Seoul Searching2009.05.08 12:45

Korea has a barter economy disguised as free movies, air miles, or sometimes shiny new gadgets
I always knew that multiplex theaters have long had a special relationship with credit card companies in Korea. What I didn't know is that theater goers need to look up a giant index map plastered on the box office to navigate the labyrinth of perks and benefits permitted to them by card companies. 

Hundreds of credit card companies and local wireless carriers now provide their loyal customers with free movies or discounts at local theaters, ticket vendors often have to flip through a thick index book before they can issue a ticket. 

Welcome to the land of "freeconomics" that is Korea, where people pay points, miles and "eyeballs" -- instead of cash -- and answer survey questions to get almost anything in the market. If you've paid a full price for movies, musicals or concerts here, chances are you are either a foreign visitor or your credit card has been suspended recently. 

Bonus points, air miles, rewards and other various perks have been favorite promotional tools for many credit card companies the world over in attracting new customers, but its use -- or overuse for that matter -- has never been this pervasive anywhere. Ask anyone you meet in the streets of Seoul to show you his or her wallet, you will probably find in them at least 10 different cards, each strung with distinct benefits promised by the partners. 

"US card companies usually pay back about 1 percent of sales amount as bonus points whenever their customers shop in the affiliated stores," an executive of Korean credit loan association says. "Not a tiny rate for sure, but the actual points paid back to the customers is much smaller than in Korea due to the limited number of partnered brands." 

Korean credit cards are usually affiliated with more than 10 local brands per card, making it much easier for the companies to offer free gifts, discounts and other co-promotion deals. American cards, on the contrary, have at most two or three partners on offer and are mostly focused on providing air miles or fuel discounts at gas stations.

The flip side of this crazy Korean freeconomics fueled by credit cards is that customers are in reality narrowing their shopping options in the market, in return for these perks and freebies. Think of the famed channel management strategy of Wal-Mart, shrank to the level of an individual consumer. 

Wal-Mart is notorious for wringing out heavy concessions from its suppliers -- that is how they can offer bargain prices to shoppers. The selected suppliers, however, are given exclusive rights to fill in thousands of miles of Wal-Mart stalls around the world. In the case of Korean credit card holders, they are narrowing their shopping options within a few partnered brands, hence increasing their life-time values to them. There is no free lunch; you bought a freeconomics from card companies by giving up your other buying options. 

Giving up your other buying options would not be much of an issue as long as what you get from the affiliated partners has no tangible difference in the benefits you can find elsewhere; however if that decision interferes with your eating habits, it is no more an issue of simple choice. 

Local card companies have partnered with scores of restaurant brands; the problem is they are mostly American fast food chains or family restaurants that feature a variety of greasy junk foods. If so, narrowing your dining options to those partnered brands for too long could potentially pose a grave threat to your health. 

Wonder Girls, Lollipops and Eyeballs

In the country where the extensive broadband infrastructure has practically decimated the paid content business, persuading the fans to pay for ephemeral products is increasingly becoming a losing game for the music industry. 

JYP, the local music label that has successfully launched Rain, the international K-Pop sensation, grossed 7.5 billion won or some US$6 million in 2008 by producing three blockbuster hits with Wonder Girls, its five-member girl group. Still, JYP recorded a 1 billion won loss, despite the brisk sales in music CD's, MP3 files and ring tones. JYP could cap its loss though by closing a series of advertising deals worth over 1.5 billion won with Korean sponsors.

Here we see the emergence of free content distribution model subsidized by advertising dollars. 

LG has practically bought out a new song by Big Bang, a Korean boy group recently, when it used the song in the television commercials well before its official release, for the newly launched Lollipop line of mobile phones targeted at teens. The new kind of freecomocis was realized again, but for every Lollipop phone they subscribe for, boys and girls are paying for the Big Bang's new hit song indirectly in the form of eyeballs or monthly phone bills. 

When a new gadget seems just too expensive to attract but a few excited early adopters, tech companies usually turn to a variant of freeconomics called "servicification." That is exactly what Thinkware and other local car navigation system producers are hurrying to establish before they launch Wibro navigation terminals to the domestic market. 

Once a car navigation terminal is sold to customers, the relationship between the vendor and drivers is limited to a few periodic software upgrades that happens once in a while. Thinkware hopes to change that by giving away Wibro navigation terminal "for free" and charge monthly navigation service fee instead. Wibro is the service brand of KT's Wimax wireless broadband network, and coupled with the car navigation system, it promises to offer a suite of advanced traffic information solutions updated real time, thanks to its permanent connection to the broadband Internet. 

Before long, Wibro terminals in the dashboard could relay real time driving data fed from ECU to the servers of auto companies, turning your car to a giant mobile handset on the highway. The servicification of automobiles will not stop at the navigation terminal. Expect Hyundai to be transformed to a Web 2.0 service carrier on the highway soon. 

All these examples illustrated here point to one direction; the freeconomics is not a free lunch given to you for no reason. It is a barter economy disguised as free movies, air miles, or sometimes shiny new gadgets, that attempts to turn every B2C transaction to B2B's. You thought you enjoyed a hot new Hollywood flick for free? You will pay for it when you watch new ads, shop for new pants or eat your burgers.
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