Case analysis

report:

CYWORLD

Class: BIZ2117 – Section 6

Group: Consulting Cyworld

Members(6): OHM, YEO JIN(2010101000)

KIM, YEE JIN(2009101000)

YOO, SEUNG YEON(2009101000)

CHO, EUN MEE(2009101000)

LI, YING HUA(2008122100)

CHOI, HONG DOO(2009122198)

CONTENTS

1. Introduction ------------------------------------ 3

2. Environment analysis --------------------------------- 3

2-1. Bargaining power of suppliers ------------------------------- 4

2-2. Bargaining power of buyers -------------------------------- 4

2-3. Threat of new entrants ----------------------------------- 4

2-4. Threat of substitutes ------------------------------------- 5

2-5. Rivalry among competitors --------------------------------- 5

3. Company Analysis --------------------------------- 5

3-1. history of Cyworld -------------------------------5

3-2. Core competences ------------------------------- 6

3-3. value chain ----------------------------------- 8

3-4. Present Situation -------------------------------- 8

4. SWOT analysis ----------------------------------- 10

4-1. Strengths --------------------------------------------11

4-2. Weaknesses ------------------------------------------- 11

4-3. Opportunities ------------------------------------------- 12

4-4. Threats --------------------------------------------- 13

5. User Segmentation ------------------------------------ 13

6. Recommendations and conclusion ---------------------------- 15

7. Bibliography --------------------------------------------------- 16

1. Introduction

Nowadays, the concept of communications has been moving to the internet. Consequently,

most of web-users no longer see the internet as a method just for gaining simple information, or

email. Now consumers want their own specialized room on the web through which they can

socialize with others everyday and express themselves. However, it is definitely true that

deriving consumer’s needs into creating and capturing commercial value for a company on the

internet is a difficult process. In the aspect of this term, analyzing SNS(Social Network Service)

industry which has been making a significant growth in the world is a good chance to learn how

to deal with customer satisfaction(CS).

2. Environment analysis

As mentioned above, it is necessary to analyze SNS industry broadly before looking into

one specific company. In 1979, Michael E. Porter formed a framework for industry analysis

and business strategy development and we will use this model to systematically understand the

context of SNS industry.

Porter's Five Forces model analysis for Social Network Industry

2-1. Bargaining power of suppliers 

The bargaining power of suppliers within social network industry is small. Social network

industry is not based on material resources such as steel, woods, or oil. The website is made and

run by professional programmers who are specially educated. They provide main structure of

the site and software, however, the success of social network is more based on self-production of

contents by its users. Also, companies in this industry usually hire their own programmers so

the role of suppliers in this industry is not that important.

2-2. Bargaining power of buyers

The bargaining power of buyers is relatively strong. When users firstly get settled down at

certain social network, the only thing they do is just to sign up. Even if they have used one

network for quite long time, it’s not hard to find other networks and move on, by clicking ‘close

the account’. The only factor which can prevent users to move out is the accumulated user

network and data base. Some people who are not satisfied with the network would keep using it

to communicate with other friends in that community as far as other people do or/and there are

useful sources saved. However, when a group of people start to escape, it’s like tidal wave

moving out altogether. Moreover, social network is more for ‘entertaining’, not for ‘living’. That’s

the reason why a lot of network sites keep their fee low as least as possible and are very

reluctant to raise it, or even put ‘additional’ services with small amount of money.

2-3. Threat of new entrants

The threat of new entrants into social network industry is low. Starting a social network is

very easy as it doesn’t require big amount of capital, however, it’s not easy to attract certain

amount of users at the very first time. Without users who use same community, the community

loses its utility and power to both current and potential customers, resulting in ‘shut down’.

Also, even though it’s quite easy to sign up, people who surf the Internet tend to stick on a page

for a very short time and feel bothered when they are forced to sign up. As Cyworld distributed

free cyber money to new comers, a lot of networks need attractive ‘baits’ which are better than

competitors. That’s the reason why so many websites offer various benefits when a user joins

them.

