October 11, 2010 CYWORLD’S SOCIAL NETWORKING GLOBAL EXPANSION STRATEGY

Manchester Business SchoolCase Study Report

Cyworld’s Social Networking Global Expansion Strategy

Group 22Daniel Taffler, Maria Surkova, Rajnish Pal, Robin Agarwal

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October 11, 2010 CYWORLD’S SOCIAL NETWORKING GLOBAL EXPANSION STRATEGY

Version 1.0 (11/10/2010)

Contents1 Introduction...............................................................................................................................3

2 How culture influences consumer behaviour................................................................3

2.1 Diversity.................................................................................................................................3

2.2 Context..................................................................................................................................3

2.3 Language................................................................................................................................4

2.4 Social outlook........................................................................................................................4

2.5 Psychological outlook............................................................................................................4

3 Competitive environment....................................................................................................5

3.1 Content differentiation..........................................................................................................5

3.2 MySpace................................................................................................................................5

4 Market analysis of social networking industry in Korea and US.............................6

4.1 Target Segment Analysis........................................................................................................6

4.2 Online Identity and Privacy....................................................................................................6

4.3 Attitude to pricing..................................................................................................................7

4.4 Graphical style.......................................................................................................................8

4.5 Positioning.............................................................................................................................8

5 Decision Modelling..................................................................................................................8

5.1 Awareness stage....................................................................................................................8

5.2 Interest stage.........................................................................................................................9

5.3 Evaluation stage...................................................................................................................10

5.4 Trial stage............................................................................................................................11

5.5 Adoption stage.....................................................................................................................11

6 Conclusion...............................................................................................................................12

7 Appendices..............................................................................................................................12

7.1 References.......................................................................................................................12

8 Rebuttal Strategy.........................................................................................................................12

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October 11, 2010 CYWORLD’S SOCIAL NETWORKING GLOBAL EXPANSION STRATEGY

1 IntroductionFollowing saturation of the South Korean market in 2005, Cyworld decided to expand its activities overseas in order to continue growing. The US seemed an ideal target market with more internet users than any other country, 150 million social networking users, and a high disposable income.

On the surface, the needs of South Korean and US social networkers were the same; the need to express their identity, communicate with a network of friends and share photos, video and music. However, Cyworld failed to appreciate that what satisfied these needs was fundamentally different for US and South Korean users.

This report analyses several key areas that were responsible for the failure of Cyworld in the US and also identifies possible ways in which this failure could have been averted.

2 How culture influences consumer behaviourIn order to analyse consumer buying behaviour it is vital to understand cultural differences to address the appropriate needs of the target audience. It was assumed that Korean model of Cyworld would be appealing to 16-24 years old people in the US market without appropriate adaption to their cultural needs. and The strategy was to maintain the keyinitial Korean aspect in the US cultureof the original Cyworld. As an outcome Cyworld US remained almost the same as the original Korean Cyworld and it. The Cyworld failed to identify specific needs and wants of the target audience and the cultural peculiarities of US audience that appeared to bewere crucial in its further performance.

2.1 DiversityKorean population are much less diverse that the US population. South Korea is considered to be the world's most ethnically homogeneous nations where people of other nationalities are presented in a small percentage of the population. US population is much more diverse and presented by more than 10 different ethnic groups. Cultural differences within each group vary significantly. The Cyworld admitted the fact that US is a cross-cultured country but failed to take it into accountaddress it while tailoring the social network site for the needs of US users.

In addition, young people of 16 – 24 years old that were targeted by the Cyworld US express themselves by belonging to a certain subculture. In the US the subcultures are numerous and diverse. Tthe cute or kawaii style that dominated Cyworld in East Asia and was popular with both girls and boys only appealed to girls in the US and even then only a small segment of them. Because of the much higher level of cultural diversity in the US, especially among youngstersthe target audience of 16-24 years old, it would be difficult for a single style to appeal to all of them. ‘Cute’ has no appeal to the ‘emo’ or ‘goth’ subcultures, for example.

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2.2 ContextKorean culture is a high context culture with focus on personal reputation, emphasising background and traditional values, whereas US culture has low context where people rely more on written words, negotiate issues directly and are highly competitive. This issue had to be addressed during the site’s adaptation for the US consumers.s in terms of its content.

2.3 LanguageLanguage barriers were addressed by the Cyworld by translating specific features and services offered by the site.

