Before the shock of the introduction of iPhone to the Korean mobile market wears off, the second shock by iPad is set to hit. Furthermore, harsh competition for the market leadership of smart TVs has been ignited recently. The competition is not limited to mobile businesses and that is why we are using the term “post-mobile” and have to devise an appropriate strategy for the post-mobile market. Korea is now facing a severe problem of building up a competitive ecosystem of hardware, platform, network and marketplace simultaneously in just one or two years. 

Speeding up development 

When Apple warned the world of a revolutionary change in the mobile industry when it launched the iPod and iTunes in 2003, Korea did not sufficiently recognize the meaning of it. After losing in the competition with Apple, MP3-player specialist iRiver, which had the biggest global market share for a while, was almost ruined, but Korean people thought that it was just a failure of a medium-sized firm.

While Apple dealt a shock to the mobile business with iPhone, Korean telecommunication companies delayed the introduction of the iPhone to the Korean market worrying about losing their market leadership in Korea. They just wanted to make their customers pay more money for even a small data transfer.

In 2009 the iPhone was barely introduced to the Korean market and it had a huge impact not only on the communications industry but also on other areas of the whole IT industry. Shockwaves were not limited to just smartphones but extended immediately to the tablet PC and smart TV industries. Although being shocked by a drastic change of market environment, Korean manufacturing companies such as Samsung developed smartphones (such as the Galaxy S) and tablet PCs (such as the Galaxy Tab) to compete with Apple’s iPhone and iPad respectively. They are also trying to have the global leadership in smart TV market on the basis of their leadership in the traditional home electronic appliances. 

Such endeavors by Korean companies shows their strong desire to keep up in development of the post-mobile ecosystem whose main keyword is fusion (communication and broadcasting, wired and wireless), although they joined late in the development of the mobile ecosystem.

Fusion

There is a considerable distinction between the mobile and post-mobile ecosystem in some ways. In the post-mobile ecosystem advertisements, services and contents as sources of value are provided through not just mobile phones but also PCs, tablet PCs and smart TVs. While internet business and mobile business existed separately in the past, they are integrated in the post-mobile ecosystem. The apps and contents for mobile phones, tablet PCs and smart TVs are traded in a single marketplace. Apple already provides apps and contents for iPhone and iPad in the same marketplace (iTunes).

Telecommunication and broadcasting services are converged and also wired and wireless network services are integrated. Advertisements in broadcasting, internet and mobile business have moved separately until now, but they are expected to be integrated in the same mega-market in the near future. Consumers could enjoy a more extended choice set of hardware terminals such as smart phones, tablet PCs, smart TVs and also other devices.

Not ready

Korea is not ready to lead the post-mobile ecosystem. In order to form an appropriate strategy, we have to look into the problems of the Korean ecosystem.

Firstly, R&D investment especially in software and fusion R&D is not sufficient. Public R&D investment in Korea has been centered around the development of hardware for a long time. The government investment for software R&D is around 370 billion won, which is only 3.8 percent of the total government R&D budget. As a result, the Korean software industry is not competitive with other competing countries. The share of the Korean software industry is just 1.8 percent of the global market. The portion of hardware is 73 percent of the total IT production, while that of software is only 8 percent (24.4 trillion won), which shows a considerable gap with the global market’s 22.4 percent.

The fundamental core values of the post-mobile ecosystem are service and contents. Hence the investment of service R&D is important, but it is very low. The Korean government’s service R&D investment (in a wide sense) was 253.9 billion won, which is only 2.3 percent of the total government’s R&D budget. Moreover, the service R&D investment associated with mobile and post-mobile ecosystem remains in a more vulnerable state.

Second, unnecessary regulations and the lack of institutional infrastructure are problems. Some regulations that do not comply with the global standard are still operated and maintained. The national law on the prior review of the game and ratings by age does not work in the global mobile content market. When iPhone was launched in Korea, Apple deleted an App Store game category because of the country’s pre-screening system. The need for posters to verify their identities on websites visited by more than 100,000 people a day is a national regulation that is far from global standards. Because of this kind of regulation, when the country setting on YouTube is at Korea, video uploads and reply comments are impossible.

Third, a coexistence structure of large and small companies has not yet taken place and even for large enterprises, the development of new business models is inactive.

So far the central part of the mobile ecosystem consists of large enterprises of communication services and handset manufacturers. Therefore small and medium sized enterprises developing apps and contents have not received sufficient benefits. Since small and medium sized enterprises are dependent on large enterprises in Korea, innovative mobile services are impossible without the approval and the permit of large enterprises. The patent and the right of business of SMEs are frequently seized by the large enterprises and unilateral profit structure oriented toward large enterprises has been maintained. In case of revenue structure of App Store applications, the App developer takes 70 percent of total sales while Apple takes 30 percent. Because of this benefit, many developers in Korea are rushing into Apple’s App Store.

