Kakao data centre fire increases government scrutiny

A fire at the Kakao data centre interrupted services across messaging, payment, gaming, and other popular applications for the South Korean company.

The fire prevented more than 47 million South Korean users from accessing KakaoTalk messaging for several hours, highlighting the country’s dependence on Kakao services and resulting in the resignation of the company’s co-CEO.

South Korean President Yoon Suk Yeol called for an investigation into the cause of the incident and promising to support recovery of Kakao operations with governmental resources. However, he did address the fact that Kakao’s market dominance means that an outage has an outsized effect on the population as a whole.

“Although the network is run by a private company, it’s practically national communications infrastructure. If a monopoly or an oligopoly causes market distortions and acts like national infrastructure, I think the government should take action,” he told reporters.

Additionally, the president’s office has tasked the government’s national security director to establish a cybersecurity taskforce to investigate Kakao, as the fire and subsequent outage amounted to “a matter of national security.”

Kakao users are reportedly considering filing a lawsuit against Kakao for not having an effective disaster recovery plan in place. A South Korean lawyer from the firm LKB & Partners explained that although Kakao offers free services, they are not exempt from liability for damages.

The company announced compensation plans for users that suffered from the service interruption, including extending the use of paid service contracts. The slow recovery process, which has extended over several days for some services, was apparently caused in part by the company’s lack of owned data centre facilities and compounded by the absence of an effective disaster recovery plan.

Kakao CEO said that the company plans to invest $300 million USD and build its own data centre facility within the next year.

Kakao has been under regulatory scrutiny as its exponential growth over the past few years led to complaints that it was an effective monopoly in South Korea. In less than two years, the company released IPOs for three subsidiaries: Kakao Games, Kakao Bank, and Kakao Pay. This activity led to Kakao becoming one of the best-performing stocks of 2021. SInce then, however, the company has been rocked by scandals – leading to the resignation of billionaire founder Brian Kim and causing company stocks to drop by over 50 percent as of October 2022.