Deal focus: One Store brings service to videogaming

Having the Korean mobile videogaming marketplace segment almost completely to itself has made Google lazy. The tech giant's Google Play service for Android smart phones has no loyalty program, no cashback rewards, and a decidedly limited range of payment options for the country's 25.6 million lightning-thumbed gamers.

Filling these shortcomings is the key value proposition of Google's only real competitor, One Store, although this is not quite the David and Goliath story it appears to be. One Store is 52.7% controlled by Korea's largest wireless company SK Telecom, while internet conglomerate Naver holds 27.7%. The remaining 19.6% has now been acquired by SKS Private Equity (SKS PE), a newly spun-out investment arm of SK Securities, which itself separated from SK Group last year.

SKS PE is investing KRW100 billion ($86 million) in the company via a fund co-managed with local VC firm Kiwoom Investment that has raised about $400 million to date and expects to reach $1 billion by the end of the year. The deal, which values One Store at KRW500 billion, is all about going global by ramping up customer service. The plan is to build on a recent operational coup: the start-up broke industry convention by lowering its commission rate from 30% to 20%, sparking a significant growth spurt.

"It's very important to think about the end-users in gaming because over the past few years, a number of gaming developers have had financial difficulties due to commission rates," says Jucheol Kim, head of SKS PE's strategic investment division. "Since we lowered our commission rates, One Store has seen remarkable improvement in terms of GMV [gross merchandise volume] and revenue. I think it's the only standalone end-market entity with potential to become a unicorn in Korean gaming."

One Store is the second-largest app market in Korea after Google Play, with 50 million members and more than $500 million in annual transactions. It plans to take 30% market share by 2022 by sourcing major mobile game titles via new marketing efforts, strategic investments, and sponsoring an e-sports team to build up name recognition. This is in recognition of the fact that even in cases where the playing  field is uncrowded, customer acquisition can be a big enough hurdle to declare game over.

"This market is an oligarchy with almost no competitors – just Google Play and One Store. That's why we like it, and for at least the next five years, I think it's going to stay just those two players," says Kim. "You have to invest a huge amount of money in infrastructure to deliver this kind of business to end-clients in Korea, so it's a big barrier to entry. And you have to make it easy for users to make payments and use the platform. That's our strength, and that's why Google's market share will be reduced in the future."

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• Topics
• North Asia
• Consumer
• Media
• Early-stage
• South Korea
• e-commerce