1 Internet users

24.4 million (56.6% of the Korean population) Koreans who are older than 7 years old use the Internet more than once a month on average (December 2001). This is a 12 percent increase (5.3 million Koreans) from last year when only 19 million Koreans used the Internet more than once a month. However, between September and December in 2001, only 260,000 more Koreans logged onto the Internet at least once a month regularly. The statistics show that the adoption rate of the Internet is slowing down. The reason that the Internet adoption rate is decreasing is mainly due to the fact that nearly all of the student population (middle school, high school, and college students) log onto the Internet regularly. Beginning from 1999, the student population rapidly adopted the Internet. Internet users in their 20s and 30s have also reached a high level of Internet usage and currently their Internet adoption rate has leveled off.

2 Demographic Characteristics of Internet Usage

■ By Gender

In December 2001, 63% of Korean males used the Internet and 50.2% of Korean females regularly logged on to the Internet. The total number of male Internet users is 13.54 million, which is 2.7 million more users than Internet users who are female. After analyzing the Internet usage by gender, the statistics show that Korean females are adopting the Internet at a faster rate than Korean males. Thus, the male and female ratio of Internet users will gradually become more even.

■ By Age

At the end of 2001, surveys showed that 93.3% (8.4 million) of Koreans aged between 7 and 19 uses the Internet. In a comparison of all age groups, the 7~19-age group showed the highest Internet usage. The age groups with the next highest rate of Internet usage were Koreans aged between 20 and 29. 84.6% of them used the Internet regularly totaling 7.08 million users.

■ By Region

In December 2001, a survey of the rate of Internet usage by region showed that 64.5% of the population in Gyeonggi used the Internet making it the region with the highest usage rate. After Gyeonggi, Ulsan was the next highest with 63.9% of its population logging on to the Internet and then Seoul came in third with 63.4%.

■ By Occupation

A survey of Internet usage by occupation showed that nearly all-Korean students use the Internet with 95% of all students responding that they use the Internet regularly. 83.9% of highly skilled professionals and business executives use the Internet regularly followed by office workers with 83.3%.

■ By Income level

70.4% of families with an income of more than 2.5 million won a month use the Internet regularly. 61% of families who earn between 1.5 million to 2.5 million won use the Internet on a regular basis. Only 36.8% of families that earn less than 1.5 million won a month use the Internet. Families in the less-than-1.5 million-won income bracket showed little growth in Internet usage compared to the previous year. On the other hand, there was a 10% increase of Internet usage in families with an income over 1.5 million won a month

3 Pattern of Internet Usage

■ The Frequency of Internet Usage

62.4 percent of Internet users replied that they use the Internet at least once a day. The frequency that people log onto the Internet is increasing.

Digital Contents

1 Portal / Community Sites

In 2001, the growth of community based portal sites as well as the existing portal sites was prominent. Freechal, Sayclub, Skylove, and Damoim secured relatively stable profits through charged contents based on communities formed with loyal users.

In the case of large portal sites, educational contents and entertainment contents (cinema, cartoons, horoscope, mobile phone rings, etc.) make up the majority of charged contents. Yahoo Korea is concentrating on webcasting services, while Lycos Korea is strengthening its entertainment business by acquiring the music site Getmusic while focusing on cartoons, webcasting services, and Internet movies. Naver has also succeeded in charged entertainment business by unifying Hangame. In addition Daum has implemented andOnline Postage’form of charged service as of the latter half of 2001 for commercial group mails with more than 1,000 addresses.

In 2001, large portal sites such as Daum Communications, Yahoo Korea, and Lycos Korea surfaced as profit makers in e-Commerce. In the case of Daum, the e-Commerce sales figure has surpassed that of advertisement, and is steadily growing at 20∼30% every month.

2 Entertainments

▶ Games

The game market is marked by the steady growth of PC Bangs in addition to the growth rate of PC telecommunication and online games. Korean makers of online games are growing as a large-scale market with potential to advance overseas. Korean online game companies NC Soft, ACTOZ Soft, JC Entertainment are advancing into foreign markets such as the US, Japan, and Taiwan. The online game market in 2001 recorded over a 50% growth from 2000 thanks to sales increase of Lineage and successful charged service of Hangame and Fortress 2 Plus. In the area of mobile games, few companies recorded monthly sales over 100 million won as a result of charging subscribers for downloading games and introducing innovative mobile game platforms in 2001, unleashing the market’s potential.

E-Commerce

The Korean e-Commerce market size had already surpassed 57 trillion won in 2000. Through the first three quarters of 2001, the total e-Commerce market size was 82.774 trillion won with 24.263 trillion won in the first quarter, 26.645 trillion won in the second quarter, and 31.866 trillion won in the third. The B2B market in which corporations purchase and sell products (services) composed 52.3 trillion won, and the B2C market in which is private e-Commerce such Internet shopping malls and auctions composed a relatively small 733.7 billion won.

