Feeling lucky: Web giant Google looks for revenues beyond search in emerging markets.

Google, the U.S. search engine that shook up the Web business model by popularizing paid search results, is setting its sights on building a brand in the developing world. Although already publishing its search results in Spanish and Portuguese, Google has now opened offices in Mexico and Brazil and will begin to offer its own brand of services tailored for Latin American Web surfers.

The company's major focus has long been its powerful search engine, alongside which it sells advertising in the form of text links rather than the more obvious (and less effective) banners. The text links are extremely sensitive to the actual search terms entered; Google is then paid only for "click throughs," that is, when a user decides that the text ad is relevant enough to warrant following that line

That strategy has delivered: Google posted revenues of US$4.22 billion in the first nine months of 2005 and an astounding $1.10 billion in profits--nearly a 25% margin in a business long considered dead and best forgotten. At press time, AOL Latin America had finally closed its doors in the region, and heavyweights such as Yahoo! and Tlmsn, the joint venture of Microsoft and Mexican telecom giant Telefonos de Mexico (Telmex), trail Google dramatically in total visitors and in growth in terms of search-engine users. Terra, the Spanish superportal, garners a lot of Web traffic but does not figure in the search engine space, according to outside measures.

After a huge stock price run-up (since beaten down), the company is under pressure to expand its revenues, and to expand globally; including a much-criticized foray into the heavily censored, government-controlled Chinese Web. Besides new geographies and languages, Google also is trying to increase its presence far beyond search with services as broad as e-mail, maps, books, video and retail, and as narrow as managing personal photos and building personal Web sites known as Weblogs, or "blogs." All of these services aim for the same bottom line: More eyeballs on Google pages, seeing relevant text ads and, hopefully, clicking through.

Dividing the Web into categories--then serving ads that are related to exactly what the person is already looking for--dramatically increases results, and that goes straight to the bottom line. "We've come to make a long-term investment. We'll invest whatever is necessary to make the company work and to make the Mexican market grow," says Gonzalo Alonso, Google's general director in Mexico, although he declined to specify benchmarks for the country.

Mexico matters a lot. No less than 80% of Internet activity in the Spanish-speaking world is done in Mexico, according to Web-ratings agency comScore Media Metrix. The country has 11 million Web users a month--a not-insignificant slice of Google's 384 million worldwide--and they represent 65% of all Mexicans using the Web as well as three-quarters of all searches done in the country.

Beyond search. Google wants to capitalize on that Web traffic and brand power by increasing its business presence and by involving potential partners in its newer products beyond search. "We want to put a face on Google for these entities and help them to understand our business model," says Alonso. The plan begins with focusing on bringing to Mexico all of the services that the company now offers at the global level, such as software like Google Earth, a mapping program that allows users to "fly" over the planet and pick out thousands of specific points, down to the level of images of individual houses and streets in many countries.

Google's arrival is a clear sign that Mexico is far from a forgotten backwater for the world's advertisers, say competitors. "Any player in the market that gets to be this size makes it clear that Mexico is on the right track in terms of Internet advertising' says Gerardo Adame, general director of Terra Mexico, part of the Spanish's Web portal Terra, long a significant presence in the region.

In the coming five years, Mexico's total Internet advertising market is expected to increase rapidly; in 2005, it reached $30 million. "It's hard to estimate, but it could increase by 50% annually," says Adame. "There's a clear trend among the major advertisers in the country toward taking this medium more seriously."

Mercado Libre, a major auction site and one of Google's biggest clients in Latin America, also sees a good year ahead. "People are learning to use the tools for finding information over the Web in a more sophisticated way," says Francisco Ceballos, general director for Mercado Libre in Mexico. "This makes it more attractive to potential advertisers, which then feeds back on itself."

E-commerce in Mexico is still a weak spot, according to a study by the Asociacion Mexicana de Internet and consultancy PricewaterhouseCoopers. By September 2005 just 9% of Web users in Mexico had made a purchase over the Internet. Nevertheless, e-commerce in Mexico grew by 81% in the first quarter of 2005 to $500 million compared to the same period the year before.

On the public side, the government's Internet project, e-Mexico, won the United Nations prize for public service for 2005, no doubt a feather in the cap of President Vicente Fox. Google executives point to the success of e-Mexico as a government-services portal as one of the factors in the decision to invest.

In 2006 the government's agreement with T1msn, the Microsoft-Telmex joint venture, swings into full gear with a portal based on Microsoft technology to allow citizens access to most government services via the Web. "We want to take advantage of the T1msn users to provide access to government services," says Abraham Sotelo Nava, director of information technology policies for the Mexican government. "That will open the doors to establishing similar alliances with others, such as Yahoo! and Google."

Aggressive. In June, Google opened an office in Sao Paulo with the same aggressive goal, buying in the process for an undisclosed sum the Brazilian company Akwan Information Technologies. The goal is to offer to marketing professionals and businesses of all sizes access to advertising programs such as AdWords.

By way of sponsored links, small businesses have the chance to appear in Google search results at a much lower cost, a big deal considering that small advertisers make up the majority of business advertising in Brazil. Google's director in Brazil, Alexandre Hohagen, already has assembled a team to begin visiting big companies and to diversify the client base. As in Mexico, the drive to leverage its presences in-country for Google means a well-defined strategy: Build on its fame as a search service to build out services. Twenty-two million Brazilians enter the Web via Google a month, says Hohagen, yet few understand the depth of the tools that are available beyond typing in a word and hitting "search." To remedy this, the company expects to adapt software to the Brazilian public, including translation software, as well as tools popular in the United States, such as Google Earth.

Without citing specific numbers, Google is preparing to widen its stake in the Brazilian market for Internet advertising, which now totals $86.9 million a year, according to the Brazilian eCommerce Chamber. According to a recent report from the Brazil Internet Management Committee, 12.2 million residential users were online in December 2005, up 12.4% from the same period a year earlier. They stay online on average nearly 18 hours a month, according to the report.

It's clear that Google is coming into the region's biggest Internet market at the right time. Current estimates of ecommerce in Brazil are at $4.30 billion a year, counting automobile sales online, trips booked and ordinary purchases. "In the last few years all of the growth estimates for the sector have fallen short in comparison to the real numbers," says Renata Serra, information technology specialist at U.S. consultancy Booz, Allen & Hamilton. "In order to grasp the potential, Internet sales at Christmas last year were 47% higher than those of 2004." Turning that potential audience of Latin American buyers into Google users will make a huge difference not just for the search giant, but for all of its competitors as well.

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MARISOL RUEDA * MEXICO CITY 

LUCIANO SOMENZARI * SAO PAULO