Ajungdang CEO Lee Dong-yeol on How to Make Money in Regulated Industries

Two-sided market platforms must choose whether to impose commissions on suppliers or consumers. For example, delivery apps charge delivery fees to consumers and brokerage fees to self-employed business owners, thus charging both sides. The outsourcing and commission system varies depending on the industry's characteristics.

Ajungdang CEO Kim Min-ki exited by selling his stake to MBK Partners. He used the proceeds to purchase the 100 billion won Aetreno Cheongdam and Hakdong Intersection building, with most of his portfolio consisting of real estate.

Ajungdang showed remarkable performance, with its sales rapidly growing from 6 billion won to 210 billion won. This is the result of its successful entry into regulated industries, such as telecommunications and insurance, where price comparison is difficult. Ajungdang successfully attracted customers by receiving sales commissions from manufacturers and returning benefits to consumers.

Academics critically view that the benefit of consumers who diligently search for lower prices comes from the payment costs of other consumers who lack information. In telecommunications and insurance, information is asymmetrical and comparison is difficult, making it advantageous for sales consignment platforms to take high margins. As a result, consumers who pay higher costs end up subsidizing the benefits of those who buy cheaper.

When companies decide on outsourced sales, the customer lifetime value (LTV) calculation must be clear. If a telecommunications fee is set at 30,000 won per month for a 2-3 year contract, LTV calculation is easy. Moreover, industries with long sales cost recovery periods and those requiring continuous management are more advantageous for outsourced sales, offering benefits like converting fixed costs to variable costs and easy measurement of sales performance.

If a platform possesses overwhelming competitiveness, a structure where it collects fees from both sides is possible. Early-stage platforms may also use a free commission strategy to establish themselves in the market. However, in markets where customer churn is easy, a competition to lower commissions on both sides can occur.

For sides with high loyalty, a strategy of imposing higher fees is effective. It is important to strike a balance between providing appropriate benefits and securing profits. The key is where to levy the commission, rather than just the total amount.

The Independent Financial Advisor (IFA) model, which charges consumers directly, was introduced in Korea but failed. This is analyzed to be due to the complexity of insurance products, issues of consumer trust, and difficulties in structural change.

The General Agency (GA) market for insurance is very large, with the combined sales of over 70 general agencies reaching 18 trillion won. They compare and sell various products from primary insurers like Samsung Life, operating a business model that charges no fees to consumers but obtains commissions from suppliers.

A successful business model in regulated industries is to provide consumers with lower prices without charging them fees. At the same time, it secures sales commissions by inducing competition among suppliers. This allows platforms like the General Agency (GA) market to grow through variable cost-focused fixed cost reduction.

Questions are raised about whether the prices offered by Ajungdang are truly the lowest. In information-asymmetric markets where consumers find it difficult to know the cost structure, it is hard to conclude that a price including supplier commissions is the lowest.

Optimism that platform information disclosure will lower prices clashes with criticism that it will strengthen monopolies and demand higher fees. Arguments diverge, with some claiming that the spread of platforms like Ajungdang will transparently disclose information and lead to an overall price decrease, while others contend that platforms will strengthen their market dominance and eventually impose high fees.

Platform companies argue that it is more effective to charge one side heavily and provide substantial benefits to the other, rather than collecting ambiguous fees from both. While acknowledging this principle of platform growth through one-sided subsidization, they also warn that excessive government intervention due to competition could collapse the entire market. In essence, they advocate for an appropriate level of regulation to allow for autonomous market growth.

CEO Lee Dong-yeol advises that a strategy of concentrating charges on one side, rather than earning ambiguous profits from both, is more advantageous for profit maximization. For example, by raising advertising rates and offering free consumer usage, competitiveness can be secured. Platform companies must carefully consider the balance of power between suppliers and consumers when allocating fees.

Being an early entrant does not guarantee long-term success; market dominance is crucial, as seen in the Joonggonara case. In a 'multi-homing' environment where consumers freely switch between platforms, it is difficult to achieve exclusive competitiveness. Therefore, platform success depends on how much information monopoly and market dominance can be secured.

Platforms utilize a 'dynamic pricing' strategy that changes prices in real-time based on access frequency or market conditions. They can optimize profits by flexibly adjusting coupons or commission rates to match the situations of consumers and suppliers. Examples of this dynamic pricing include surge pricing on delivery apps during rain and real-time price adjustments in e-commerce.