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AND THEN THERE WERE ... FEVER. LATIN America's dot-coms were the darlings of Wall Street up till the U.S. stock market dive sent tippling investors limping home to Sleep it of. Quite a few dot-com CEOs are crying in their beers, too, wondering how best to auction off barely used servers, wide-screen PCs and a roomful of Aeron in chairs, all the while plotting to rise from the ashes. It's been a wacky year, but the reality of a slow-growing online public in the region and rapidly increasing costs means the business model of yesterday--fast growth based on expected advertising revenues--had to give way.
But to what? Advertising gurus have not given up on the interactive paradise of one-to-one marketing, wherein we consumers happily share our deepest, darkest desires to cybernetic stranger--no, not even strangers but iiberaware mainframes-turned-marketing agents--in exchange for free e-mail or coupons for savings at the grocery store. Regional advertising experts see the online world as a promising but still problematic venture, and one that is only just starting to make good on its grandiose promises of real-time marketing. Meanwhile, however, the red ink flows: A LATIN TRADE: analysis of Latin dot-coms reporting numbers shows that for every USSI in revenues, on average, the region's firms are losing $2. (See graph beginning page 54.)
Nevertheless, Latin America is the perennial bright spot in the ubiquitous Internet market forecasts--the youngest Web audience, the most interested in being online and the fastest growing. Data agencies and Wall Street firms alike see ad-spending growing as real-world retailers finally get it right online and global Internet use rises. Forrester Research, for instance, says world online ad-spending should track e-commerce growing at around 51% compound annual growth. Latin America will see online ad-spending rise from around $127 million in 2000, one-half of 1% of all advertising iii Latin America, not counting direct mail marketing--to a more respectable $1.17 billion in 20115, says Jupiter Research.
Lucas Graves, the senior analyst covering Latin America for Jupiter, says even those estimates may be conservative and should be revised upward soon. And, he adds, Latin Americas dot-coins are better positioned than one might think, since the market crash happened before investors could throw too much money into the region.
Rising star. Jupiter sees the Internet claiming 4% of ad spending by 2005, more than the 2.5% spent on outdoor advertising like billboards but less than the 6% spent on magazine advertising and the 11% spent on radio. Broadcast is "close to half" the pie in the region, Graves says. "Some of that will be new spending, and some of it will be money shifted from direct mail and traditional media like broadcast," he notes. "Certainly, if I were running a newspaper, I would be worried about what the Internet does over the long run to my classified revenue, and I would try to anticipate that change by moving my own classified onto the Internet."
Some of the usual suspects will be around to mop up all that ad cash. Alejandro Fosk, CEO and co-founder of Web rating and analysis firm Certifica.com, believes pan-regional firms like StarMedia and Terra, as well as regional powerhouses such as Universo Online in Brazil, have built strong brands that will be hard to dismiss, despite the drumbeat of consolidation.
The rest--the "pure play" dot-coms that bet on sufficient consumer interest in travel, pets or auctions, could very soon be knocking on portal doors begging to be let in--or bought out. "Pure plays, there's going to be one or two per category, like Amazon or Yahoo!' says Fosk. "If there are four or five or six pure plays in each category, the traditional players will move in. Then there are two possibilities: Real world players move in on their own or, if [dot-coms] are not leaders in their categories, they have to merge with the bricks-and-mortars'
Something similar happened early with the Patagon.com and Banco Santander deal, as well as El Sitio's merger with Venezuelan media giant Cisneros Group. Content alliances, such as Despegar.com's deal with Yahoo!, could be just the wave of relief smaller dot-coins will need to stave off a sellout, or open the door to a welcoming big brother. Universo, of course, is an investment of media groups Folha and Editora Abril, plus recent new partner Portugal Telecom through its PT Multimedia unit, while America Online Latin America is half-owned by Cisneros and has struck an alliance with Banco Itau.
In Mexico, the online experience was born in a boardroom, thanks to an alliance of Telmex and Microsoft, as well as Grupo Carso chief Carlos Slim's ownership of the Prodigy Internet service. Terra, meanwhile, was the union of Telefonica of Spain's Internet providers and also-ran providers in Mexico, Brazil, Venezuela and the Southern Cone. The departure of top country staff at Yahoo!, including CEO Tim Koogle, and shake-ups at Terra Lycos do not bode well for smaller independents like StarMedia; if the kings of free, services-oriented portals can't keep the bosses in their seats, how can a prince prosper?
Do or die. The future for Latin America's dot-coms breaks down into a couple of big, easy-to-handle chunks, say industry specialists--either make money at something real, or die. Banner ads, those blocky, sometimes flashy portions of the screen that tout credit cards or, more often than not, other Web sites, will have to go. Click-through rates, the percentage of times a Web surfer actually bothers to follow the ad's link to some other place, are dismal: around 0.25%.
The Web ads that remain will likely be house ads for the deep-pocketed sponsors who part-own the outlets. (Interestingly, portals are projected to command just 34% of Web ads by 2004, while content provides and publishers--the news and information sites to which portals point--will battle over a larger slice of the pie.) Or, sites will have to offer advertisers more bang for the buck, somewhere between newspapers and direct mail, where advertisers can see quick results in real sales. And sites will likely have to demonstrate more brand power to hook viewers into staying put, much like cable television has done with success in the region.
"Cable is a good example," says Marcelo Salup, executive vice president and international media director at ad agency Foote, Cone & Belding. "The really successful channels have a strong voice." Sports channels like ESPN and Fox Sports Americas or kids networks such as Cartoon Network and Nickelodeon have prospered because they lock viewers into an identifiable experience, he says. "When cable discovered real branding, it really took off," says Salup. "The ones with branded signals have really taken off. I don't think the Web has done that."
Still, advertising online is going to be an essential part of any company's strategy. For some products, only the higher-income segments of a given country will be able to buy, so advertising online is a good strategy, especially if Web companies can show specific results for the advertising dollar. "If I were a car company, there's no way I can move away from the Web. The penetration among [upper income] families is excellent," says Salup. "For what you spend for a couple of spots on the air, you get a good one- to two-month Web effort."
Risk and reward. Who wins and who loses? Probably direct mail and zoned newspaper advertising, especially among the wealthier social groups, will lose ground to online ads if they can demonstrate effectiveness. The Web is custom-built to measure real response, user by user, so an engaging interface that provides a strong customer relationship over time would knock out traditional print efforts to reach those consumers. Magazine budgets could be vulnerable, too, as is cable television--if the Web closes the deal with the advertising version of the knockout punch, accountability.
"On the Internet you basically know right away if you're reaching them," says Oswald Mendez, executive vice-president and regional director of Universal McCann, the media arm for McCann-Erickson World Group. "And you can set up your deals with the media, whether you want to drive traffic or generate leads or generate an online transaction." Mendez sees increasing pressure on the Web and on print and electronic competitors to provide "risk contracts" where income is based on actual sales generated. In that sense, the Internet changes the rules.
Even with interactive firepower, prospects for many dot-coms are doubtful, Mendez says. Downright gloomy, even. Most, he says, are looking to get bought, whether by a successful service provider or by traditional media itching to advertise online. "I don't think a lot of players are going to be around a year from now," he says. Perhaps not, but the Web most definitely will, and so will online advertising. Who has the staying power to profit remains to be seen.
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|Date:||May 1, 2001|
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