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Spontaneous Dot-combustion.

The hottest spots in the blazing web world of Latin America.

PEDRO ASPE, THE CHAIRMAN OF ONE of Mexico's leading investment banks, is not your typical Internet booster. But the staid, 50-ish ex-finance minister of Mexico can't resist offering his advice to would-be Latin America web investors. Finance sites aimed at consumers between 15-25 years of age, he says. "That group is growing at a rate four times faster than the entire population," he notes.

Aspe is just one of many web gurus visibly thrilled by the profit potential of Internet incursions in Latin America. To the mantra of "the world's fastest growing Internet market," executives are descending on the region in search of fortune. Each fantasizes about hitting a hot new niche before the behemoths stomp the players.

And they are stomping. Since going public last year, Spain's Terra Networks has become the 800-pound gorilla of pan-regional portals with a market capitalization of more than US$35 billion. Compatriot Banco Santander Central Hispano recently flattened, purchasing 75% of the financial portal for $529 million. Constant rumors identify other Latin American Internet start-ups (portals StarMedia, and Guby Networks to name a few) as takeover targets for the incoming giants (America Online, Yahoo, and Lycos, among others).

Not to fear, though. There is still plenty of opportunity because the Internet is in its infancy. Of Latin America's 486 million people, roughly 9 million, or less than 2% of the population, are online today, according to research firm International Data Corporation. Buying and selling over the Internet in the region amounted to a measly half a billion dollars last year--an infinitesimal portion of the region's total Gross Domestic Product (GDP) of some $1.6 trillion.

Finding a stellar piece of virtual real estate today could prove especially lucrative because of the Internet's rapid growth. International Data Corporation recently increased its user forecast for the year 2003 from 19 million to 30 million. Similarly, e-commerce is forecasted to surge to $8 billion by 2003. At web conferences everywhere and at the so-called First Tuesday Network meetings--Internet executive cocktails held on the first Tuesday of each month in Buenos Aires, Mexico City, Miami, Santiago and S[tilde{a}]o Paulo--the pundits and pros are touting what they see as the hottest Latin American spots in the web world.


E-commerce euphoria. "A portal is like being a traffic cop for information. What was I going to bring to the table in that business?" says Spaniard Manuel Montero, a veteran of transport company TNT, American Express and chemical maker Olin Corp., about his decision to launch an e-commerce website instead of a plain, old portal. At the end of 1998, Montero started working full time to develop to sell everything from CDs to computers targeting Spanish- and Portuguese-speaking consumers in Latin America and the United States.

Hardly an original idea, but Montero thinks his execution outshines the rest of the pack. Fiera has signed deals with companies inside and outside the region--including Sony, Compaq and Toshiba-- searching for new distribution channels. Montero says these pacts allow products to be sold 15-30% cheaper on average than local retail outlets in Argentina, Brazil, Chile, Mexico, Puerto Rico and the United States. He offers door-to-door delivery in four to six business days and guarantees satisfaction with a 15-day return policy. "No one else offers that package to the consumer," Montero says.

Whether that package will be enough remains unclear. The so-called BUSINESS-TO-CONSUMER MARKET is rapidly getting crowded. In addition to Amazon, CDnow, and other major U.S. online companies, a host of Latin American entrants, from start-ups to traditional retailers, are launching sites to sell consumer products. More are entering the market every day.

"Latin America is still green," says 30-year-old Fernando Arzuaga, executive director of recently launched Compras24, which aims to become the quintessential conduit for finding the best retail website for any product. "You have to seize the opportunity."

The start-ups face the daunting task of creating a multinational business as well as a brand name., a Brazil-based web company, has raised some $90 million to open offices across the region, provide the necessary support for sales of books, CDs and other items, acquire competitors and, most important, brand the company's name into the brains of Latin American consumers. Indeed, many new Internet companies would not be losing money hand over fist if they weren't spending millions on billboards, promotions and other advertising and marketing madness. Star power will be crucial to cutting these costs. TV personality Don Francisco, host of S[acute{a}]bado Gigante, and Spanish singer Julio Iglesias teamed up with two music industry executives to launch Internet entertainment site MUSIC AND SPORTS WEBSITES, among others, are expected to court similar partnerships with Latin megastars like singer Ricky Martin, actress Jennifer Lopez and soccer standout Ronaldinho.