2-4. Threat of substitutes

This could range from traditional networks and their places like soccer clubs, parents-

teacher association, bars and parks to future form of networks like ‘virtual reality’ which is far to

come soon. The strength of social network is that it can not only produce new connections

among people but also reinforce existing off-line networks with more convenience, speed, and

easiness. Nowadays, people use social network websites when they form new groups of all

kinds; hobby, friendship, political purpose, and so on. So advent of substitutes for social network

would have small possibility, making this industry more promising.

2-5. Rivalry among competitors

The competition among social network companies is very fierce. It’s not easy to achieve and

maintain users’ loyalty and that’s the reason company updates its service and tries to provide

more interesting and useful contents. Some companies, like Facebook and Youtube, collaborate

to complement unfulfilled needs of users. Also, as we can see at Cyworld’s case, firms keep

imitating the competitor’s strong points and sometimes develop more advanced services.

3. Company analysis

3-1.History of Cyworld

For about 10 years, for most of Koreans between the ages 10’s to 30’s, Social network service

has meant only one thing; Cyworld. Established by 4 graduates of the Korea Advanced Institute

of Science and Technology in 1999 (similar way Google was established by 2 Stanford university

students), Cyworld is web-based social networking company. It was an unprecedented

phenomenon that the company powerfully affected consumer trends on the web. The word

‘Cyworld’ is a combination of ‘cyber’ and ‘world’ which means a cyber world where people are

able to have virtual relationships like a real. Cyworld has underwent rapid growth after starting

‘Mini hompy’(Mini-hompage) service, which functions for the users to express their own

life(photos, diary, music, etc) and connecting others. After that, Cyworld has made a substantial

amount of profit. Also, there was a great fortune for Cyworld in 2004. One of the biggest

competitors, called Freechal, announced to require a charge for all services. As a result, a

majority of Freechal users have started to move to Cyworld where all services are free. This gave

an outstanding growth of market share to Cyworld. However, as the number of users

significantly increased, it became hard for the company to keep its service stable. Finally, in

2003, SK(Sun-Kyung) communications took over that venture with the same brand name

’Cyworld’. Cyworld has evidently achieved quantitative and qualitative growth, driven by the

success of unique and core option(mini homepage) that now there are incredibly more than 20

million subscribers out of 38 million internet users in South Korea.

3-2. core competences

Technology Development:

1) Alliance with Nate

The wire and wireless linkage between Cyworld and Nate has a great synergy effect.

2) Relationship system - 1chon

Cyworld has the special relationship system - 1chon. Through adding the person as 1chon,

accepting 1chon or cutting off 1chon, users can choose whether to maintain the

relationship or not. So they put the real interpersonal relationship into the network.

3) Minihompy

Minihompy has many functions such as photo album, diary, board, music player, skin to

express users own personality. The users can select specific groups to access specific

fold to maintaining their privacy.

4) The blog service

Cyworld put the basic functions of mini hompy in blog and make it more simple and

clear. Also the users don’t have to pay any cost or restricted by the photo size to

upload photos.

5) Virtual currency (Dotori)

The users use the virtual currency to pay for the skin, banner, ornament or music in

Cyworld.

Service:

1) Minihompy

Even the users don’t have any background knowledge about making webpage can

also easily decorate their own minihompy. The users also can purchase items to

decorate their mini room and avatar to express themselves.

2) Virtual currency

Cyworld use Dotori system to put the realistic currency concept to the cyber world.

The users can use Dotori to by items or give Dotori to their friends as the gift.

3) BGM

Cyworld cooperates with Billboard and produces BGM for the users to purchase

music as the background melody of their Mini hompy.

Marketing and Sales:

1) Seasonal product

According to each season, Cyworld design corresponding skin, ornament and

character(Minime) for users to purchase.

2) Continuous development of new products

They use the latest movies, music, cartoons as a theme to design the skin, banner and

Ornament to maintain the customers’ attention.

Special firm Infrastructure:

The company has a special team called “Happy Innovation”. The team members all from

different departments. They share their information and discuss how to make the company

more harmonious. Their goal is to create the workplace like a playground. Not only the

employees are happy to work but they can make users also happy.

