A group of South Korea’s leading start-ups announced Wednesday that they would join forces to invigorate the online-to-off-line sector, in which many, if not all, are bleeding cash due largely to high marketing costs.

Representatives of five start-ups -- SOCAR, Yogiyo, Yanolja, Mesh Korea, and Spoqa -- said they would form the O2O Alliance, seeking collaboration among the rising firms in the Korean start-up scene.

“Many start-ups seek M&A opportunities involving big companies with deep pockets. That could be a good way to grow a business, but what if they fail to strike such a deal?” said Kim Jong-yoon, chief of Yanolja, a motel booking application operator, during an open forum at a start-up accelerating center D.CAMP in Seoul.

“An M&A deal with a big company could bring short-term profits for a start-up, but it makes it difficult for the founders to drive their business vision forward later on,” said Kim, adding that the collaboration among the growing start-ups in the heterogeneous segments would create synergy as well as reduce marketing costs.

As in other parts of the world, Korean start-ups face financial constraints when executing marketing campaigns for their services.

In order to reduce costs and improve marketing effect, Yanolja has already allowed its subscribers to access the car-sharing app SOCAR, and the food-ordering app Yogiyo, on its motel booking app.

“We can integrate the different services of the alliance members to provide new value for customers,” said Shin Seung-ho, marketing head of SOCAR.

The start-up officials anticipated that the O2O business has great potential to further grow in the coming years, dispelling rising concerns over a bubble in the sector.

Some critics recently argued that the O2O businesses have been highly overrated as many of the firms in the sector, such as Korea’s largest food ordering app Baedal Minjok and mobile commerce giant Coupang, are losing a significant amount of money and investors have recently started closing their wallets in the O2O sector.

“The reduced investment is not because the O2O sector has lost its luster, but it is due to a prolonged economic slowdown worldwide,” said Park Ji-hee, chief marketing officer at RPG Korea, the operator of Yogiyo.

All agreed that the alliance will create synergy from a marketing perspective, but they were split on whether they would allow their competitors in the same industrial sectors to join the start-up group in the future.

Kim of Yanolja expressed worry over hurting user experience of the existing app by incorporating several services with similar features while Park of Yogiyo said the food-ordering app would try to be flexible in collaboration with any firm.

The start-ups said they would further discuss to outline detailed rules and plans for the alliance and on how to cooperate with other fledgling O2O start-ups in Korea.

The five founding member of the alliance will hold the second round of the open forum next month.

“I hope the start-up alliance can bring a disruptive change to the conventional O2O market in Korea,” said Kim Kwang-hyon, executive director of D.CAMP.

By Kim Young-won (wone0102@heraldcorp.com)