Within the retail segment, music sites are growing fast and furious. In the United States, hip-hop network merged with Mega Communications, which boasts 17 Spanish-language radio stations, to spawn online music sales site It joins a lengthening music site roster that includes eritmo, and Som Livre. Ritmoteca has even moved aggressively to secure digital rights that will permit downloading music directly as an alternative to delivery of actual CDs and DVDs of artists throughout Latin America.

The start-ups will need every technological edge available to beat back the major U.S. consumer sites. Portal StarMedia's Luis Samra, who directs strategy development of e-commerce sales in Latin America, claims most of the $170 million sold online in Latin America in 1998 went to U.S. websites. By way of example, he points out that is the top selling bookstore in Chile. Samra warns that the trend will increase if Latin start-ups continue to offer little variety and higher prices than retail stores. He also underscores that ecommerce start-ups specializing in the Spanish and Portuguese-speaking markets are emerging from Miami and major cities in Texas and California. "They are the staging ground for Latin America," he says.

Along with U.S. websites, the top Latin American portals are pushing into e-commerce in a big way. StarMedia, for example, not only offers the standard fare of books and CDs, but it recently signed an agreement with to supply over-the-counter medicines to the region.

"UOL, StarMedia, El Sitio, all of the portals tell you: 'Either you sell your company to us or we will squash you," says Alec Oxenford, CEO of auction start-up "It's not true. They can't do it." The 30-year-old entrepreneur maintains his company can beat back the portals in auctions because auctions are his only focus. "For the portals, it's just one more business," he says.

Nonetheless, he sold a 30% stake in Deremate to Terra Networks to secure financial firepower for the long haul. "If there is a market correction, they won't let their cousin [Deremate] fall," he says.

Click and order. What may prove more worrisome in the short term than a major economic crash is BRICKS-AND-MORTAR companies joining the click-and-order crowd. Bruno Fiorentini general manager of Yahoo! Brazil, says leading brick-and-mortar merchants must go online to maintain their top-dog position. He describes last Christmas' rush to buy toys, music, books and clothing from U.S. websites as a wakeup call, adding that Brazilian department stores such as Lojas Americanas and Ponto Frio got the message and are going online. In Mexico, retail chain Sanborns is pushing online sales hard, as is Chile's Falabella.

StarMedia's Samra, however, describes those retailers as in the minority. "The biggest merchants are still not doing anything to protect their turf," he says.

The established players must walk a fine line between promoting their websites and encouraging traffic to their stores. Every Sunday Argentine music retailer Musimundo takes out a page in local newspaper Clarin to offer select CDs at half price on its website. The promotions drive traffic to the online shop, but they may be stealing business from the company's stores.

While the traditional retailers struggle not to cannibalize existing local operations, the pan-regional start-ups juggle the challenge of having neither stores nor "a local currency." To pay for items, for example, consumers need international credit cards to replace the domestic cards invalid for cross-border electronic purchases. "A lack of international credit cards is holding back e-commerce," says Greg Keough, CEO of the online investment service, Zona Financiera.

In response, the Bank of Boston has created an Internet-only credit card for payment in the region. Visa International has signed agreements with StarMedia, Fiera and others web-sites to promote Visa cards as the preferred method of online payment. StarMedia also plans to give seminars to educate merchants and cardholders on the benefits of using international credit cards.

In the United States, Internet security company SpendCash recently announced the launch of a "cash card" that consumers can use to pay for goods and services on the web. Similar to prepaid telephone cards, the cash cards are being accepted by Spanish-language shopping site


Other basic conditions must be satisfied before the region can meet its e-commerce potential. Those include cheaper computers and increased computer education (only 3.8% of Latin American households have PCs compared to 52% in the United States), more telephone lines and cheaper phone rates and cultural acceptance of online shopping. "Latin Americans like to touch what they buy," says Luis Anavitarte, head of the Latin America and Caribbean division for the Silicon Valley researcher Dataquest Gartner Group. Nonetheless, he adds: "The potential of e-commerce is phenomenal."