3-3. value chain of Cyworld

Administration and Management- Electronic Scheduling and messaging systems

Human Resources- Internet-based sharing and dissemination of company information

Technology- Real-time access to its web and mobile pages

Procurement-Active X based ordering systems, automated “requisitions to pay”

Inbound Logistics

- Real-time integrated scheduling, demand

management and advanced planning

-communications with other companies,

such as music manufacturer.

Operations

- Sharing its main page with Nate, the Search

engine

- Real-time updating its web pages,

mobile pages

Sales and Marketing

-Online stores for selling paid items including virtual

fonts, music

- Real-time ranking of sold items

- Attract Brands to its Mini hompy

Service

- Club for promoting

communication among users

- Web disk for uploading user based photos, songs, videos

- mobile connections to Cyworld

After-sales Service

-Lost property service

-Complaint follow-up

3-4. Present situation

As early mentioned above, there are incredibly more than 21 million subscribers out of 38

million internet users in South Korea. However, according to PLC curve [Exhibit 1], the company

seems to be located in the matured face or on the edge of going into declining face. There are

three reasons for this current situation.

First, recently Cyworld are strongly facing threats from a few foreign competitors such as

Facebook and Twitter [exhibit 2]. Even though Cyworld are in alliance with a big search engine,

Cyworld

Value

Chain

Nate, most of internet users in Korea prefer using Google or Naver as their main portal page. So

the synergy effect is not enough to crush the rapid chase from Facebook and Twitter. Second,

User’s satisfaction looks declining. Customers are feeling tired of the decorating their ‘Mini

hompy’ by purchasing items such as skin, music, Minime and background. Final and the most

important reason is that social networking industry is rapidly changing into a wireless

environment based on smart phone. For this movement, Cyworld was late to prepare ‘smart

phone age’ whereas Facebook and Twitter have their global apps which people love to use every

day.

Below is the flow of stock price of SK 컴즈(SK Communications) [Exhibit 2]. (Note that

Cyworld is only part of SK Communications, not all of it) It shows that the stock price of the

company was highest(￦45,700) in late 2007. In 2008, however, it’s price dramatically

decreased to ever lowest(￦3,670). After 2008, even though the price has been slightly

increasing, it seems hard to gain their honor again. Therefore, now is a crucial time for Cyworld

to establish new market strategies in order to survive and keep their place as the first SNS

company in South Korea.

[Exhibit 1]

[Exhibit 2]

4. SWOT framework

STRENGTHS

First-mover advantage

Strong alignment to Korean

WEAKNESSES

Security Problem

Low Flexibility in International Markets

OPPORTUNITIES

Influential Korean contents

THREATS

Arch-rival : Facebook

4-1. Strengths

1) First-mover advantage

Cyworld has been ranked top in the national SNS of South Korea for 10 years, boasting a

reach of 54.2% of the web population in South Korea (Radwanick, 2010). It is because Cyworld

was the first-mover in the social networking industry at that point. Hence, winner could take all

and be a natural monopoly. This major player can charge customers more and enjoy substantial

bargaining power over partners. Also, Cyworld has collected mountains of personal information

for ten years.

2) Strong alignment to Korean

Cyworld reflect the Korean culture to be accustomed to users. Korean people are interested

in other’s news and tend to show ones daily event. They know the importance of personal

connection and want to establish a closer relationship. Cyworld provide ‘minihompy’, ‘1chon’

services and build virtual paid items; Dotori, BGM, gift, skin and so on, as a business model.

Therefore, Cyworld succeed to convert from real life to virtual and has been loved by Korean.

4-2. Weaknesses

1) Security problem

In online age, it is important to build customer loyalty by securing the private information of

users. Because of its position, Cyworld should have invested more in security sector. However,

Cyworld was hacked in recent, almost all Cyworld users were damaged to be stolen their

identity information. In addition, they should change password at great inconvenience. Now,

some victims brought a complaint against the corporate about its security policy. Other users

were reluctant to use it and decided to escape. That is why the number of users decreases.

