Why no successful restaurant review platform in Korea?
The restaurant review platform in Korea has been a theme that many startups have challenged. In addition to the Wingspoons that Naver gave up, large companies as well as various start-ups are in this field, are quite popular and have a lot of actual users, but none of them are making meaningful sales in Korea.
Syrup Table, the №1 restaurant platform for cumulative downloads, ended its business on SK Planet in 2018, and Siksin Hot, which is pursuing a listing, has more than 2.5 million MAUs. However, the business that actually makes sales is not a review platform, but a restaurant payment platform for corporate targets (B2B).
So why can’t restaurant review platforms succeed in Korea?
The following is the analysis from the platform business model perspective.
Limitations of Korean market size
The success story of the restaurant review platform can be thought of as Yelp in the United States. In 2012, the company succeeded in IPO and reported sales of US $ 943M in 2019. It is hard to imagine any review platform in Korea. Of course, there are pessimistic opinions about the future growth potential in the US, but I hope that domestic platform companies make sales even at this level, but it is not easy.
Yelp is a purely local business review platform that generates meaningful sales through its advertising business model. Why not in Korea?
Should we find a common reason for the limitation of the size of the Korean market that can be easily thought of? In a market size of 50 million people, the hasty conclusion is that restaurant review platforms alone can’t produce meaningful advertising revenues. In other words, it can be argued that, on the Korean scale, restaurant review platforms are difficult to survive as independent platforms and exist only as an added service of other business models.
Looking at the past 20 years of the Korean Internet industry, the success of a text-based review platform on the Korean scale is hard to find in any media.
Taking a metaphor as an example, even the Michelin guide is difficult in the Korean market alone.
Difficulty of Expanding to Global Platform
If a restaurant review platform has limited growth potential due to size issues in a particular country, the strategy for this is a global platform. The question is, “Can a restaurant review platform be competitive when it expands to several countries?”
My answer is no.
In general, local business review platforms are locally based, making it difficult to secure competitiveness in the global expansion.
Even Yelp has been pushing for global expansion since its public listing in 2012 and then focusing on the US market again in 2016. This means that even if a platform has economies of scale in one country, existing competitiveness is meaningless when entering another country. This is a common feature of most local-based content and commerce platforms.
Even if the two-sided customer-based platform of regional consumers and restaurants succeeds in one country, the competitiveness of the existing network effect is low. This requires some new two-sided customers in other countries, so the experience of the business model will be a bit competitive, but the rest is not easy.
As a result, the restaurant review platform is not easy to grow as a global platform.
Limits Due to the Uniqueness of the Korean Market
The next limit that can be considered is the specificity of the Korean market.
In Korea, I think the value of the restaurant review platform is not high, especially because most of the customers and restaurants, the customers of the platform, are concentrated in cities and even in densely populated areas.
American consumers, for example, drive by car to go to restaurants.
The risk is high in terms of time when you visit the restaurant without searching or booking a restaurant review. However, in Korea, you can easily choose another restaurant in the same building if there is no space for the restaurant you visited by accident or if you do not like the menu. In other words, because of the low risk of choice, the restaurant review platform is less important than the United States.
Differences in growth due to the peculiarities of the industrial environment of each country are in most On Demand platform areas. I think Uber was able to grow so quickly in the United States because, unlike in Korea, there was no national subsidized taxi industry. I’m also seeing the growing electric scooter sharing platform.
The bottom line is that the restaurant review platform is not easy to grow in a market environment like Korea.
My theory of the nature of the platform
Consider a more fundamental question. What are the essential characteristics of a restaurant review platform in terms of platform business model?
I classify the essential characteristics of digital platforms into 4C: Contents, Commerce, Communications, and Community.
In other words, the characteristics of the restaurant review platform are one of the above four, and I think it is a content platform. Therefore, the restaurant review platform accumulates content called restaurant review by crowdsourcing method to make it competitive. As a result, the “quantity” and “quality” of content is the core competitiveness of the platform. But competitiveness doesn’t guarantee profit.
What is the business model for content platform operators? The first is the sales model of the content itself, and the second is the advertising model. Most digital content platforms we know of all make money in this way.
Naver’s music and webtoon businesses follow the pattern of the second business model as a content platform business. They acquire competitive content and sell it directly on the platform.
Other Naver core services, Community, Blog, and Q&A, are examples of advertising model patterns. With a large number of consumer-generated content (Community, Blog, Q&A), the content is free to customers who consume it and earns advertising revenue.
But the core of the advertising model depends on the “relevance” of the ads and content. Ads that are less relevant to content can be perceived by consumers as spam. But if you’re reading a restaurant review blog and you’re advertising to encourage restaurant reservations, this can provide real value.
Limitations of the business model of the restaurant review platform
The same pattern then analyzes the limitations of the restaurant review platform.
Can the content of a restaurant review platform in Korea generate as much consumer traffic as it can generate advertising revenue as the Naver community?
Or, at what rate do consumers make a reservation by reading reviews from a restaurant review platform? Why did Naver give up his wing spoon? In essence, how many Korean consumers would “book” through the platform after reading restaurant reviews? Or if restaurant review content is attractive enough to sell on its own, why didn’t Yelf try such a business model?
TripAdvisor generates more than US1B$ per year, but 70% of its revenue is advertising-based. What areas of review drive sales? Think of TripAdvisor’s core content, “hotel reviews,” and that’s the same business model pattern that doesn’t make any difference from a restaurant review platform. They accumulate reviews on a number of consumer-generated hotels on the platform and provide them back to other consumers, generating revenue through advertising for hotel reservations.
In other words, TripAdvisor does not directly provide the function of hotel booking. Instead, the review content is provided to the consumer free of charge, and a link to the booking function is provided by the hotel reservation platform at an advertising fee to TripAdvisor. It is no different from a restaurant review platform and TripAdvisor in terms of patterns. The only difference is the “target” of the reviews they provide.
For consumers, booking a “hotel” for travel abroad is more serious than a “restaurant” reservation in the area. In other words, restaurant reservations have a lot of choices, but “hotels” reservations are more “important” when there are not many options in the field.
platform must provide a “complete” solution to a customer’s serious problem
In conclusion, what characteristics of the review platform contribute the most to the growth of the platform? This depends on how much “reservation” is essential for the “service” being the subject of a “review”.
Therefore, I believe that the review platform for Korea’s “local restaurant”, where “reservation” is less necessary, is fundamentally limited in marketability.
On the other hand, in Korea, the platform for hotels where “reservation” is essential, even “reservation” along with the content of “review” may lead to unicorn candidates like “Yanolja”. They can generate revenue because they complete a “commerce” called “reservation” to solve their “important problems”.
In particular, the founder of a platform business will be able to attract initial investment only if he/she understands the “pattern of business model” and can present the future of “market growth”.
Michael Hwang, Bigbang Angels
February 15, 2020
