Naver Prioritizes 'Own Shopping and Videos' via Artificial Search Algorithm... Fair Trade Commission Issues 'Corrective Order and Fine'

First Sanction on 'Preferential Treatment in Searching Own Services'

Continuous Adjustment and Modification of Search Algorithm Favoring Own Company
Weighting of 1.5x Given to Own Services; Unfavorable Criteria Applied to Competitors
As a Result, Naver Shopping Market Share Increased from '12.7% to 26.2%' in 3 Years
Fair Trade Commission: "Naver Deceives Consumers Who Believe 'Search Results Are Objective'"

Song Sang-min, Director of the Market Surveillance Bureau at the Korea Fair Trade Commission. (File photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] The Fair Trade Commission (FTC) has decided to sanction Naver for unfairly adjusting the exposure ranking of search results by continuously modifying the search algorithm to favor its own shopping and video services.

On the 6th, the FTC announced that it decided to impose corrective orders and fines (totaling 26.7 billion KRW) on Naver for artificially adjusting and modifying the search algorithm while operating shopping and video search services, elevating its own Smart Store products and Naver TV to the top of search results, while pushing competitors' products downward.

First, the FTC viewed that Naver changed the search algorithm to favor the exposure of products from its own open market sellers at the top of search results. Naver provides an online comparison shopping service (a specialized search service in the shopping field) that allows users to search and compare product information sold across various shopping malls, while simultaneously operating its own open market service. Naver Shopping search results display products from its own open market as well as competing open markets such as 11st, Gmarket, Auction, and Interpark.

Naver first calculates a basic ranking for registered products based on scores reflecting relevance to the search query, including suitability and popularity. The top 300 products thus ranked are then rescored by applying a diversity function, determining the final ranking of the top 120 products (the first 3 pages). During this process of applying the diversity function to finalize rankings, Naver adjusted and modified the algorithm to prioritize exposure of its own open market products. Specifically, around April 2012, before and after the launch of its open market, Naver artificially lowered the exposure ranking of competing open market products by assigning them a weight of 'less than 1'. Additionally, in July of the same year, Naver introduced a method guaranteeing a certain percentage of exposure per page for its own open market products.

Furthermore, Naver applied a weighting factor (1.5x) to its own open market products and introduced a 'same mall logic' that lowers the exposure ranking of products from the same shopping mall when they appear consecutively, under the pretext of search result diversity. This applied unfavorable criteria to competing open market products compared to its own. While competing open market products were considered the same shopping mall at the open market level, Naver applied this criterion at the individual seller level for its own open market products, resulting in a significant increase in exposure of its own open market products.

Due to these algorithm adjustments by Naver, the exposure ratio of Naver open market products in shopping search results increased from 12.68% in March 2015 to 26.20% in March 2018. Meanwhile, the exposure ratio of the top four competing open market products decreased from 42.23% to 33.04% during the same period. The FTC imposed corrective orders and fines of approximately 26.5 billion KRW for these unfair practices in the shopping sector.

The FTC also judged that Naver distorted search results in the video sector by awarding bonus points to its own videos and not informing competitors at all about the overhaul of the search algorithm.

Similar to shopping, Naver shows consumers its own videos such as Naver TV and competitors' videos like Pandora TV and Afreeca TV through its video search service. Search results are sorted from top to bottom based on relevance scores calculated by the search algorithm. Naver allowed its video department to test a demo version and created an internal document called 'Keyword Input Guide' through its affiliate Green Web Service, detailing spacing methods, synonym and foreign word notation rules, and even specifying 'mandatory keywords'. However, Naver did not inform competing video operators about the importance of keywords or the fact that the algorithm had been completely revamped. Additionally, Naver directly awarded bonus points to videos listed in the 'Naver TV Theme Hall'.

Within a week after these actions by Naver, the number of Naver TV videos exposed at the top of search results increased by 22%. In particular, the exposure increase rate of Theme Hall videos, which received bonus points, reached 43.1%.

Song Sang-min, Director of the Market Surveillance Bureau at the FTC, said, "This is the first case where a platform operator was sanctioned for so-called 'self-preferencing' by adjusting and modifying the search algorithm to favor its own company," adding, "It also clarifies that failing to inform competitors about major changes in the algorithm overhaul can violate the Fair Trade Act if it affects competition."

This content was produced with the assistance of AI translation services.