Daum, once solidly the No. 2 player in the online search market in Korea, has lost ground to foreign rivals here.

Its parent company Kakao is betting heavily on artificial intelligence to revive the ailing portal site, but industry watchers remain skeptical of its strategy, which has yet to be made public.

According to web log analysis site Internet Trend on Tuesday, Daum ranked No. 4 in the domestic web search market as of Friday, with its market share falling from 4.41 percent a year ago to 3.29 percent.

That means it has been overtaken by Microsoft's Bing, which had a 3.35 percent share. Google, with a market share of 36.57 percent, overtook it some time ago.

Although Bing is still a long way behind Google, industry sources said Bing's rapid progress is attributed to Microsoft's strategy of leading with generative AI. Microsoft has launched a version of Bing that integrates ChatGPT. Its share in the global PC search market is nearing 12 percent and continues to grow globally, sources added.

Kakao announced the launch of an interactive app in the second half of this year but has not yet disclosed a specific AI strategy.

Instead of outlining a specific plan, a Kakao official said, “We’re working to innovatively enhance Daum's existing services using new technology while exploring new user experiences. We are also reviewing technology and business plans for new AI-driven search services.”

Regarding the plan, Lee Joon-ho, an analyst at Hana Securities, said, “It is difficult to estimate the AI business value due to the lack of information."

“Not enough information has been disclosed about the overall AI business and new ventures, including the business-to-consumer AI platform that will be released as a separate app," the analyst added.

Daum has not yet introduced a generative AI-powered search engine, similar to Bing, but it made reorganization efforts in May last year. Kakao separated Daum as a “company in company," or CIC, to accelerate the promotion of its main businesses in search engines, media and online communities.

"Kakao decided to run Daum under the CIC system to promote the values of Daum's services as a search engine and content distribution platform," a Kakao official said. "By securing an independent organizational structure, efficient and quick decision-making process can be established and increase the service's competitiveness by setting clear goals."

Despite the reorganization efforts, Daum’s contribution to Kakao’s sales continues to decline, the company’s second-quarter earnings report showed.

The portal business, which includes Daum PC, mobile and Kakao Story, has provided 9 percent of group revenue since the third quarter of last year. This is far behind Talk Biz (54 percent), which includes KakaoTalk advertisements, and the aggregate of other platforms like Kakao Mobility and Kakao Pay.

Another analyst, who asked for anonymity, said, “Although Kakao is making a big AI push, it seems to be not putting enough drive into Daum when listening to earnings conference calls in the last two years. … I bet it won’t bet big (on Daum) with AI strategy this time either, since the portal business is not an emerging market anymore.”

Ahn Jae-min, an analyst at NH Investment & Securities, said recent search trends have shifted toward other platforms such as Google, YouTube and Instagram. Therefore, it is inevitable for Daum to lose its presence in the search market, he added.

"Even if Kakao implements an AI strategy in the future, it won’t be easy to increase its share in the domestic search market. The fact that even adding ChatGPT to Bing hasn't allowed it to surpass Google illustrates the difficulty of succeeding with a portal's AI strategy,” Ahn said.