2.4 Social outlook The role of an individual in a community varies across different countries. In the US, the interests and independence of individuals are of given high value; the Korean culture tends to be a commune culture with strong collectivism features. We Cyworld chose not to adapt the content of the social networking site for the US public. The Cyworld US was organised and each mini-homepage offered the same tabs, ‘a relaxed hangout that stressed existing friendship’. . At the same time the chaotic nature of MySpace, ‘a hip party’, was not an obstacle for its expansion and growing popularity in the US. Users were competing with each other for popularity and attention that required a wide range of services provided on the site.

2.5 Psychological outlookSouth Korean people have more introvert personalities predominantly concerned with their own thoughts and feelings rather than with external things. Korean social network users only used social networking for people that they already knew offline. The US users are willing to have online friends without being introduced in real life and extend their network by sharing contacts with other friends.

According to World Internet Users and Population Stats the percentage of population who are willing to socialise through social network sites is approximately 10% whereas in the US this percentage is nearly 70%.

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3 Competitive environmentIn 2006, the major leaders among the social networking sites were MySpace and Facebook. tThe social networking market in USA in 2006 was dominated by MySpace, which had 75.56% of the market share, recorded growing increases during the year. There wer withe more than 40% (123 million) of all the population in the US (300 million) in 2006. that used My Space. According to ALexa Internet, My Space was the world’s fourth most popular English-language website and the third most popular website in the United States in 2006.nother emerging site was The Facebook had with 8.26% of the market share.

3.1 Content differentiationIn terms of the Cyworld offering, cyworld we have lacked in differentiateing itsthe content and the features of Cywrold US in comparison to the from its competitors.

Features Cyworld MySpace Facebook Membership Free Free Free Customisation Paid Free No

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Digital media content Yes Yes Yes Virtual gaming Yes No Yes Networking services Yes Yes Yes Community rooms Yes Yes Yes Subscription via mobile providers Yes Yes Yes Selling media/utilities Yes Yes No Anonymity No Yes Yes

3.2 MySpace

The social networking market in USA in 2006 was dominated by MySpace, which had 82% of the market share recorded growing increases during the year. There were 32% of all the internet users in the US in 2006 that used MySpace. According to ALexa Internet, MySpace was the world’s fourth most popular English-language website and the third most popular website in the United States in 2006.

The following parameters played an influential role in MySpace’s success in US market:

1. A good mix and match of social networking ingredients in the home page

2. Broader appeal to masses

3. Search is a strong indicator of brand strength

4. Appeal to the young generation

4 Market analysis of social networking industry in Korea and US

4.1 Target Segment AnalysisCyworld attempted to map the main Korean user group to an equivalent US group. In Korea users were 20-29 year-olds, whereas in the US they were 16-24 year-old girls. Although both groups share certain needs, their wants were significantly different, so uniform offering couldn’t satisfy both groups at once.

Instead Cyworld could have adapted their offering to appeal to other US market segments in the US. Boys also use social networking sites, as do 35-55 year-olds (especially MySpace). The 25-34 year-old demographic remained mostly untapped back in 2005 too.

When launching Cyworld in the US an attempt was made to map the key South Korean user group to an equivalent group in the US. For South Korea the users were 20-29 year olds of either gender, whereas in the US the target group was 16-24 year old women. Although on the surface both

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groups share certain key factors such as wanting to use social networking sites, there were far more fundamental differences than similarities. Since the Cyworld offering to both markets was virtually identical it was therefore impossible for it to satisfy both user groups at once.

An alternate strategy for Cyworld could have been to adapt their offering to appeal to a few other key market segments in the US. Boys also make significant use of social networking sites, as do 35-55 year-olds (as shown by the growth of MySpace for these users). Also, the 25-34 year-old demographic remained mostly untapped back in 2005 - the success of Facebook in doing so since then shows that there was significant potential there.

Demographic Profile of Visitors to Select Social Networking Sites in US (August, 2006)

Demographic profile Total Internet MySpace.com Facebook.com

Persons: 12 -17 9.6% 11.9% 14.0%Persons: 18-24 11.3% 18.1% 34.0%Persons: 25-34 14.5% 16.7% 8.6%Persons: 35-54 38.5% 40.6% 33.5%Persons: 55+ 18.0% 11.0% 7.6%Total audience: 100.0% 100.0% 100.0%

4.2 Online Identity and PrivacyKoreans accepted having their Cyworld profile automatically linked to their real-life identity via national security and mobile phone numbers. As a result there were very direct repercussions for online social misbehaviour. Koreans saw this as both a security feature and a social feature that guarantees pleasant social interactions.

