DeepSeek sparks AI arms race, forcing Korean tech firms to act fast or fall behind
Naver and Kakao, the nation's top two internet companies, are intensifying their competition in artificial intelligence. Each is taking significant steps to secure a competitive edge in the fast-evolving industry, while the Chinese AI service DeepSeek threatens to disrupt current AI market leaders.
Kakao has become the first Korean company to establish a strategic partnership with ChatGPT creator OpenAI to collaborate on technology and product development. Kakao plans to integrate OpenAI technology into services such as its mobile messenger KakaoTalk and AI agent service Kanana.
Additionally, Kakao has decided to adopt OpenAI’s ChatGPT Enterprise solution.
The IT giant is set to leverage both its own language model and OpenAI’s model in the development of Kanana. The AI agent service is designed to facilitate more meaningful interactions by providing context-aware responses not only in one-on-one conversations but also in group chats.
Market experts see Kakao’s latest move favorably, though they stress the need for tangible outcomes.
Seo Jung-yeon, an analyst at Shin Young Securities, said, “The collaboration with OpenAI is expected to contribute to the successful launch of Kanana. However, the real challenge lies in demonstrating profitability and monetization through AI technology.”
Its crosstown rival Naver is focusing on a sovereign AI strategy. While the company says it remains open to collaborations with global tech firms, it continues to focus on refining its own AI models. Naver’s strategy is to integrate AI technology into services including search, commerce and content.
It is expected to advance its AI business agenda at a general shareholders’ meeting next month, where the return of founder Lee Hae-jin as a board member will be formally approved. With AI reshaping the global tech landscape, the comeback of such a pivotal figure carries significant implications for Naver’s future direction.
During an earnings conference call last week, Naver CEO Choi Soo-yeon said, “This year marks a crucial period for fully implementing our on-service AI strategy across Naver’s entire service ecosystem.”
She also lauded the emergence of DeepSeek, calling it an “innovative milestone” that proves how latecomers can challenge industry leaders with relatively small investments.
“This trend is encouraging and presents an opportunity for us as well,” she said.
Naver anticipates that the emergence of cost-effective AI models will enhance its service competitiveness. With lower operational costs, the company aims to refine its AI-driven services further, making them more efficient and accessible.
“Until now, Naver’s AI business was considered inferior to global tech giants. However, with the emergence of companies like DeepSeek, it has become possible to achieve a certain level of AI competency without massive investment. Naver’s on-service AI strategy is already driving increased traffic, user engagement, and revenue growth in key areas such as advertising, commerce and fintech,” said Ahn Jae-min, an analyst at NH Investment and Securities.
As Kakao makes bold moves with OpenAI, there is growing curiosity about whether Naver will follow suit by forging its own alliance with a global AI leader. While SK Telecom and KT Corp. have partnered with Perplexity AI and Microsoft, respectively, Naver has hinted at potential collaborations.
Any chance of unlikely alliance?
Despite these efforts, some experts say Naver and Kakao have been too slow to respond to advancements in AI. They suggest that both companies, spurred by the sudden emergence of DeepSeek, are now acting with urgency during what they believe is a critical window of one to two years.
“It seems that both companies can no longer afford to delay,” said Jeon Seong-min, a business administration professor at Gachon University. “Kakao appears to prioritize application-driven collaboration with OpenAI rather than developing a foundational model. Meanwhile, under the direct leadership of its founder, Naver seems to recognize the need to present a new company strategy for the AI era.”
Some experts view the rivalry as an opportunity for the two internet giants to discover new business models, but they also argue that cooperation may be necessary.
“In other countries leading AI innovation, governments play a strong leadership role and provide substantial subsidies,” said Lee Sung-yeop, a professor at Korea University’s Graduate School of Management of Technology. “Although the Korean government is taking similar steps, the scale of our companies is relatively small. Rather than battling each other, alliances may be necessary to compete globally.”