Datacenter fire temporarily cripples South Korean web giants, sparking monopoly concerns

Daniel Sims

Posts: 1,366   +43
Why it matters: A data center fire is raising concerns that South Korea's domestic web industry has too many of its eggs in one basket. The incident was so disruptive for the country that its president called for an investigation into the cause, questioning whether too much of South Korea's infrastructure depends on a handful of companies.

A fire at a single data center in South Korea caused an outage disabling chat and other web-based services for 90 percent of the population over the weekend. The seemingly small accident caused so much damage because two of the nation's most important tech companies relied on the data center.

The biggest problem was with Kakao, a service that handles chat, online payments, ride-hailing, gaming, log-in verification, retail, and other services. Around 90 percent of South Korea's population uses Kakao, depending on its services' constant availability. Many other businesses use Kakao for their backend infrastructure.

Despite Kakao's importance, the company doesn't have its own data centers. Until they're ready next year, it's dependent on SK C&C – the company that owns the data center in Pangyo (just south of the South Korean capital Seol) where the fire occurred. Because Kakao had no off-site backups, it took at least a day to restore important services for users and businesses across the country.

Responding to the incident, South Korean president Yoon Suk-yeol said Kakao is "no different from the national communication network." Yoon ordered an investigation into the fire and the formulation of plans to prevent similar problems in the future, suggesting South Korea's web services may represent a harmful monopoly or oligopoly.

The fire at SK C&C's data center also affected another company, Naver, though not as badly. Like Kakao, Naver is a centrally important vendor for various functions like search, news, and e-commerce for South Koreans. However, Naver already has a data center (along with another going up next year) and used a backup to restore service within hours of the outage.

The outage hurt not only South Korean web services but also the shares of the companies involved. On Monday, Kakao initially lost 9% of its shares before closing at a 6% loss, while its subsidiaries fell 7%. Meanwhile, SK C&C's parent company – SK Inc – dropped just 4%. Having faced a much shorter disruption, Naver only initially suffered a 2% loss which closed at a 0.91% gain.

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If it takes a fire to spark monopoly concerns, it's already too late. Monopoly concerns should be realised LONG before a monopoly exists. The problem with us is that we in the West were so concerned with monopolies, we didn't stop to think about how oligopolies aren't really any better.