Biz-to-biz buzz. Alejandro Soriano, CEO of financial services website EquityPlaza, says the web's true potential lies in bringing goods and services to a vast segment of unattended midsized companies. By the former Booz Allen Hamilton consultant's count, there are some 5 million companies in the region, of which some 1.2 million have sales between $1 million and $30 million a year. "The only access [these] companies have to capital is through family and friends," says Soriano.

Soriano counts on EquityPlaza to change that. At no charge, firms that enter their financial information into the website's credit analysis system receive advice on what type of financing to seek; they can automatically send their information to a participating institution. Banco Santander Central Hispano, Banco Bilbao Vizcaya Argentaria, Citibank and Hongkong Shanghai Bank are on board with the program, hoping the system will bring increased business at reduced cost and effort.

The burgeoning BUSINESS-TO-BUSINESS MARKET is awash with free matchmaking sites. They differ in service, segment or scope, but all promise a super-efficient medium for buying and selling, as well as comparative shopping, for companies willing to give them a try.

Ultimately, online transactions between companies are expected to prove far larger and perhaps more lucrative than the business-to-consumer market. In fact, of the $8 billion e-commerce sales projected in 2003, some $6.7 billion will be "business-to-business" buying and selling of goods and services, according to International Data Corporation.

It's no great mystery why. More companies than consumers are online, and the web offers a low-cost way to open markets at home and abroad. But the companies have no clear indication where to go to conduct trade. After all, there is no online equivalent to the Chicago Board of Trade for auto parts, dishwashers, printers or other manufactured goods.


Many Internet start-ups are scrambling to establish themselves as "the marketplace," but it is not always clear for what product or service. There are sector-specific entrants--in fact, there's a bumper crop of AGRICULTURAL WEBSITES in Latin America--but even within this universe, it's not evident which, if any, is the best place to go to market.

Here again, the thunder of giant footsteps echoes behind the start-ups. General Motors, Ford and Daimler-Chrysler recently unveiled plans for a worldwide parts purchasing operation using the Internet. Global grain trader Cargill is launching a website. Within the region, Carlos Tramutola, a former executive with Argentine multinational company Techint, and Oscar Bernardes, former head of South American grain giant Bunge International, formed the Latin American Internet Development Group, an incubator for business-to-business websites. MegaAgro, a joint venture with Argentine entrepreneur Enrique Pescarmona, could prove a category killer for web start-ups owing to the power of the backers.

(selected list)

Perhaps the best facet of the business-to-business struggle is the price. The sites are so hungry for business that none are charging--yet.

Freebie mania. Giveaways also reign as the preferred tactic for recruiting Internet users.

Brazil, Latin America's largest Internet market, has become the testing ground for FREE INTERNET SERVICE PROVIDERS. It began last December after Banco Bradesco, the nation's largest private bank, offered its 8 million customers free access to the World Wide Web. Since then, other ISPs have followed suit. Brazil's leading service provider, Universo Online (UOL), took three and a half years to enlist 650,000 paying clients, while its free access-offering Netgratuita claims to have signed up 806,000 subscribers in just two weeks.

"You cannot compare paying subscribers to free subscribers," says UOL Chairman and CEO Luis Fr[acute{i}]as, explaining that free users often have multiple accounts because it's easier to start a new account than remember an existing password. Fr[acute{i}]as, as, however, admits that UOL and daily newspaper El Universal considered making a big splash in Venezuela with free access--until Venezuelan President Hugo Ch[acute{a}]vez banned Internet freebies in his country.

Nonetheless, the free ISP trend is becoming entrenched in the region. StarMedia announced it would bring free Internet access via a company dubbed Gratis1. The venture will premiere in Brazil and Argentina before shifting to Mexico and the rest of the region. Terra Networks is moving in the same direction.

