LatAm Net Market Grows, But Consolidation Expected

FORT LAUDERDALE, FLA. (07/06/2000) - The Internet market in Latin America will continue growing strongly in the coming years, but many of its companies will have to merge, according to a report released Thursday.

In Latin America, the number of Internet users is expected to jump 67 percent this year, while spending on Net advertising is expected to grow at a 129 percent compound annual growth rate until 2003, according to the report "Latin America Online" from financial services firm Chase Hambrecht & Quist (H&Q). But the market will be unable to sustain all the Web portals and ISPs (Internet service providers) trying to turn a profit by targeting Latin America, according to the report.

"The smart people will merge and consolidate early. They'll put away their ego and find a way to make it happen," said Frederick W. Searby, H&Q lead analyst and one of the report's authors.

In the U.S., there are about 100 million Internet users and only a handful of successful Web portals, he said. The many Web portals now playing in the Latin American market are fighting for a small user base -- 14.5 million this year and 47.5 million by 2003 -- and will have to fight over $1.4 billion in online advertising spending by 2003. When the dust settles in the next year or two, there will be, at best, three or four panregional portals and one or two in each local market, Searby added.

"There has to be a shakeout. There's not enough room" for all the current portals, he said. The consolidation will happen both among the horizontal portals, which feature a broad variety of content and services, and especially among the vertical portals that focus on serving a specific type of user, such as music lovers, women or sports fans, he added.

Companies competing in Latin America's Web portal market include Spain's Terra Networks SA, Microsoft Corp., Brazil's UOL Inc., México's Grupo Televisa SA, Yahoo Inc., America Online Inc. (AOL), StarMedia Network Inc. and Yupi Internet Inc.

The number of Internet users is growing rapidly thanks to the spread of free Internet access, falling PC prices and the creation of Web sites in Spanish and Portuguese with localized content and services, Searby said. Internet usage will also be helped by the emergence of cellular phones that comply with WAP (wireless access protocol) and can thus access the Internet -- estimated at 7.8 million by 2003 -- and by the use of alternate access devices, such as television sets able to access the Internet, of which there should be 12.8 million by 2003 in the region, he said.

The ISP sector will be dominated by those firms that provide free access, although there will always be a place for companies that charge for more sophisticated services, Searby said.

Among companies that sell products and services to consumers via the Internet -- the B2C (business-to-consumer) market -- the winners will be those that overcome logistics barriers, such as the fulfillment and delivery of orders, which is a major problem in Latin America, he said.

The most promising e-commerce sector is the B2B (business-to-business) area because conducting business over the Internet will help companies in Latin America improve processes such as their now mostly bloated and ineffective supply chain operations, according to Searby. Also, players in the B2B space will not have to deal with B2C barriers, such as fulfilment and low credit card penetration, he said.

E-commerce transactions should total about $10.2 billion by 2003, of which 70 percent will be of the B2B kind, he said. Other market research firms have more aggressive outlooks for the region's B2B market, like Dataquest Inc., which forecasts it will grow from $1 billion in 1999 to $124 billion in 2004.

"B2B could be a revolutionary phenomenon in Latin America, even more so than in the U.S.," Searby said.

Chase H&Q, based in San Francisco, is a division of Chase Securities Inc. and can be reached at http://www.hamquist.com/.

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