Daangn's Path to Profitability: Navigating Challenges and Capitalizing on Opportunities in Eight Years
Daangn, a leading local community service in Korea, announced it achieved its first annual profit in eight years since its inception. This was particularly surprising and welcome news given that Daangn had been increasing its annual losses until just two years ago. The most effective factor in this turnaround was the revenue growth, which increased by 2.5 times compared to the previous year.
The reason Daangn had been incurring losses was quite different from commerce platforms like Coupang and Kurly. While commerce companies quickly grow their revenue through product sales, they often suffer chronic losses due to heavy cost structures.
However, Daangn's main issue was not cost management but the lack of a stable 'revenue source', a common problem for community services. This is evident from the fact that Daangn removed 'market' from its name.
Looking at Daangn's 2023 consolidated financial statements, personnel expenses (employee salaries: 49.25 billion won) and payment fees (50.51 billion won) combined account for 77.4% of the total operating expenses (128.89 billion won). Payment fees are likely related to service infrastructure costs, indicating that most of Daangn's expenses are used to maintain the community.
Explosive Revenue Growth Figures
Daangn surpassed the 100 billion won mark in annual sales for the first time, enabling it to cover platform operating costs. An interesting point here is that this revenue growth occurred even as Daangn's MAU (Monthly Active Users) decreased.
MAU is a metric showing the number of users who visit the service at least once a month, usually indicating the customer base of a specific service. Thus, the decrease in Daangn's MAU suggests a stagnation in service growth. This was an inevitable phenomenon, especially as interest in second-hand trading diminished after reopening.
However, Daangn transformed into a local community service, not just a second-hand trading platform, and made various efforts to create new traffic channels. It expanded its realm into various areas like community service 'Neighborhood Life', part-time jobs, real estate, and used cars.
While some users left, the engagement of the remaining users significantly increased. Consequently, the stickiness ratio (DAU/MAU) and average user time also increased.
Despite the decrease in user numbers, the total annual usage time of the Daangn app in 2023 increased by 12.7% compared to the previous year. Since 99% of Daangn's revenue comes from advertising, and advertising revenue depends on user retention time, this directly contributed to overall revenue growth.
Advertising Business Growth Strategy
However, these factors alone cannot fully explain last year's substantial growth in advertising revenue. Daangn's efforts to strengthen its advertising business, which began in 2022, played a significant role.
Daangn focused on local-based advertising, making it crucial to quickly onboard local stores. By the end of last year, the number of stores operating a business profile increased by 37% to 850,000.
More crucially, the usage of business profiles skyrocketed to 1.6 billion, a 2.3-fold increase. This indicates not only an increase in the number of stores but also a significant increase in interactions with users.
Realizing the gathering crowd on Daangn, store owners found it easy to create advertisements. Consequently, the number of advertisers and the cost per advertisement both increased significantly compared to the previous year.
Additionally, creating brand profiles and expert modes, enabling large advertisers to enter, positively impacted the rapid growth of advertising revenue. By securing significant advertisements from large corporate customers and quickly activating ad spaces, with local stores filling the remaining spaces, Daangn created an ideal scenario.
As a result, Daangn's advertising revenue per hour in 2023 reached 286.8 won, more than double the previous year's figure (126.3 won) and over 100 won higher than KakaoTalk's fourth-quarter revenue per hour in 2023 (182.7 won). Despite not having a single large banner ad, Daangn's strategy of maximizing ad revenue through extreme segmentation of usage time was successful.
Despite Two Concerning Factors
However, it's too early to conclude that Daangn has overcome all challenges. The fact that this year's profit was barely achieved by halving the marketing expenses along with increased revenue played a significant role. Daangn's advertising and promotion costs in 2023 were 13.56 billion won, a 48% decrease from the previous year (26.25 billion won).
While the advertising business grew tremendously, it barely covered the minimum operating costs. To invest in future growth, Daangn needs to generate even greater profits.
Daangn's corporate value, estimated at 3 trillion won, also presents a challenge. To justify this value, Daangn must generate revenue in the hundreds of billions of won. However, achieving this solely through advertising, especially when platform growth has plateaued, is virtually impossible without additional revenue models.
Establishing a stable revenue structure for a pure community service has always been challenging. For instance, Reddit, the world's largest community service that recently went public, is still struggling with chronic losses.
Even with sufficient revenue and profits, relying solely on advertising is not ideal. Like Meta, businesses can be vulnerable to fluctuations in the advertising market. That's why platforms like X (formerly Twitter) and YouTube are focusing on subscription models.
Global Expansion and New Business Ventures
To overcome these challenges, Daangn is preparing two new directions. First, it's accelerating its international expansion to continue growing its user base.
Last year, Daangn achieved a surplus in its individual financial statements but recorded a loss on a consolidated basis, including its subsidiaries. Notably, the losses in its Canadian (7.4 billion won) and Japanese (3.2 billion won) subsidiaries increased significantly. However, as these investments grow, both Canada and Japan are seeing their MAUs triple compared to the previous year, which is promising.
Additionally, Daangn's recruitment page indicates that it is forming a new business pickup team under the direct supervision of the CSO. This service, where Daangn users can pick up items they've ordered from local stores, seems like a smart choice as it leverages the existing local strengths while minimizing infrastructure investment.
Currently, Daangn only collects a 3.3% transaction fee from transactions made through business profiles. If the pickup service can be expanded and a fee applied, it could be a significant revenue solution.
Moreover, the expertise gained here can be applied to overseas subsidiaries. Thus, it's worth closely monitoring how Daangn's pickup service will be planned and implemented in the coming period.
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