The key driver for free service is declining service costs. A Merrill Lynch analysis finds that it costs an Internet service provider about $4 to $5 per month per subscriber.

Free access will likely restructure the business so basic service is free but fees are charged for faster connections, broadband access, increased storage space and other upgrades. It also means many of Brazil's 280 Internet service providers that depend on subscriptions for their revenues will vanish by next year. "The survivors will have to learn to make up the money with advertising," says Yahoo's Fiorentini, predicting only about 25 will survive freebie mania.

Add e-commerce revenues to the equation and Fiorentini could be talking about any one of Latin America's web start-ups. Even "the world's fastest growing market" isn't going to be able to support a limitless list of entrants. A select few hot dot-coms will remain independent companies in the short term. Of the rest, the fortunate will be acquired by one of the incoming giants and the not-so-lucky will get squashed.


(English, Portuguese, Spanish) Guide to online shopping sites.

(Spanish) Boston-based website for buying consumer goods, principally books, videos and CDs.

(Portuguese, Spanish) Miami-based site for books, CDs and other items.

(Portuguese) Brazil-based website for books, CDs and other items.

(Portuguese, Spanish) Brazil-based site for books, CDs and more.

(Spanish) Website for books, videos and CDs.


(selected list)

(English, Spanish, Portuguese) Latin music and entertainment.

(Spanish) Surf and skate website.

(English, Spanish) Music website.

(Portuguese) Soccer website.

(English, Portuguese, Spanish) Soccer website.

(English, Portuguese, Spanish) Music downloads.

(Spanish) Sports website.

(Portuguese) Music sales online.


(selected list)

(English, Spanish) Asista's trade exchange is yet to be launched.

(Spanish) Intesa puts interactive company catalogues online.

(English, Portuguese, Spanish) Business-to-business site serves as incubator for e-commerce companies.

(Portuguese) Brazilian trade exchange will soon expand to Spanish-language markets.

(English, Spanish) Latin American Business Link organizes forums by product and country.

(English, Spanish), sister company to this magazine, offers trade exchange for 26 industries.

(Portuguese, Spanish) PlazaVertical has food, health, public sector and information technology exchanges up and running.

(English) Vortal 1's trade exchange is yet to be launched.


(selected list

(Spanish) Agropool, Argentina-based agricultural exchange.

(Spanish) Agrositio, Argentina-based agricultural exchange.

(English) FoodTrader, Miami-based agricultural exchange.

(Spanish) MegaAgro, Argentina-based agricultural exchange.


(selected list)

(Spanish) Free access in Argentina

(Portuguese) Banco do Brasil, five hours a month free.

(English, Portuguese, Spanish) Banco Bradesco in Brazil.


(selected list)

(Portuguese) Free access in Brazil

(Portuguese) Archdiocese of P[hat{o}]rto Alegre, free Internet in Rio Grande do Sul.

(Portuguese, Spanish) Gratis1, StarMedia's free Internet access in various countries.

(Spanish) Free access in Argentina

(Portuguese) Brazilian portal, free Internet to all of Brazil.

(Portuguese) Internet Gratis, free Internet access in Brazil.

(Portuguese) NetGratuita, Universo Online's free Internet service in Brazil.

(English, Spanish) Free Internet primarily for U.S. Hispanics.

(Portuguese) Free access in Brazil.

(Portuguese, Spanish) Terra Networks, free Internet access in various countries.

(English, Portuguese, Spanish) IFX Corporation, free Internet access in several countries.

(Portuguese) Unibanco and, unlimited service to its clients


(selected list)

(Portuguese) Lojas Americanas, a Brazilian department store.

(Spanish) Falabella, Chilean department store.

(Spanish) MusiMundo, Argentine music store.

(Portuguese) Ponto Frio, a Brazilian department store.

(Spanish) Sanborns, a Mexican department store.
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Publication:Latin Trade
Date:May 1, 2000
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