2) Low flexibility in international markets

Cyworld did concentrate not on flexibility for dealing with International market change but

on optimization of Korean users. Moreover, Cyworld does not provide innovate services in

distinct after achieving great success unlike Facebook. Also, because Cyword is based on closed

relationship, what is called ‘1 chon’, it is one step behind in the global world. As people want

forging global friendship, Facebook presented itself as an attractive site more than the rest of

the social networking sites.

4-3. Opportunity

1) Influential Korean contents

K-pop is powerful in Europe and Asia. Korean educational animation for children, Pororo, is

very popular all over the world. Several Korean dramas’ success has surpassed all expectation. It

means that Korean contents have competitiveness that match in oversea consumers. It can be

the new opportunity, if Korean SNS and worldwide contents combine to form a new business

model. Cyworld is preparing new global strategies to expand their customer. Influential items

are facilitate to attract new global ‘il chon’.

4-4. Threats

1) Arch-rival: Facebook

Facebook presents itself as an impending threat to Cyworld, as seen by the strong surge of

Korean users using Facebook recently. As Cyworld was moved too slowly in mobile market, the

existing Cyworld users have shifted to Facebook. In addition, Facebook emerged as the new

platform and attracted new entry customer. Besides, there are several substitutable SNS as well

as Facebook in the social network industry.

5. User Segmentation

(User segmentation below is based on the ABC segmentation from Exhibit 9)

The probability of the users to have low, medium and high number of connections is 33%,

32.6% and 34.4% each. Almost the same persantage appears in the ‘purchases’ criteria. ‘Activity’

and ‘connections’ seems to be highly correlated. Users with high connections tend to engage in

high activity. It also shows that the number of purchases and connection is very similar when

combined with activity. It means that these two criteria are highly correlated. Therefore, it is

difficult to differentiate users based on these 3 criteria. But one thing is obvious; the most

valuable segment of users for Cyworld is both connected and active users. This segment will be

the most important if the company wants to engage in peer advertisement in the future. It is

almost true that this would happen.

6. Recommendations and conclusion

Cyworld is a representative of business to customers(B2C) model providing a relaxed

personal space for individuals and cyber community users. A rapid growth of cyworld is not just

for one night. Its constant developments of new designs, contents, high-technologies reflect

consumer’s demands. Consumers want personal room in the cyber world with the opportunity

of communicating, sharing information and they also want to represent their personalities on

the web-site. Cyworld creates new cyber community culture offering simple contents ‘Mini

hompy and Dotori’. However, the IT industry is hard to predict, in other words, new competitors

such as Facebook and Twitter appear often. Therefore, Cyworld should have constant

communications with customers and seek to adopt emerging technologies.. If cyworld maintains

its current strategies, its business will meet irreparable situation. To overcome this urgent

signals which we analyzed above, Cyworld should recover from weakness and catch their

opportunity. In other words, First, the company should overcome their recent security problem,

gaining back their brand power. Second, it is strongly needed to prepare varying IT environment

not to recur their mistake for smart phone/wireless internet era. Finally, Cyworld should

reassert its concentration on Korean youth, provide enriched media contents relevant to their

interests, evolving Cyworld from a social networking service to a social hub, where social events

are not only catalogued – but created.

7. Bibliography

www.cyworld.com Cyworld Homepage.

www.kbs.co.kr Korea Broadcasting, Ltd.

www.corp.nate.com SK Communications, Ltd.

www.dt.co.kr

www.joins.com

www.newsis.com

www.fnnews.com

Constine, J. (2010, August 10). Facebook Introduces Official Korean Language Page.

Retrieved from http://www.insidefacebook.com/2010/08/10/korean-official-page/ on

2010, October 8.

Duncan, G. (2010, June 23). China Mills Huge Fees for Social Network Games. Retrieved

from

http://www.digitaltrends.com/international/china-mills-huge-fees-for-social-network-

games/

on 2010, October 8.