US users don’t preferred to have the option to create a social profile with their real name or assume an entirely fictitious identity. In fact, having an anonymous profile is what US users see as both a security feature and a social feature that gives people the freedom to do or say things without direct consequences. This is borne out by research on the online disinhibition effect 1 in US users.

Forcing US users to link their profile to their national security or mobile phone number actually deterred people from joining Cyworld for these reasons. An 18 year-old girl may want to keep her relationship with an unsuitable boy secret from her parents, but may not be able to with this restriction in place. Privacy or stalking scandals at MySpace and Facebook were not sufficient to deter US users.

Cyworld could have marketed the superior privacy features of Cyworld to target markets who would have valued these attributes, examples include universities and schools where each year would want to form a closed community. With an option that anonymous accounts will be notified to other users

1 http://www-usr.rider.edu/~suler/psycyber/disinhibit.html

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as an unverified account.South Korean Cyworld users only used social networking for people that they already knew offline. Without that face-to-face relationship in the real world, South Korean users wouldn’t allow a stranger to become their ilchon (‘cyber friend’). However, US users had no qualms about being friends with people that they only knew online and had never met face-to-face. Although there were privacy or stalking scandals for MySpace and Facebook, these were not sufficient in themselves to deter US users.

This cultural attitude is even more relevant with regards to privacy. South Koreans accepted having their social networking profile linked to their real-life identity via national security and mobile phone numbers as a condition of joining Cyworld. As a result there were very direct repercussions for online social misbehaviour, and this was seen as both a security feature for Korean users, but also a selling point – that users would all behave responsibly because they are known.

US users preferred to have the option to create a social profile with their real name or assume an entirely fictitious identity. In fact, having an anonymous online profile is also seen by US users as both a security feature in preventing stalking and also as a selling point in giving people the freedom to do or say things without direct consequences. This is borne out by research on the online disinhibition effect 2 in US users.

Forcing US users to link their profile to their national security or mobile phone number actually deterred people from joining Cyworld due to the restriction on online activities that would result. An 18 year old girl in the US may want to keep her relationship with an unsuitable boy secret from her parents, but may not be able to with this restriction in place.

Although Cyworld management saw this restriction as an addition security feature that would be popular in the light of privacy scandals for MySpace and Facebook, US users may have seen the feature as a security risk when these personal details are sometimes stolen from social networking sites.

In order to circumvent these issues, Cyworld could have given US users the option to create an anonymous account or link it to a real identity. This is industry standard practice on other US social networking sites.

In addition, we could have made more attempts to market the superior privacy features of Cyworld to target markets who would have seen these attributes as significantly enhancing the value proposition. These would have primarily been various ‘closed’ networks where privacy was useful to the users. Examples include universities and schools where each year would want to form a closed community of just the students without strangers being admitted to the network.

4.3 Attitude to pricingIn addition, whereas the payment model for Cyworld was well established in Korea, in the US users expected social networking sites to be free for them, but supported by advertising instead. This 2 http://www-usr.rider.edu/~suler/psycyber/disinhibit.html

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cultural expectation further distorted the value proposition from Cyworld in the US, even before an analysis of the specific offerings of competitors.

In addition, whereas the payment model for Cyworld was well established in Korea, in the US users expected social networking sites to be free for them, but supported by advertising instead. This cultural expectation further distorted the value proposition from Cyworld in the US, even before an analysis of the specific offerings of competitors.

4.4 Graphical styleCyworld’s ‘cute’ Korean style graphics were of limited appeal to US users, who required much more individualistic ways of expressing personal style. Cyworld could have achieved greater success by allowing users to select a style for the interface and graphics that suited their lifestyle (i.e. a ‘skin’).greater flexibility to its users in customizing their ‘homies’ as per there needs. In addition, this would allow users to move between skins in response to changes in their life (e.g. Moving from a ‘mosher’ skin age 16 to a ‘raver’ skin at age 19).

4.5 PositioningCyworld US was believed to be anted to establish itself as a long-term network that people would use for many years; continually adding new content over timemany years to come. This was appealing to Korean users, but not for US consumers. . The existing social networks Facebook and MySpace positioned themselves as short-term networks based on the assumption that users will be easily switching to new networks or losing interest once their life and interests change. Being an individualistic and short-termist culture, American users generally do not perceive social sites as long-lasting in themselves.

