[Newsmaker] Naver steps up attack on Google

Naver, the operator of South Korea’s largest portal website and online search engine, has officially called on Google to openly discuss its practices and activities in the Korean market, raising the stakes in an escalating war of words between the two internet giants.

Naver CEO Han Seong-sook on Thursday released a lengthy statement laying out point-by-point the company’s stance on a number of issues it had raised against its rival Google including taxes, employment, traffic costs and search and ad systems.

Critics perceive the move as a strategy by Naver to downplay its wrongdoings and shift attention to its foreign rival.

Last week, Naver was grilled during a parliamentary audit over a confirmed case of news manipulation and its uncontested monopoly over the Korean internet ecosystem as the main portal where most Koreans get their news.

Before wrapping up the audit, Naver’s founder and former Chairman Lee Hae-jin pleaded to lawmakers that internet service providers, both global and local, should be competing on a level playing field under equal regulations.

In making his point, he had accused foreign players like Google and Facebook of raking in huge profits in Korea without paying taxes, creating jobs or paying for web traffic costs. Lee had also claimed that Google, like Naver, suffers from “ad network abusing” in which ads, rather than information, end up being placed on the top of a search result page.

Google struck back at Naver, claiming that it pays its due taxes in Korea, contributes to job creation and that its search results are 100 percent dictated by its automated algorithms and free of financial or political pressure.

In a stepped-up attack, Naver has now called on Google to speak up on several issues, detailing its points across seven pages.

Naver asserts that Google should publicly disclose how much revenue it generates in Korea as well as the amount of taxes it pays here.

Most foreign companies with offices in Korea have faced flak for not revealing how much money they make in Korea, with domestic companies claiming this situation is unjust.

Google and many other foreign firms currently operate in Korea in the form of limited liability companies, or LLCs, which are not required to publicly disclose fiscal information including annual revenues and operating profits made in Korea as well as dividends and royalties paid to their headquarters.

Naver highlighted that Google rakes in immense profits worldwide, including in Korea, with core businesses including the Android smartphone operating system, Google Play app market, search engine and video platform YouTube.

The Korean portal website operator wants Google to reveal concrete numbers -- its revenue and corporate taxes paid -- in Korea to put the controversy to rest for good.

Google Korea previously said that it “follows the laws and pays all applicable taxes in Korea. Information on Google Korea’s revenue and profit is regularly reported to the Korean tax authority. The Korean tax authority has already completed an audit of Google Korea and found that the company is in compliance.”

Naver also says Google may not be contributing enough to job creation here, claiming the number of people it employs may be disproportionate to the revenue it generates in Korea.

It claimed that in 2006, Google Korea was awarded by the Korean government $1.2 million for hiring more local R&D staff and expanding investment over the course of two years, but that it has faced controversy over execution.

The firm asked Google to reveal the details of its employment in Korea, including how many people it employs for what type of roles. Naver also said Google should provide more concrete figures detailing the extent of its social contribution.

Naver also suggested that Google should be held accountable for paying Korean mobile carriers for the massive web traffic generated by its data-heavy services like YouTube and the Google Play app store.

Web traffic costs is currently an issue in Korea’s internet business sector. Right now, Facebook and Korean network provider SK Broadband are in dispute over who should pay for the costs of building and maintaining a cache server that can diffuse the heavy traffic generated by Facebook’s services here.

Naver continued to problematize Google Korea’s assertion that it is completely shielded from external efforts to abuse its web search advertising system, citing examples of firms that specialize in “search engine optimization” on Google.

During last week’s parliamentary audit, Naver was accused of false advertising and displaying nonrelevant ads, rather than the requested information, to users on its website.

Naver had claimed Google has similar problems, but that it tends to draw less spotlight because Google is a minor player in the Korean search engine market -- a point that Google denied.

Google Korea did not provide an official comment on this issue.

Another point that was raised was Google Korea’s claim that its search results are 100 percent based on its automated algorithms.

Naver stressed that it also relies entirely on algorithms in displaying its search results.

In the future, both Naver and Google should be required to publicize how they handle inappropriate or illegal content, including their filtering algorithms and official response systems, Naver said.

Naver also raised doubts over Google’s claim that its search algorithms are completely free of “financial influences,” saying that the US search engine is a pioneer of the web search ad model.

“We’d like to ask Google, a company which is well-versed in the web search ad business model, whether such results are entirely free of financial compensation and entirely based on ‘algorithms,’” it said.

Naver also problematized Google’s claim that it is free of political influences, claiming that it is spending tens of millions of dollars on lobbying the US government in what it says is a move to secure its independence and identity as a search engine.

Google Korea declined to comment on Naver’s statements Thursday.

By Sohn Ji-young (jys@heraldcorp.com)