Stock-swap deal highlights how legacy internet platforms are adapting to the AI era
Upstage has taken a decisive step toward acquiring Daum, as Kakao Corp. pushes ahead with plans to exit the traditional portal business and refocus on artificial intelligence. The proposed transaction, structured as a stock swap, would mark a notable change in South Korea’s internet landscape nearly a decade after Kakao’s landmark merger with Daum.
Upstage and Kakao said on Thursday that their boards had cleared a memorandum of understanding for a share-swap deal. As part of the arrangement, Kakao will hand over its ownership in AXZ, the entity that runs Daum, to Upstage, and will instead take a stake in the AI startup. AXZ is currently fully owned by Kakao, while key terms such as valuation, exchange ratios, and the completion schedule will be determined following due diligence and a final agreement.
The deal is widely viewed as symbolic for Korea’s internet industry. Founded in 1995 by Lee Jae-woong, Daum is often described as the country’s first internet portal. It played a formative role in shaping Korea’s online culture through services such as Hanmail, which helped popularize email, and Daum Cafe, which became a cornerstone of online communities.
However, Daum’s influence faded as the market shifted toward mobile-first services and, more recently, AI-driven platforms. Although the 2014 merger with Kakao created one of Korea’s largest IT groups, Daum struggled to regain momentum in an environment increasingly dominated by messaging apps, mobile search, and personalized AI services.
Kakao’s gradual exit from the portal business
In recent years, Kakao has steadily reduced its exposure to non-core businesses. The company spun off Daum’s operations in 2023 and later reorganized them under AXZ as part of a broader effort to simplify its corporate structure and concentrate on key growth engines.
The planned transfer of AXZ to Upstage would mark Daum’s first full separation from Kakao in more than 10 years. For Kakao, the equity swap allows it to streamline its portfolio while maintaining a stake in a growing AI company, rather than making a clean exit through a traditional sale.
Industry observers see the move as consistent with Kakao’s broader strategy of pursuing AI competitiveness through partnerships and selective investments, rather than relying only on in-house model development.
What Upstage gains from Daum
For Upstage, the acquisition offers something rare for an AI startup: access to a large, established consumer platform. The company plans to deploy its large language model, Solar, across Daum’s services, using decades of Korean-language data accumulated from news articles, blogs, and community posts.
This combination of proprietary AI technology and long-running user-generated content could help Upstage accelerate model training and develop AI services aimed at mass public use, rather than enterprise-only applications. The company is also widely seen as preparing for a potential initial public offering later this year, with the Daum deal expected to strengthen its growth narrative.
Implications for Korea’s AI ecosystem
The transaction could also bolster Upstage’s position in government-led AI initiatives. The company has already passed the first round of a national project to develop a homegrown AI foundation model, alongside firms such as SK Telecom and LG AI Research. Analysts say access to Daum’s platforms and data could improve its standing in later stages, where real-world deployment and proprietary models carry significant weight.
Upstage plans to collaborate with consortium partners including MakinaRocks, Vuno, Finda, and the Korea Electronics Technology Institute to expand AI applications across:
- Manufacturing
- Health care
- Finance
- Public services
- Search and portal services
This could eventually place Upstage in direct competition with AI-powered search offerings from rivals such as Naver and Google, but using its own Solar model rather than third-party technology.
Strategic alignment, not just an asset sale
Executives on both sides have emphasized that the deal is about long-term alignment rather than a simple transfer of assets. Kakao retains exposure to AI growth through its stake in Upstage, while Upstage gains scale and visibility through Daum’s nationwide user base.
“By combining Upstage’s AI technology with Daum’s user base, we can create an environment where more people naturally use AI in their daily lives,” said Sung Kim, co-founder and chief executive of Upstage.
If completed, the transaction could serve as a case study in how legacy internet platforms and next-generation AI startups reposition themselves amid rapid technological change—blending established reach with emerging AI capabilities rather than treating them as separate paths.