In In the US, the longevity of a social networking site depends on the longevity of a social network itself. Whereas in Korea the target segment of 20-29 were mostly in 1 key life stage throughout this time, in the US, the 16-24 year old girl may go through 3 or more key life stages (e.g. school, college, working life). It is much less likely that her social network will remain the same throughout this period, and this factor goes someway to explaining the segmentation of social networking tools in the US by age group viz. Bebo for the 12-17 year-olds, My Space for the 18-25 year-olds, Facebook for the 25-35 year-olds, MySpace again for the 35-45 year-olds etc..

5 Decision ModellingIn order to convince users to shift to our product, it would have been necessary to succeed at all 5 stages of the commonly used Adoption Process Model. Failures in the early stages fed through to a lack of customers in the later stages.

In order to convince users to shift to our product, it would have been necessary to succeed at all 5 stages of the commonly used Adoption Process Model. In many ways this model is also a purchasing

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funnel with decreasing numbers of customers at each stage. Failures in the early stages fed through to a lack of customers in the later stages for Cyworld.

(The Adoption Process Model – adapted from Kotler et al, 2001)

5.1 Awareness stageThere was no co-ordinated advertising campaign on tv, magazines, online and other media to build brand awareness. Although broad campaigns could have been prohibitively expensive, there was a failure to seek out the key magazines, online services, blogs and tv programmes that appealed to just the key demographic. The NBC Fancy Crane tie-in was insufficient to give brand awareness to the majority of the 42 million 16-24 year-old girls in the US.

Cyworld failed to achieve either broad brand awareness across all segments or even just in our key demographic. There was no co-ordinated advertising campaign on tv, magazines, online and other media to build brand awareness. Although campaigns to build broad awareness could have been prohibitively expensive, there was a failure to seek out the key magazines, online services, blogs and tv programmes that appealed to just the key demographic. The NBC Fancy Crane tie-in was insufficient to give brand awareness to the majority of the 42 million 16-24 year-old girls in the US.

5.2 Interest stageThe next stage in the process would be to generate interest about the product in the potential user. Ideally the advertising that gave brand awareness would also generate interest in the user by making them aware of the unique selling points and positive attributes.

However, due to the lack of broad or targeted advertising and the weakness of the Cyworld value proposition for the US market, very little interest was created.

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Trial: Consumer tries new product on a small scale

October 11, 2010 CYWORLD’S SOCIAL NETWORKING GLOBAL EXPANSION STRATEGY

5.3 Evaluation stageIn the evaluation stage, the desire to actually try the product is generated. However, due to the failure of the earlier stages the flow-through to this stage was low.

If Cyworld had convinced key bloggers and opinion leaders of the value of the service, these people could have generated enormous amounts of free publicity for the service by writing positive posts and articles that would motivate users to try the product.

In the evaluation stage, the desire to actually try the product is generated. However, due to the failure of the earlier stages the flow through to this stage was low.

If Cyworld had convinced key bloggers and opinion leaders of the value of the service, these people could have generated enormous amounts of free publicity for the service by writing posts and articles extolling its virtues. These articles would have been able to outline the key features of the product in a positive way, leading to interest and a desire to trial the product.

5.4 Trial stageIn this stage the potential user actually tries the product for the first time.

The attempt to give free dotori to trial users was a useful move to get people to use it for the first time, but because the entire concept was new to the US market, it was insufficient. Tie-ins with established brands could have been a useful tactic, e.g. giving a new Dell laptop or Hummer for the best mini-homepage.In this stage the potential user actually tries the product for the first time. The market research demonstrated that over two thirds of US users had more than 3 online identities, but only 53% of users were willing to join a new site if it was compelling enough. For Cyworld the failure of the earlier stages of this process meant that it wasn’t seen as compelling to try even for this 53% of users.

The attempt to give free dotori to trial users was a useful move to get people to use it for the first time, but because the entire concept was new to the US market, it was necessary to think of innovative ways of encouraging people to trial Cyworld. Tie-ins with established brands could have been a useful tactic here, such as giving prizes of a new Dell laptop or Hummer for the best mini-homepage.

5.5 Adoption stageIn this stage the customer decides to make regular use of the product. Again, due to the failure of the preceding stages, the flow-through to this stage was minimal. Because of the lack of users there was a further negative feedback loop generated for any actual users – these adopters would stop using Cyworld if their friends didn’t join.

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To combat this Cyworld could have tried to offer these adopters dotori bonuses for every friend they recommend who starts an account or purchases their first product.

In this stage the customer decides to make regular use of the product. Again, due to the failure of the preceding stages, the flowthrough to this stage was minimal. Because of the lack of users there was a further negative feedback loop generated for the people who had actually adopted the service – if none of their friends also made the jump there was no social network for them on Cyworld and eventually they would return to other social networking sites.

