Analysis: S.Korea's smartphone love affair lures foreign suitors (Reuters)

SEOUL (Reuters) – The proliferation of smartphones in South Korea is transforming this former "walled garden" ruled by local players into one of Asia's most promising destinations for global Internet and social networking firms.

A solid, wireless broadband infrastructure, feature-packed new models from homegrown giants Samsung Electronics and LG Electronics, and an explosion in mobile applications and services have all contributed to the breakneck speed of smartphone adoption.

In just 18 months the number of smartphone subscribers in South Korea has exploded more than ten-fold to top 10 million, or around a fifth of the population, according to the Korea Communications Commission (KCC).

South Korea ranks first in Asia and third globally in smartphone penetration, according to eMarketer, lagging only the United States and Western Europe.

All this is music to the ears of handset makers and application developers.

"Korea is interesting because it's got a large, tech-savvy and concentrated population," said Andrew Mason, founder and CEO of group-buying site Groupon, which launched services in Korea in March. "It's the perfect market for Groupon."

Smartphones have become a "Trojan horse into the Korean market" for the likes of Google and Facebook, which had a head start on local firms in optimizing their offerings for smartphones, said Richard Min, partner at Seoul-based startup incubator, Seoul Space.

Foreign entrants have moved quickly to capitalize on the changing landscape. Twitter launched a Korean-language website in January after seeing a 3,400 percent spike in the volume of Korean tweets in 2010. It now has around 3 million local users, according to market research firm, Daumsoft.

Facebook opened a Seoul office late last year to seize on the "great momentum" in Korea, a company spokesperson said.

And Groupon Korea already ranks among the top four players in South Korea's increasingly crowded social commerce market, with a growth rate that is "accelerating every week," said local CEO, Hee Seung Hwang.

GOOGLE'S CHANGING FORTUNES

Arguably the biggest beneficiary of Korea's smartphone explosion has been Google, whose previous attempts to woo local Internet users were disappointing. As of March 2011 it held a mere 2 percent sliver of the standard Internet search market, according to Seoul-based research house, Metrix Corp.

But Metrix estimates Google now vies with Korea's Daum Communications for second place in the mobile Internet search market, with a share of more than 15 percent.

Google's Android operating system, on which Samsung and LG's latest smartphone offerings are based, powered only 3 percent of South Korea's mobile phones in March 2010. That figure jumped to 60 percent by January 2011, KCC data shows.

The onslaught of imported competition has rattled local Internet industry leaders Daum, NHN, and SK Communications, whose domestic and PC-based focus may now be coming back to haunt them.

"Without a major shift, (Korean Internet firms) are in trouble," says Min of Seoul Space. "Their biggest problem used to be their biggest asset -- they built these perfect local systems. But these days Koreans are more international and if they want to reach a global audience there is no contest."

NHN's shares have declined 17 percent so far this year, versus a 0.5 percent gain in the benchmark KOSPI, and Kosdaq-listed SK Communications is down 41 percent compared to the venture market's 7 percent fall. Daum, also listed on the Kosdaq, is a notable outperformer, up 30 percent.

NHN continues to dominate the Korean Internet, with some 75 percent of standard searches conducted via its Naver portal. Its Me2Day microblogging service boasts over 5 million users, well ahead of Twitter. But Metrix data shows the number of visitors to Twitter grew six times faster in 2010.

SK Communications' most iconic product, the Cyworld social networking service, pulled the plug in 2009 on an effort to crack the U.S. market and now appears increasingly threatened by Facebook on its home turf.

SK Communications says Cyworld has 35 million users in South Korea, around 10 times more than Facebook, but its visitor numbers barely budged last year while Facebook's shot up more than 3,000 percent.

INCUMBENTS FIGHT BACK

Korean firms acknowledge that foreign competitors are making inroads, but also say they are taking steps in response.

"(Foreign companies) are strengthening their position in the domestic mobile content market with relatively high brand awareness," says Lee Ram, director of NHN's Portal Strategy Department.

But Naver's introduction of new services such as mobile messaging and web storage has resulted in a "number of users moving from Google to Naver," Lee added.

Daum has developed new mobile applications such as the Yozm social networking service, which has already signed up more than 2 million users, according to Daum vice president of corporate communications Lee Byung-sun.

SK Comms, meanwhile, is banking on an online marketplace for new games and applications, said CFO Koo Ki-hyang.

The struggle for Korea's Internet users has spilled into the legal arena. In April Daum and NHN filed a lawsuit against Google with Korea's Fair Trade Commission, arguing the pre-installation of Google Search on Android phones was stifling competition.

Google rejected the allegations.

"Android is an open platform...we do not require carriers or manufacturers to include Google Search on Android-powered devices," a spokesperson said.

Few seem ready to count Korea's incumbents out. The healthy performance of home-grown applications like instant messaging service KakaoTalk point to a deep local pool of innovation and the market remains tricky to navigate.

"(Korea) is still very closed," said David Lee, a former director at Google and now a partner at Palo Alto-based venture capital firm XG Ventures. "If you want to publish a game, you have to go through the game ratings bureau. Payment gateways are difficult...the challenge for overseas developers is to get through those hoops."

For those that do, the Korea experience is likely to inform their strategies in other markets with rapid smartphone uptake and a strong stable of local players, such as Japan and China.

Groupon's Mason says the firm is in a "learning phase" in Asia and that South Korea is serving as a test-bed for technologies such as SMS distribution, while Google sees South Korea as demonstrating "where the rest of Asia is going as well."

