November 28, 2024

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Kakao's Pangyo headquarters in Gyeonggi Province (Kakao)

Kakao, the operator of South Korea’s No. 1 messenger app KakaoTalk, said Friday that it plans to expand its vertical Korean language-based artificial intelligence services based on an AI language model called KoGPT this year.

“The rise of hyperscale AI models like ChatGPT is both an opportunity and a crisis for Kakao,” Kakao CEO Hong Eun-taek said in its earnings conference.

Global tech companies with ample capital and technologies have a "definite competitive edge" over smaller companies in the race for hyperscale AI model development because the technology is unobtainable with innovative ideas alone.

“Rather than competing against big global companies in the same field, we want to focus on a vertical AI service with a Korean-language AI model (developed by Kakao Brain)," he said.

Vertical AI refers to AI that is highly optimized and applied to a specific problem in a certain industry. On the other hand, horizontal AI allows companies and startups in particular to quickly adapt modules to fit individual clients’ needs.

The tech behemoth looks to move swiftly to introduce its AI-powered vertical service later this year and improve its AI capability, the CEO said.

Kakao Brain, an AI technology research and development subsidiary of Kakao, introduced its Korean-language AI model in October last year. The company has also released various AI-related services.

On Thursday, Kakao’s AI unit unveiled Karlo, an AI image model that can understand users’ inputs and provides images in a variety of styles and colors.

Kakao's move came as California-based startup OpenAI recently released ChatGPT to the public and is being hailed as a game-changer for various industries, with its ability to learn and adapt quickly to new information.

However, Kakako officials have not yet specified plans about whether to apply the KoGPT model to its search engine Daum as Microsoft has done for its search engine Bing.

Kakao’s crosstown rival Naver also announced its plan to launch a new AI search service called SearchGPT in the first half of this year.

During the earnings call, Kakao Chief Information Officer Bae Jae-hyun also highlighted KoGPT’s “high level of cost-effectiveness” as an advantage which would use fewer parameters than competing AI models to achieve the same level of performance.

When asked about the amount of investment put into the KoGPT service, the CIO said: “We will not make a significant increase in the level of investment (on KoGPT) from our previous investments on other AI projects made through Kakao Brain and Kakao Enterprise.”

Before Friday’s earnings call, the tech behemoth released its 2022 earnings report before the opening on the Korea Exchange.

Kakao said its 2022 operating profit fell 2.4 percent from the same period a year before to 508.5 billion won ($402 million). The company marked its first negative growth in four years, recording 8.2 percent from the previous year's 9.7 percent.

The company's net profit came in at 1.02 trillion won on a consolidated basis in 2022, down 38 percent from the previous year’s profit of 1.64 trillion won. Its annual sales, however, rose 15.8 percent on-year to 7.1 trillion won in the same year.

For the October-December period, Kakao posted 100.4 billion won in operating profit, down 5.8 percent from a year prior. The figure was slightly higher than the consensus of 96 billion won of local analysts provided by market intelligence FnGuide.

The company’s sales lost 0.6 percent to 1.77 trillion won, while it posted a net loss of 539.3 billion won over the cited period, turning to red from the same period last year’s profit of 224.1 billion.

Kakao attributed its poor performance last year to slowed growth coupled with a global recession, alongside the compensation fees and aftereffects of its massive service disruptions caused by a data center fire in October.

Last October, a fire broke out at one of Kakao’s data centers on the southern outskirts of Seoul, which caused a blackout in Kakao services.

Due to the accident, KakaoTalk and other related services experienced massive disruptions that affected nearly all sectors of South Korea, ranging from social networking and business to finance and transportation.

Kakao expected the compensation for paid service users to be worth around 40 billion won. Two months following the incident, it gave cash compensation of between 30,000 won and 50,000 won to all small business owners for damage from the service disruption, depending on the size of their losses.

"We expect to see limited growth in the first half due to advertisers' reduced demand following macroeconomic woes. ... We're aiming for a recovery in growth rate from the second half of this year. Our internal goal is to achieve at least last year's growth rate this year," CEO Hong said during the earnings conference.

Shares of Kakao began trading at 69,300 won, but ended 4.65 percent lower from the previous session to close at 67,600 won on Friday.

By Jie Ye-eun (yeeun@heraldcorp.com)