Due to the lack of business models, a stable profit structure of the participated enterprises is yet to be established in Korea. Meanwhile, Apple broke new ground through new mobile business models and achieved enormous economic performance and earned a world-class brand by creating new industries.

Korea’s communication service providers and manufacturers have belatedly taken on Apple’s business model, but they are still not very competitive. Regarding the platform, even though Samsung developed its Bada OS, Samsung is still not competitive.

Government policy is urgent

How can Korea overcome the problems and lead the post-mobile ecosystem? We suggest following actions.

First, it is essential to establish the basis of technology innovation for the post-mobile ecosystem. Beyond everything, it is necessary to start a comprehensive R&D project to build the post mobile ecosystem. The comprehensive R&D project means it covers all components of the mobile ecosystem including communication and security (Broadcasting and Communication Committee), contents and service (Ministry of Culture, Sports and Tourism), platform and SW (Ministry of Knowledge Economy), e-government (Ministry of Public Administration and Security). Since the mobile ecosystem has been associated with many Ministries, the R&D investment has been carried out without central supervision and it was difficult to achieve a visible output. Based on the comprehensive R&D project, the basis of technology innovation of the post mobile ecosystem covering platforms, marketplaces, broadcasting and communication, handsets and contents will be established. The National Science and Technology Council, which will be upgraded to a standing council, can be a comprehensive control system and it is desirable to have an intensive investment with a clear timeline and budget. It is also necessary to improve the technological innovation system for the post-mobile ecosystem. The current technological innovation system focuses on the hardware and visible products and should be changed to the system centered around services and contents. Therefore, it is necessary to revise the Rules and Enforcement Regulations on the Management of Government R&D Projects, the Technology Development Promotion Act and the Industrial Technology Innovation Promotion Act and the Basic Research Promotion Act, which are based on manufacturing-oriented terminologies and regulations.

Second, general coordination of support systems and legal infrastructure are urgently needed. Since several Ministries including the Broadcasting and Communication Committee, the Ministry of Culture, Sports and Tourism and the Ministry of Public Administration and Security are involved in promotion of a legal system and R&D projects, central supervision is required.

Regarding amendments to the prior review of game-related laws, the opinions of Broadcasting and Communication Committee, Ministry of Culture, Sports and Tourism, Ministry of Gender Equality and other related Ministries came into conflicts and the amendments drifted. In this sense, the active control role of the secretary of broadcasting, information and communication should be strengthened.

The establishment of “the master plan for the competitiveness of the post-mobile ecosystem” is also required. Even though “the master plan for the wireless internet promotion” (Broadcasting and Communication Committee) was established in April 2010, it had a limitation focusing on the mobile ecosystem. Since the convergence environment including Tablet PC and smart TV has emerged after the spread of smartphones, it is indispensable to build a master plan covering entire post-mobile ecosystem including mobile industries. To meet global standards, the deregulation and institutional infrastructure maintenance are required. The amendment to the related law requiring the prior review of video games is urgent and the regulations requiring identification on websites should be modified.

The institutional framework for an integrated marketplace including trading and settlement systems should also be prepared for the operation of the integrated marketplace. Through this integrated marketplace, the market environment for trading Apps and contents available in the ubiquitous terminals(like smartphones, smart TVs etc.) on a standard format can be established.

Third, it is required to establish coexisting ecosystem and develop a new business model. It is essential to secure a stable profit structure for both the SMEs and large enterprises. The fair profit sharing structure among communication service companies, platform companies, developing companies is required. The launch of a ‘ubiquitous coexisting council’ can be considered. Content providers, app developers, handset manufacturers, broadcasters, communication companies, the government and research institutes can participate in this council. We expect a win-win profit sharing structure can be achieved based on this council.


Hwang Seogwon

• Hwang Seogwon serves as a research fellow at the Science and Technology Policy Institute (STEPI). His major research interests include economic  assessment and valuation of R&D programs, R&D productivity and performance indicators. He received his Ph.D. in economics from Seoul National University in 2003.
• He can be reached at hsw100@stepi.re.kr.

Jang Pyoung-yol

• Jang Pyoung-yol is a director of service innovation research team and an associate research fellow of the Science and Technology Policy Institute (STEPI) in Seoul. He received his Ph.D. from the Department of Industrial
and Management Engineering at Pohang University of Science & Technology. Before joining STEPI, he worked as a senior consultant at Entrue Consulting Partners, LG CNS and as a guest researcher with the Department of Commerce, National Institute of Standards and Technology in the United
States. He has written extensively on service R&D, service science, service innovation and technology management. He was selected as one of the
2,000 Outstanding Intellectuals of the 21st Century 2009/2010 by the International Biographical Centre, Cambridge and Reference Value of Outstanding Achievements, Marquis Who’s Who in the World 2009. 
• He can be reached at jangpy@stepi.re.kr and http://www.stepi.re.kr/jangpy.

By Hwang Seogwon and Jang Pyoung-yol