How are the S. Korean cloud market and MSP startups formed?

According to the Ministry of Science and ICT, the South Korean cloud market is growing at 20.5% annually, with an estimated KRW 2.92TR (USD 2.4B) market size.

The market potential is significant, as the cloud usage rate among South Korean enterprises is only 12.9%, compared to the average usage rate in OECD countries, which is 30.6%.

Global cloud providers such as Amazon Web Service and Microsoft Azure currently hold about 70% of the market share, while local cloud providers KT, NBP, and NHN hold about 30%.

However, as global cloud providers expand into the South Korean market, the demand for managed service providers (MSPs) is increasing.

IT Unlike other markets, the South Korean IT market has two unique characteristics: a contractor work methodology and an IT market tailored for each client. Many global companies use outsourcing system integrators or -specialized consulting services.

Nevertheless, large South Korean companies such as Samsung Electronics, LG Electronics, and HYUNDAI-KIA Motors Company have their own internal IT outsourcing companies.

This model has been successful in the past. Still, with the transition to cloud technology, internal IT outsourcing companies have shifted to MSPs, and new MSP startups have entered the market.

Consulting services include IT strategic planning and cloud consulting to sell cloud services to the customer.

Professional services include system architecture design, migration of legacy systems, and DevOps, focusing on stability and cost-effectiveness.

MSP startups approach the South Korean market by signing contracts with cloud service providers upfront and then with end users, with additional margins of 7-15% for management and technical support costs.

As a result, the South Korean e-commerce and logistics market, expected to grow at a CAGR of 10.3% between 2020 and 2025, offers MSP startups an excellent opportunity to expand their services and capture a larger market share.

Overall, the South Korean cloud market is expected to continue its growth trajectory and provide opportunities for MSP startups to enter and expand.

As more enterprises move to cloud-native IT environments, the demand for MSP services will likely increase, providing a potential market for MSP startups.

Megazone is the largest MSP startup in South Korea, with revenues of KRW 209.5 billion (USD 170 million) and a 2019 deficit of KRW 15.2 billion (USD 13 million).

The company received a KRW 48 billion (USD 40 million) Series A investment from KDB Bank, KB Investment, NAU IB capital, and Korea Financial Investment Holdings.

Megazone operates a cloud operation center for cloud management and monitoring of its customers and has partnered with LG CNS to establish and expand “Cloud Gram” to large enterprise customers.

BespinGlobal, the second-largest MSP startup in South Korea, was listed as the first Asia-based MSP in Gartner’s Magic Quadrant report. The company had a 2019 revenue of KRW 84 billion ($70 million) and a deficit of KRW 41.8 billion ($35 million).

BespinGlobal is both an MSP and a cloud service provider, offering OpsNow, which can operate as a hybrid across its public cloud environment and on-premises environment IT.

After its launch, the company received KRW209 billion ($170 million) in investment from eight venture capitalists and companies, including an investment from SK Telecom through its subsidiary SK Telecom China for cloud business expansion.

Cloocus, a newer MSP startup, began operations in 2019 and generated KRW 14.3 billion (USD 12 million) in revenue that year. The company focused on MSP for the Microsoft Azure cloud and reached the Series A stage by receiving KRW 23.5 billion (USD 20 million) in investment from SK and Stonebridge Capital.

The company is now valued at KRW 90 billion (USD 75 billion).