1 B2C

The total number of Internet shopping malls as of the end of 2001 is 2166, a 15% increase from 1900 at the end of 2000. The B2C transactions among total Internet shopping sales increased 23.8% in the fourth quarter of 2001 at 811.4 billion won as compared to 655.6 billion won in the third quarter, and the total sales figure looks to surpass 2 trillion won.

The increase in the number of online shopping malls in Korea is slowing down each quarter. In examining the change in sales from the second to third quarter of 2001, the increase rates of online shopping malls are higher than those of retailers doing both online and offline sales. As a result, the competition for existing small and mid sized online exclusive shopping malls looks to be intense.

Books were the most popular goods purchased online making up 19.3%, and computers/ hardware/accessories, and home appliances were next on the list. The notable point in 2001 was that the purchases of books and computer-related products decreased whereas cosmetics and leisure products, which had little purchase experience in the past, showed an increase. This can be seen as result of the introduction of department store style shopping malls and the expansion of consumers’ interests, which looks to be a positive influence in the balanced growth of Internet shopping malls.

2 Financing Services

▶ Internet Banking

The number of Internet banking users surpassed 10 million near the end of 2001. The majority of Korean banks offer Internet banking services such as checking the balance of bank accounts and giving loans to corporations. Especially, some banks are providing high quality financing services such as B2B electronic payment, mail banking, and e-CRM. Meanwhile, subsequent to the wide popularization of cellular phones and PDA’s, 18 out of 20 domestic banks are offering mobile banking services.

In September 2001, the number of Internet banking users registered to the 20 domestic banks, Citibank, and the Post Office was 8.95 million, which was more than double the number at the end of 2000. Additionally, the number of corporations using Internet banking was 302,000 in September 2001, an increase of 128% from June of the same year. Internet banking-related investments made by domestic banks are drastically escalating each year and this trend is predicted to continue for some time. Communications will die out or switch over

Mobile Internet Business

In the second year of the introduction of mobile Internet services by mobile carriers, subscribers to mobile Internet services has grown tremendously and many kinds of services have been introduced. Venture companies have rushed into the market to provide mobile content and a few have entered foreign markets. Subscribers to mobile Internet services have increased rapidly and the profit model of content providers has turned profitable. Most of the websites and content providers charge members a fee and have introduced a “packet”fee system where the fee for data services is fairly divided 9:1 with mobile carriers.

1 Market Conditions and Trends

From October 2001 until the present, the subscriber base in Korea for mobile Internet services has reached 23 million. 81% of mobile phone subscribers have access to mobile Internet services. This is a 20% increase from last year when there were 16 million subscribers to mobile Internet services (59%) of all mobile phone subscribers.

Considering the number of subscribers to mobile Internet services, the actual usage of the services is very low. However, the revenue from mobile Internet services has grown from 78.3 billion won in 2000 to 170.4 billion won in October 2001. The revenue from data services has grown from 13.7 billion won in 2000 to 34.4 billion won in October 2001. The market potential of digital content for mobile Internet services is very high. The number of digital content providing companies for mobile Internet services has increased from 122 registered companies in 2000 to 378 registered companies in October 2001.

In February 2001, SK Telecom had 47% of all mobile Internet subscribers among mobile carriers. KT Freetel had 24% and LG Telecom had 25% of the market, while Korea Telecom m.Com had 4%. In regard of the market projections of m- Commerce, the number of subscribers to m- Commerce in 2000 was 1 million comprising only 3% of all mobile service subscribers but will steadily increase to 45% of all mobile service subscribers by 2005 (19 million subscribers). In the B2B market of m-Commerce, the market will grow to more than 4.3 million subscribers while the B2C market will grow to 15.6 million subscribers. The size of the B2B market is catching up to the B2C market.

2 Mobile Internet Digital Content

Among the digital content available to domestic mobile Internet subscribers, 73% of all respondents said that downloading background screen images and ring tones were their main activity. This is the most common activity among subscribers. 38.8% of all respondents mainly played games over the mobile Internet while 34.4% used e-mail the most. 27.2% said they either read news, sports news or weather reports while 26.4% replied that reading horoscopes, novels, jokes. In comparing the most popular content among mobile and wired Internet services, location information, news, sports, weather reports, downloading background screen images and ring tones were the most popular. More subscribers to mobile Internet services downloaded content than wired Internet subscribers. Subscribers to wire Internet services used Internet banking services, shopped for goods, chatted, participated in communities, sent e-mails, or searched for information. More people used wired Internet services for e-Commerce and searching for information.

Meanwhile, the IMT 2000 service, a future mobile communication technology, will be offered in 2002 or 2003 and allow high-speed packet transmission enabling full-scale mobile Internet services.