The fortunes of Naver and Daum, once the two pillars of South Korea's portal market, are sharply diverging depending on the success of their artificial intelligence strategies. Naver is strengthening its market dominance by applying generative AI to its search service, while Daum has become mired in sale rumours after its share slid to below 3 percent amid a delayed AI transition and a lack of investment.

Naver that secured "AI trust" versus Daum that missed investment timing

InternetTrend, a market research firm, said on Jan. 20 that Naver's share last year was 62.86 percent, up 4.72 percentage points from a year earlier.

A key driver behind Naver's return to a 60 percent share of domestic search after 3 years was an upgraded search experience through the introduction of "AI Briefing".

Naver has expanded its "AI Briefing" service mainly in areas where accuracy is essential, such as health, securities and public information. It proved effective by reducing concerns about hallucinations and improving user satisfaction, as AI summarised answers based on authoritative sources such as top-tier general hospitals and academic societies.

That means Naver used "Korean-style precise data" as a differentiating point in competition with global big tech companies such as Google. The usefulness of AI in organising verified information clearly, rather than listing search results, worked as a key mechanism for defending its share.

Daum, meanwhile, failed to ride the AI wave and is facing its biggest crisis in 30 years since its founding. Daum's search share last year fell to 2.94 percent, dropping to fourth place behind Microsoft's Bing at 3.12 percent. Investment in the portal's core functions such as search was limited after the 2014 merger with Kakao, and it failed to present clear countermeasures even as rivals shifted to AI search. User departures immediately led to weaker results, and portal business revenue fell sharply to 332.0 billion won in 2024 from 492.5 billion won in 2021.

Kakao "trims fat" and Upstage "data" as sale rumours swirl

The industry has recently raised speculation that Kakao is pursuing a plan to sell its subsidiary AXZ, the operator of Daum, to AI startup Upstage. Specifically, the market is discussing a share swap in which Upstage acquires 100 percent of AXZ and Kakao receives newly issued shares in Upstage in return.

Such sale rumours are gaining traction because there are points where the interests of the two companies align. Kakao, under CEO Chung Shin-a, is pushing a high-intensity restructuring under a "selection and concentration" approach. Kakao cut the number of affiliates from 147 at one point to 94 by the end of last year, and securing a stake in promising AI company Upstage while easing the burden of directly operating Daum, whose profitability has deteriorated, is seen as a reasonable exit strategy to maintain influence in the AI ecosystem.

For Upstage, which is preparing for an initial public offering, Daum is an attractive "data treasure trove". The vast Korean-language text data that Daum has accumulated over more than 30 years, including news, cafes and Tistory, is an essential asset for training large language models. It is also significant in that it would secure a huge testbed where Upstage can apply its self-developed LLM, "Solar", in a real service environment.

Some view the sale talks as symbolic of the domestic internet industry's axis having completely shifted from being centred on search to being centred on AI generation. If Daum succeeds in improving its makeup into an "AI specialist portal" under Upstage, it cannot be ruled out that it could survive as a new type of "purpose-driven information discovery platform" rather than a simple competition for search share.

An industry official said, "This is not simply an M&A where the owner changes, but a huge testing ground that will show what form the vast data of first-generation web portals can evolve into when it meets a new engine called AI." The official added, "If Naver has achieved the 'AI-isation of search,' Daum led by Upstage will have to prove an unprecedented model of the 'AI agent-isation of portals' to survive."