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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 ------------------------------------1 1

4-2. Weaknesses ----------------------------------1 1

4-3. Opportunities ----------------------------------1 2

4-4. Threats -------------------------------------1 3

5. User Segmentation ----------------------------------1 3

6. Recommendations and conclusion --------------------------1 5

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. them. 2-4. Threat of substitutes This could range from traditional networks and their places like soccer clubs, parentsteacher 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 That s the reason why so many websites offer various benefits when a user joins

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


Sales and Marketing -Online stores for selling paid items including virtual fonts, music


After-sales Service

Cyworld Value Chain

- Real-time integrated scheduling, demand management and advanced planning

- Sharing its main page with Nate, the Search engine - Real-time updating its web pages, mobile pages

- Club for promoting communication among users

-Lost property service

-communications with other companies, such as music manufacturer.

- Real-time ranking of sold items

- Web disk for uploading user based photos, songs, videos - mobile connections to Cyworld

-Complaint follow-up

- Attract Brands to its Mini hompy

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, 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 (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

First-mover advantage Strong alignment to Korean

Security Problem Low Flexibility in International Markets

Influential Korean contents

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 Cyworld Homepage. Korea Broadcasting, Ltd. SK Communications, Ltd. Constine, J. (2010, August 10). Facebook Introduces Official Korean Language Page. Retrieved from 2010, October 8. on

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

on 2010, October 8.