To combat this Cyworld could have tried to offer these adopters dotori bonuses for every friend they recommend who starts an account or purchases their first product..

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6 ConclusionIn conclusion, it can be seen that Cyworld failed due to certain key factors. These were:

The failure to understand cultural differences between US and Korean customers

The failure to effectively market Cyworld in the US

The failure to influence the decision-making units of customers

The failure to tailor the Cyworld offering to meet the wants and desires of the target segments

The failure of Cyworld to sufficiently differentiate its product from those of the established competitors

If Cyworld were to try to enter similar markets in the future it would be important to turn each of these failures into a success using some of the detailed methods in the main body of the document.

7 Appendices

7.1 Word count (excluding references): 2013

7.2 References1. Kotler, P., Keller, K.L., Brady, M., Goodman, M. and Hansen, T. (2009) "Marketing

Management” (authorised adaptation from US 13th edition), Prentice Hall. ISBN: 978-0-273-71856-7

2. Evans, Martin, Jamal, Ahmad and Foxall, Gordon (2006) ”Consumer Behaviour”, Wiley, Chichester, ISBN: 0-470-09352-8

3. Kotler, P. & Armstrong, G., (2009) “Principles, Marketing”, Global 13th Edition, Pearson

4. “The Online Disinhibition Effect” http://www-sr.rider.edu/~suler/psycyber/disinhibit.html Suler, J. (2004), CyberPsychology and Behavior, 7, 321-326

5. “Korean Upstart In MySpace’s Face”, www.businessweek.com, November 13, 2006

6. Benjamin Joffe, Taesun Yeom, “Inside Cyworld” www.plus8star.com

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7. James Shih “Social Networking Sites Keep Their Local Flavor as They Go Global”, October 13,

2006 http://yaleglobal.yale.edu/content/social-networking-sites-keep-their-local-flavor-they-go-global

8. Christine Lagorio “MySpace Pulls Ahead In Page View Race”, July 12, 2006 http://www.cbsnews.com/

9. Donald Schön (1983) “The Reflective Practitioner”

10. “Analysis:Friendster, Facebook, MySpace, and Xanga.com have Different Audiences”, www.web2journal.com, October 9, 2006

11. LeeAnn Prescott “Searching MySpace and Its Competitors”, March 08, 2006 http://www.imediaconnection.com/content/8554.asp

12. Yang Sung-jin “Cyworld debuts on U.S. market in mid-August”, July 25, 2006 http://www.asiamedia.ucla.edu/article.asp?parentid=49829

13. Hwang Si-young “KOREA: Cyworld faces challenges in overseas expansion” December 9, 2006 http://www.asiamedia.ucla.edu/article.asp?parentid=59329

14. Erick Schonfeld “Cyworld Attacks!”, October 2, 2006 http://money.cnn.com/

15. Erick Schonfeld “Cyworld ready to attack MySpace”, July 27, 2006 http://money.cnn.com/2006/07/27/technology/cyworld0727.biz2/index.htm

16. “ Cyworld and MySpace (from CNN). Mobile User Generated content – what happens next with them?” November 29, 2006 http://wirelessfederation.com/news/

17. Song Jung-a in Seoul “Korean site tackles might of MySpace”, August 31, 2006 http://www.ft.com/cms/s/2/eacfbf3c-3938-11db-a21d-0000779e2340.html

18. Aline van Duyn “Social network sites battle to befriend US teenagers”, December 20, 2006 http://www.ft.com/cms/s/0/5f33a28e-906f-11db-a4b9-0000779e2340.html

http://www-usr.rider.edu/~suler/psycyber/disinhibit.html

8 Rebuttal Strategy

We intend to analyse the presentation of the other marketing team by first examining their process in these areas:

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Do they correctly identify issues for Cyworld in the US? Do they offer alternative courses of action that might have improved the situation? Do they interact well with their audience and give good responses to questions posed?

Similarly we will also consider the content of the presentation in more detail to check that they address key areas:

Cultural differences between the US and Korea Comparison of target market segments in the US and Korea Decision making process for users to switch to Cyworld Competitor analysis

In each area we will see if the presentation refers to appropriate marketing theories.

Each member of the team will be given an area to concentrate on so that we can each generate detailed points that can be collated into a single, comprehensive response to the presentation as our rebuttal.

The rebuttal will not only focus on areas of weakness, but also acknowledge areas of strength in the presentation, giving good feedback in the mode of the Reflective Practitioner.

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