband explosion. According to plans jointly announced by the Korea Communications Commission (KCC), the Ministry of Public Administration and Security and the Presidential Council on Information Society, government organizations will spearhead the efforts to plug the workplace into the Web.

The plan calls for thirty percent of private sector employees to work at home or in the smart work centers, the same percentage as for government workers.   This will be an interesting initiative to watch, to say the least!

iPhone 4 "Made in Korea?"

The Chosun Ilbo today carried an interesting short story entitled, "iPhone 4 Made in Korea."   In fact, amid all of the news reports of a titanic clash between Samsung's new Android phone and the iPhone, many of the most important components of the iPhone 4 are supplied by Korean companies.  The screen, which received a great deal of attention during the iPhone 4's unveiling recently in San Francisco, is manufactured by LG, which also makes the displays for Apple's iPad.  Samsung supplies the flash memory chip and the A4 CPU chip that powers the iPhone.  As if that weren't enough, the batteries in the new phone are manufactured by Samsung SDI, and it is equipped with multi-layer ceramic capacitors made by Samsung.  Smaller Korean companies are also involved.  Amotech supplies the varistors used in the phone, and Interflex produces the flexible printed circuit boards.

The "Smart-Phone Wars" in Korea

A recent article in The Korea Times notes that "smartphones may get more pricey."  Wireless carriers are worried that the governments attempt to limit their marketing expenses (see my previous post) could cool the smartphone boom by making the devices more expensive.  SK Telecom, the country's largest mobile-phone carrier with a 50-percent-plus share in subscribers, spent an amount equivalent to 27 percent of its revenue last year on marketing expenses, while the number was 33.5 percent for KT and 30.6 percent for LG Telecom, the smallest carrier.

HTC's recently released Desire, which is generating significant buzz among the handsets powered by the Google-backed Android operating system, is priced at around 900,000 won out of the factory. But SK Telecom's handset subsides have the phones sold to customers at around 300,000 won, although the exact price depends on the monthly data plans they choose.

The Korea Communications Commission (KCC) is reportedly considering adopting a ceiling for the handset subsidies, limiting the amount to around 250,000 to 270,000 won per device. 

South Korea to Cap Telecom' Marketing Costs

The Korea Communications Commission (KCC), South Korea's telecommunications regulator said on Thursday that it will limit the amount telecoms companies spend on marketing in a move aimed at cooling intense competition and boosting profits in one of the world's most saturated telecom markets.  As reported by The Wall Street Journal, the KCC said that the country's major mobile operators --including KT, SK Telecom, LG Telecom --should not spend more than 22% of their respective revenues from fixed-line and wireless businesses on marketing.   The regulator said it expects the move, which takes effect from May, to lower total marketing costs to 7.03 trillion won ($6.14 billion) this year, sharply down from 8.02 trillion won spent last year.

In order to ensure companies follow the guidelines, KCC said it will conduct an industry inspection in June and take strict action against companies that have spurred marketing competition by giving heavy subsidies on handsets or offering free gifts.

The introduction of Apple's iPhone last Fall, followed by the release of Android and other competing smartphones have contributed to the increased marketing costs.  In other words, the current intense competition is part and parcel of the so-called "iPhone effect" or "smart-phone shock" here.