Goal in LatAm's Internet Market: Survival

MIAMI (07/26/2000) - Faced with trickling revenue streams, with few and reticent users, and with a saturated market still drawing competitors, Latin America's Internet executives are beginning to sound more like the cast of the TV show "Survivor" than like high-flying entrepreneurs.

At recent conferences about the region's Internet market, once-cocky executives have at times come across as testy and desperate, not unlike the castaways of the hit U.S. show, who have eaten rats and braved living on a deserted island to win a US$1 million prize. Like the castaways, the Latin America Internet executives are also enduring difficult -- albeit different -- conditions with the hope of hitting it big when the region's market grows and shakes out its excess of competitors.

"Paradoxically, while Internet usage is growing at break-neck speeds, most of the Latin dot-coms appear locked in a Darwinian struggle between life and death," according to a report released in June from Hambrecht & Quist, a division of Chase Securities Inc. "Too many companies are chasing a small, albeit fast-growing market in Latin America."

For example, the report points out that there are more than 60 auction Web sites modeled after EBay Inc. in Latin America today. "Consolidation will sweep the region," the report said.

On the business-to-business (B2B) side, it has proven more difficult than anticipated to persuade large companies in Latin America to participate in online exchanges -- the Web sites designed to let buyers and suppliers transact over the Internet -- speakers said at last week's Latin Venture conference.

Although online exchanges have become popular worldwide for simplifying companies' procurement processes, in Latin America "business inertia limits best practice adoption," said José Levy, founder, chairman and chief executive officer of B2B Latin America Corporate Network Inc.

"Remember, we just got ERPs and intranets in Latin America," Levy said during a panel discussion .

Moreover, collaboration among competitors -- a key ingredient of online exchanges -- isn't fostered in the region, said Levy, whose Miami-based startup operates an exchange for Latin American companies called LatinB2B.

"Ignorance leads to resistance," he said.

However, business-to-business players also must make an effort to educate customers, because too many options have sprouted up in a short time, causing confusion in the market, said Mauricio Acevedo, president and CEO of AgroZona.com, a Web site designed to help Latin American farmers make business decisions.

"You must understand how to deal with the large companies in Latin America. If you don't, you will fail," said Bernardo Rodríguez, CEO of Procura Digital, a startup that runs a B2B online marketplace with offices in Miami, Venezuela, Argentina and Brazil.

B2B players that will succeed are those that make their customers' lives easier and that strive to understand their customers' business operations, speakers said.

"You have to provide a tangible benefit from day one," said Henry Harper, CEO of LatinAdvisor.com, another B2B exchange focused on Latin America.

Online exchanges must be careful not to focus exclusively on connecting buyers with the suppliers that offer the lowest prices, because doing so will drive many suppliers out of business and destroy the market, said Ashesh Shah, founder and managing director of Spydre Technologies LLC, an incubator of technology startups.

Online exchanges should highlight not only prices, but also the suppliers' logistics capabilities, the quality of their service, their execution speed and their ability to correct errors, among other things, so that buyers can choose the supplier that best fulfills their needs, Shah said.

"You need to offer technology (in your online exchange) that lets buyers compare factors other than price" and that leads to negotiations between buyers and sellers, he added.

In the consumer space, Web-based retail sales, online advertising spending and the number of Internet users remain too low to support all of the portals and electronic retailers targeting Latin America. Plus, trade and logistical barriers also affect the delivery of products to the region. Thus, this consumer market, in which companies such as Microsoft Corp., America Online Inc., Yahoo Inc., Brazil's UOL Inc. and Spain's Telefonica SA are participating, has players scrambling to differentiate themselves to attract users.

"The new challenge is the battle for differentiation," said panelist Diego Handera, regional business development manager for Ciudad Internet, a popular portal in Argentina operated by the large media conglomerate Grupo Clarín.

Superior customer service, broadband content and connections, and wireless access and delivery are all features that will attract users in Latin America, Handera said, offering an opinion echoed by other speakers.

"We're emphasizing wireless services in Latin America," said Alfredo Villalobos, international director of operations at Terra Networks SA, Telefonica's Internet subsidiary. The number of PCs in the region is relatively small, and it's likely that Latin Americans will use alternative devices to get on the Internet, in particular mobile phones, which are very popular in the region, Villalobos said.

"We live and breathe differentiation," said Gustavo Morles, senior vice president of business development at Yupi Internet Inc., during a panel discussion Tuesday at the LatAm2000.com conference event in Miami. Yupi is a Miami-based company that runs the popular Yupi.com consumer-oriented portal and a recently launched business-to-business exchange as well.

Morles rattled off a list of features and services Yupi has added in the past three months and capped his presentation with a video clip of Yupi TV, the company's Web-based television broadcast.

"There you have it: 90 minutes of interactive TV everyday!" Morles said triumphantly.

But in a telling example of how difficult it is to achieve differentiation in such a crowded market, Morles was one-upped a few minutes later by fellow panelist and competitor Mihai Crasneanu, general manager of UOL's Spain subsidiary, who said that his company offers 24 hours of interactive television on its flagship portal in Brazil.

Although the early days of Latin American e-commerce and Internet use are proving tough to weather, the future looks as bright as Mexico's Acapulco sun, at least according to market research firms.

Dataquest Inc. predicts that online B2B transactions will total about $124 billion in 2004 in Latin America, up from $1 billion in 1999, while business-to-consumer Internet sales are expected to reach $8.3 billion in 2005, according to Jupiter Communications Inc. The number of Internet users is expected to grow from 10.6 million in 1999 -- about 2 percent of region's population -- to 66.6 million in 2005, according to Jupiter.

This is why companies playing the Internet market in the region are struggling to survive at all costs. Sue Tremblay, president of the online B2B exchange LatinTrade.com, said it best during another panel on Tuesday's conference:

"We're making the right bet by putting our eggs in the Latin American Internet market."

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