But others note China is very different and not just because of censorship.

China's Baidu and Sina have "taken the best of Twitter, Facebook and so on and put them all together...adding a lot of innovations that have drawn a ton of Chinese users," said Mike Clendenin, managing director of Shanghai-based RedTech Advisors.

"I'm not convinced (foreign social networking services) would do well in China even if they were unblocked."

(Additional Reporting by Seongbin Kang, Taeyi Kim and Jungyoun Park in SEOUL: Editing by Matt Driskill)

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PayPal sues Google over smartphone payment service (AP)

NEW YORK – PayPal says Google stole its ideas for a new service that is trying to turn smartphones into digital wallets.

The allegations emerged in a lawsuit filed Thursday in a California court after Google unveiled its mobile payment service in New York.

The complaint alleges Google lured away PayPal executive Osama Bedier earlier this year to obtain trade secrets that are now being used in Google's phone-as-a-wallet service.

Bedier, now Google's vice president of payments, was among those showing off the technology in New York.

The suit also alleges Bedier was interviewing for a job at Google while he was also handling negotiations for PayPal to handle sales in Google's application market for phones running on its Android software

PayPal is owned by eBay Inc.

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Smartphone app lets workers track wages (AP)

WASHINGTON – Workers who don't trust the boss to keep track of their wages can now do it themselves with a new smartphone application from the Department of Labor. But employers worry that the time sheet app, along with other new initiatives, could encourage even more wage and hour lawsuits.

The app, called DOL-Timesheet, lets workers calculate regular work hours, break time and overtime pay to create their own wage records. Department officials say the information could prove valuable in a dispute over pay or during a government investigation when an employer has failed to keep accurate records.

"This app will help empower workers to understand and stand up for their rights when employers have denied their hard-earned pay," Labor Secretary Hilda Solis said.

The app is the latest example of the Obama administration's push for more aggressive enforcement of wage and hour laws. The agency has hired about 300 more investigators to probe complaints of unpaid work time, lack of overtime pay and minimum wage violations.

Last year, the agency began a "Bridge to Justice" program that, for the first time, helps connect aggrieved workers with private lawyers if the department's Wage and Hour Division is too busy to handle a complaint.

As a result, legal experts say, wage and hour compliance has become a leading concern for employers as the new policies help drive up litigation over unpaid wages, also known as wage theft.

"The government is focusing on it like never before," said Gerald Maatman, an employer-side labor lawyer based in Chicago. "I think the mantra is kind of, `All enforcement, all the time, 24/7.'"

Workers brought a record number of wage and hour suits against employers last year, according to an analysis of court filings by Maatman's firm, Seyfarth Shaw. Nearly 6,800 such suits were filed in 2010, about 700 more than the previous year. Most were collective or class actions.

"The concern is that the Department of Labor is putting a lot more attention into this area and employers, at the same time, are putting more hours, more money and more work into auditing and complying with wage and hour laws," Maatman said. "It's turning into somewhat of a full-time job."

The stepped up enforcement is a change from the Bush administration, when some critics accused President George W. Bush's labor secretary, Elaine Chao, of favoring businesses and weakening job safety and enforcement efforts.

While employers are not surprised about increased enforcement, they have questioned some tactics, such as a program that gives workers a toll-free number to contact an attorney referral service run by the American Bar Association.

The Wage and Hour Division gets more than 35,000 calls a year for help and doesn't have the resources to deal with every claim. For those it can't help, it now refers them to the toll-free hot line, where they can be referred to a lawyer who specializes in wage and hour disputes.

Michael Kun, a management-side employment lawyer in Los Angeles, calls the program "a gift to plaintiff's lawyers."

"A DOL investigator has no incentive to pursue a meritless claim," Kun said. "A plaintiff's lawyer has some incentive to do that to get some sort of nuisance value."

Patricia Smith, the Labor Department's top lawyer, says the criticism has taken her by surprise. Before the Bridge to Justice program, the department simply told workers they had a private right of action.

"This just gives them a little more information if they want to exercise it, to go to an attorney that's qualified, as opposed to calling the guy who has advertisements on television at midnight," Smith said.

Nancy Leppink, who heads the Wage and Hour Division, says the office is just doing the job it's supposed to do, which is going after employers who cheat workers out of their hard-earned wages.

"To the extent we have employers who are not complying with the law, we have an obligation to look for all of the opportunities we can to change that behavior," Leppink said.

That includes the department's "We can help" advertising campaign last year, designed to educate employees in the food service, hospitality, apparel, manufacturing and construction industries about their legal rights under federal wage and hour laws.

Wage theft is especially prevalent among immigrant workers who don't speak English or hesitate to challenge their boss for fear of jeopardizing immigration status, labor officials say.

Earlier this year, for example, the department recovered $1.8 million in back wages for nearly 400 workers at the Houston-based Hong Kong Market grocery chain. Investigators found some employees worked as many as 70 hours a week, but were paid less than the minimum wage and denied overtime pay. Labor officials said the company deliberately misled investigators by falsifying payroll records.

The new smart phone app is expected to help low wage immigrant workers, many of whom can't afford a computer, but keep cell phones as a lifeline to family back home.

The app is currently available for the iPhone and iPod Touch, but the agency is exploring versions for use on other devices, including Blackberry and Android smartphones.

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Online:

Labor Department's Hour and Wage Division: http://www.dol.gov/whd/

Seyfarth Shaw law firm: http://www.wagehourlitigation.com/

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