AI could threaten search ad market, but also presents opportunity

While artificial intelligence chatbots like ChatGPT pose a threat to the search ad market, South Korean internet giant Naver sees the rise of AI as an opportunity for the company.

Naver is South Korea’s most used search engine, according to Statista, commanding a 61.2% market share of monthly active users. In contrast, the ever ubiquitous Google has a 28.55% market share in the country.

AI-powered chatbots like ChatGPT pose a threat to search engines as they are able to provide answers to users’ questions directly, instead of presenting a list of webpages that the user has to browse through to find an answer.

This could lead to a quicker search process for the user — assuming all the information presented is correct.

If fewer people use search engines, that would lead to a decline in search ad revenue, often the largest revenue stream for their operators. In 2022, Alphabet generated over 57% of its revenue, or $162 billion, from Google searches alone.

While Naver, like Google, also primarily operates a search engine, it also has other business units, such as its content platform Naver Webtoon and multimedia mobile application Snow, fintech arm Naver Pay and an e-commerce platform in Naver Shopping.

Speaking to CNBC’s Chery Kang in South Korea, Naver CFO Kim Nam-Sun says AI will be a “huge opportunity” for each of its businesses, “whether it’s enhanced search [results], whether it’s [an] enhanced shopping experience, whether it’s fintech or even when it comes to Webtoon recommendations, or even Webtoon illustration tools.”

He believes that AI will only strengthen Naver’s offerings, pointing out that “AI is something that’s not foreign to us, but it’s very important to each of our businesses.”

In terms of the user experience, Kim says an AI-powered Naver would mean an enhanced search experience, shopping experience as well as travel recommendations for users.

He believes that Naver is the largest go-to site in terms of travel itinerary searches. “So to the extent that AI can actually better that experience, I think it’s a game changer for the user.”

In its first-quarter earnings presentation, Naver revealed that the company is set to launch its “hyperscale AI” product, named HyperCLOVA X this summer. The company said it would “provide generative AI-driven search for users and new customized services for enterprises.”

Over the first quarter, the company’s sales rose 23.6% year-on-year to 2.28 trillion won (1.72 billion), but its net profit tumbled 71.2% to 43.7 billion won compared with the same period last year. Operating profit stood at 330.5 billion won, a 9.5% increase year-on-year.

Shares of Naver were trading 1.93% higher on Tuesday, building on their 5.56% gain Monday after the company released results in the morning.