Ged Carroll

Rundle in Korea

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Reading Time: 5 minutes

The rundle as a term was popularised by business academic Scott Galloway.

Overvalued unicorns, by Scott Galloway

It means ‘recurring revenue bundle’. In the technology world bundling meant concealing the real price and value of a product, and or maximising leverage from one industry into another. Here are two bundle examples:

Back to rundle

Remember the ‘recurring revenue’ bit?

The classic example of a rundle that Scott Galloway uses is Amazon Prime. A one-off annual payment made by Amazon customers for free postage. There are also some ancillary benefits such as content from the Amazon Prime Video service. But Amazon Prime has a secondary effect, Prime customers spend more with Amazon over a year. This made increased profits for Amazon and less profits for its competitors, further strengthening Amazon’s hand. By 2019, 82 percent of US households have an Amazon Prime membership.

Another example would be Apple’s service businesses:

So what’s the Korea connection?

korea temple

The rundle in Korea story started with a flower market.

The Seoul wholesale flower market. The first thing that you need to know about Korean flower sales is how small they are. Here’s a rough and ready industry comparison. On average per person, per market on an annual basis:

The first week in January meant that the trade was starting to get back to normal. Imports of flowers from around the world had started up again as foreign businesses reopened from the Christmas break. This is when things started to go weird. Wholesalers claimed that an online-only mail order flower company was cornering the market across a wide range of flowers driving prices up. The company that they alleged was doing this was Kukka. According to their allegations, Kukka had managed to get a wholesalers licence so that the could bid directly on the spot market for flowers. There is some anecdotal evidence that this drove florists already operating on meagre margins into the wall.

At the time, this story didn’t make the local Korean media. Why? There are a few hypotheses:

So why would Kukka have allegedly done this now? A few changes happened at Kukka the previous year. At least one of the founders left, a new management team was put in place and Kukka signed up to be part of T-Universe in August 2021.

SK Telecom's T Universe

SK Telecom officially launched T Universe at the end of August last year with a number of subscription services. Think of T Universe as a platform for bundles. It encompassed a number of Korean and international brands into rundles:

Kukka is also part of these subscription plans with consumer being able to get 9000 Korean won vouchers every month.

SKT

SK Telecom (or SKT as its often known) is a vast business in its own right and is part of an even larger group SK.

SK or as it was originally known Sunkyong Group started off in textiles and then became vertically integrated from petroleum to polyester fibres. Now the business covers:

Even SKT on its own is vast in its own right

Market distortions

SKT brings a number of strengths to the T-Universe rundle series.

It already handles 100,000,000 customer service calls a year

SKT also doesn’t care about margin at the moment, instead focusing on market making:

“Instead of a profit margin, we are thinking about expanding customer services and believe that new business models will emerge in the process. Margin is not a priority at this early stage,” Ryu said.

SKT executive Ryu Young-sang quoted in the Korea Times: SKT to boost commerce biz with subscription platform (August 25, 2021)

All of which is likely to mean a bump in potential customers for flowers, that probably haven’t bought flowers previously. It is easy to see how this rundle could create a market distortion. For businesses like Starbucks and Paris Baguette this would mean reduced margins on higher foot traffic, nothing that they couldn’t manage.

However in a smaller market scenario like flowers, things could get more interesting. Huge demand from new customers that Kukka would be obliged to fulfil at ANY cost, because being sued in a Korean court by a chaebol would be disastrous.

Korean business environment

Korea is a relatively unique business environment. A few large businesses drive the country. You can literally live a Samsung life:

Online brought additional pressure to large businesses. Internet giant Kakao moved from internet media and communications to taxi bookings and mobile payments. Korean banks feeling under threat have moved into online services. So it was only a matter of time for SKT to build its rundle series for consumers to pick and choose from. Unlike many businesses (Apple and Amazon) who have moved from a transactional to a hybrid transactional and recurring revenue model, SKT was always a recurring revenue model because of its sector. So the only way for it to grow would be to expand the number of sectors that it got recurring revenue from with its ‘subscriptions of everyday things’ in T-Universe. SKT and the flower industry (let alone Kukka) look like apocryphal story of a hippo and a chick sharing the same bed.