Blowing Smoke?

Tiny Houston InterWeb Design wants to expand into Brazil, but is it seeking business or just publicity?

SOME U.S. COMPANIES ARE GOING TO great lengths to capitalize on the Latin American Internet craze.

One of the more aggressive is Houston InterWeb Design, which as its name implies, designs Web sites for small and medium-sized businesses. In April, its public relations firm, Merger Communications, circulated a press release trumpeting Houston InterWeb Design's joint venture with a Brazilian partner to capitalize on that nation's rapidly growing market for Internet infrastructure-related services.

In the press release, Harry White, the company's chief executive, explained why Brazil is a natural market for his Houston-based firm. "Brazil leads the region in the number of Internet users, with 41% of the market--twice as many as Mexico [and] four times as many as Argentina. Brazilian online usage rates are growing so rapidly, in part, because of decreasing connection rates from ISPs [Internet Service Providers]," he said. "These trends in Brazil are so strong that we really felt like we couldn't afford not to participate."

That may be so. But at LATIN TRADE'S meeting with White and his prospective Brazilian partners, it looked like Houston InterWeb Design may be more interested in garnering badly needed publicity than in doing business in Brazil.

None of the Web analysts contacted by LATIN TRADE had ever heard of the company. In fact, Gail Bronson, senior analyst at IPO Monitor, a Los Angeles-based Internet research firm, says she doubts it could make it in the tough Web design market. "It's a crowded field," she says.

To be sure, Houston InterWeb Design's SiteBlazer product does allow companies to set up their own Web sites in 15 minutes or less. White gleefully demonstrates the software's photographs, illustrations and templates to jazz up text. The charge is US$450 for three pages and $100 per page after that. There's also a $15 monthly hosting fee. White claims his company has sold SiteBlazer to 35,000 U.S. customers that range from a trucking company and a couple of temporary employment agencies to an outfit that collects and reprocesses golf balls.

White also says he can create a 100,000-product listing for a business-to-business (B2B) Web site in a week, beta test it in three weeks and launch it within a month. "Most B2B sites would cost $100,000," he says. "We can spit them out at half the price in half the time."

Quick, easy losses. While it does offer a quick, easy way for companies to put together their first Web site, Houston InterWeb Design faces many larger and better-financed competitors in the Internet design and infrastructure industry. Those include Tripod, a division of search engine giant Lycos.

Houston InterWeb has 40 employees and registered sales of only $994,876 in its last fiscal year (which ended July 31, 1999). Its net losses? A dismal $1.1 million. And that didn't improve over the next six months: While total revenues grew 217% to $798,340, its net loss grew 148% to $643,088.

The background of some of the company's principals is also weak. Before White began Houston InterWeb in 1996, he worked as a senior plant technician at a chemical company while, on the side, selling capacitors he had designed for the cable industry over an online bulletin board. He concedes that he doesn't even like computers. "I hate them," he says.

His Brazilian partners also don't seem very experienced in Web design. Daniel Ferreira and Robert Colvin, who are step-brothers, own a Web design start-up called Feixes.net with offices in Rio de Janeiro and S[tilde{a}]o Paulo. But the two have put together only one Web site--for Ferreira's cousin Paulo Zulu, a male model in Brazil. Beatriz Fortes, an executive at Mlab.com.br, Brazil's biggest Web site production firm, says she's never heard of them or their company.

White won't say how much Houston InterWeb Design is investing in this new company, which will be called Brazil InterWeb Design. In the role of pitchman, Ferreira claims he already has lined up the company's first client--a label maker he refused to name--and will target Brazilian firms in the textile, cosmetics, media and advertising industries.

"There's a gap in the market for Web design. No one is doing a very good job," he says. "The products that Houston InterWeb has are just perfect for the Brazilian market."

Do-it-yourself IPO. But the question remains: where will Houston InterWeb find the capital to expand into Brazil? After several failed attempts to raise money--first a private placement, then an initial public offering (IPO) followed by an acquisition/spinoff--the company finally underwrote its own IPO on the over-the-counter bulletin board in January 1999, selling 20% of its stock for $500,000. As of Jan. 31, the last date for which financial information was available, Houston InterWeb Design's cash was already down to $483.

The company can't really sell more stock--there's not much of a public market for it, with only one market maker, ACAP Financial, in Barrington, Illinois, actively trading its shares. And at press time, its stock was down to $2.25 a share from its IPO price of $6. White says the company is currently expanding on "self-generated funds" but doesn't rule out another public offering later, perhaps of Brazil InterWeb Design.

Brazil is not the company's first Latin American foray. White says he was close to inking a licensing agreement in Panama a year ago, but his prospective partner sold the company before the deal could be completed. Last July, Houston InterWeb Design did sign a licensing pact with a Monterrey, Mexico-based Internet software company called Proses to peddle its SiteBlazer program in northern Mexico. Proses chief Eduardo Azcoit[acute{i}]a says he has since sold the product to some 800 customers and is discussing a possible merger with Houston InterWeb. White claims he's also signed up a licensee in Mexico City, but says his partner is not ready to make an announcement yet.

Houston InterWeb clearly suffers from delusions of grandeur. In one press release, it compares itself to well-known incubators CMGI and Internet Capital Group "in that InterWeb leverages its technology and takes an interest in the Internet-related ventures it helps build." And build up Houston InterWeb Design in the process?