A Kakao Taxi vehicle in Seoul on Feb. 24, 2022. [YONHAP]

 
President Yoon Suk Yeol’s call for Kakao Mobility to revamp its commission structure has sparked debate over the company’s business practices.
 
Critics accuse the taxi-hailing service of abusing its virtual monopoly to generate excessive profits, while defenders argue that it has been merely taking advantage of market conditions.
 
Kakao Mobility, an affiliate of Korea’s IT giant Kakao and the No. 1 ride-hailing app in the country, announced Wednesday that it will host an emergency meeting with taxi drivers to “roll out a complete overhaul of our commission system.”
 
This came after Yoon criticized the company for being “unethical” at a town hall meeting with some 60 people earlier that day.
 
“[Kakao Mobility] is wiping out competitors by collecting cheaper fees, and then when it monopolizes the market, it jacks up the price,” Yoon said. “The government should enforce a crackdown on such an immoral corporate structure.”
 
Kakao created the taxi-hailing app Kakao Taxi in March 2015 to conveniently digitalize the market for consumers and taxi drivers. Kakao Mobility was founded in 2017 and took charge of the platform.
 
When the app first appeared, it was free for all and an eye-opening innovation that demonstrated the power of smartphones to make getting around easier.
 
Monetization proved tricky at first. Taxi drivers reacted sensitively to Kakao’s attempts to charge commissions since the government set taxi fees.

 
The breakthrough came in 2019 with the creation of a new franchise taxi business, “Kakao T Blue.” Kakao Mobility received commission fees from app users and taxi drivers, with users guaranteed a ride if drivers were within range.
 
Within the cab-hailing industry, Kakao Mobility accounts for 94.46 percent of the total market, according to the Fair Trade Commission in 2021. About 85 percent out of some 60,000 franchise taxis are under Kakao Mobility, according to data from the Ministry of Land, Infrastructure and Transport in October. Second-place taxi-hailing service UT follows with 5,373 franchise taxis.
 
KM Solutions, a subsidiary of Kakao Mobility under which franchise taxi drivers are registered, receives 20 percent of the fare revenue from the cab operators in return for providing its car dispatching platform, device maintenance and regular quality management of franchise services. The fare revenues are then transferred to Kakao Mobility, which pays 15 to 17 percent of the fare revenue to its franchise taxi drivers for their services, including the sharing of driving data.
 
Taxi drivers argue that Kakao Mobility’s commission fees of between 3 and 5 percent are higher than usual. For instance, UT charges a 2.5 percent commission fee. Due to Kakao Mobility’s market dominance, however, taxi drivers feel they cannot move to a different platform.
 
High commission fees and preferential treatment of its franchise taxi drivers are long-withstanding problems for the ride-hailing service.
 
Daegu’s city government reported the company to the antitrust regulator in August for charging commission fees from franchise cab drivers for fares earned without the service, including people simply hailing the cab from the side of the road. Daegu runs its own cab-hailing app, dubbed “Daegu-ro Taxi,” and nearly all franchise cab drivers are registered with the service.  
 
Although the drivers have asked Kakao Mobility to reform its commission structure as they are double-charged for using Kakao Taxi and Daegu-ro Taxi, the company refused, claiming that the charged fees are part of the package for other services. The Fair Trade Commission (FTC) is currently investigating the report.
 
The FTC also slapped a 25.7-billion-won ($19.63-million) fine on the company for favoring its franchise taxis by manipulating ride dispatch algorithms in February. Under the algorithm, the favored taxis received more calls regardless of the distance and excluded them from less profitable requests, such as rides of less than 1 kilometer.
 
Kakao Mobility’s market supremacy has translated into rising annual earnings. The company accumulated a 53.9-billion-won deficit between 2017 and 2019 before going into the black in 2021. Annual revenue jumped 156.93 percent to 719.4 billion won in 2022 compared to 2020’s 280 billion won.
 
Kakao Mobility plans to meet with taxi associations as soon as possible. The taxi unions plan to demand lower commission rates.
 
“We have continuously asked the company to cut the commission fee, but it refused even to discuss the matter,” said Lee Yang-deok, head of the Korea National Joint Conference of Taxi Association.
 
Kang Shin-pyo, the head of the taxi union under the Federation of Korean Trade Unions, pointed out that the commission fees for franchise taxis was “inconsistent” and “full of problems.”
 
Some critics blame the government for Kakao Mobility’s monopoly, accusing the state of killing the company’s competitors.
 
Whenever new mobility services such as Uber or Tada tried to enter the market, the government blocked them by revising laws, leaving Kakao Mobility the market leader.
 
With Yoon criticizing platform commission fees as “exploitive,” other platform operators in food delivery, ecommerce and real estate are on red alert.
 
“Platform businesses, universally, adopt a winner-takes-all strategy and are often criticized for their monopoly positions,” said an anonymous insider from the platform sector. “I am worried that the government will try to resolve the matter by tackling each enterprise instead of finding a way to stimulate market competition.”
 

BY PARK MIN-JE [lee.jaelim@joongang.co.kr]