Despite dot-bombs, LatAm Net growth is strong

By Juan Carlos Perez

(IDG) -- Despite the debacle of Internet companies worldwide, online usage continues to grow robustly in Latin America, as its benefits constantly draw new users, several speakers said at the LatinTech 2001 conference in Miami on Thursday.

In fact, Jupiter Media Metrix has revised upwards its Internet usage forecast for Latin America. The New York-based market research firm now expects the region to have 77 million individual users by 2005, according to analyst Lucas Graves. Jupiter's forecast a year ago called for the region to have 66.6 million online users by 2005.

"Consumers don't care about the Nasdaq," Graves said, echoing a comment made by other speakers referring to the tech-heavy stock exchange that has seen the valuations of many of its listed companies nose-dive since early 2000.

What this means is that the woes that have affected the technology sector in the past year -- such as plummeting stock prices, myriad bankruptcies and massive layoffs -- have had little or no impact over Internet adoption in Latin America.

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"The total regional Internet market is growing despite the shakeout of the pure plays," said IDC analyst Annika Alford. "Pure play" refers to companies founded to operate exclusively over the Internet. These companies have been, as a sector, among the hardest hit by the downturn in the technology market.

Still, other barriers that could hamper this projected growth continue to exist, including slow connections, high costs of telecommunication services and access devices, and concern over privacy protection and security of online data, speakers said. Partly because of these reasons, Jupiter slightly lowered its forecast for consumer e-commerce spending in the region, Graves said.

Graves highlighted that most of the Latin Americans who will be online in 2006 aren't online today, proof that this is still a nascent and very fast-growing market. His company estimates that 21 million people in the region used the Internet by the end of 2000, equivalent to 4 percent of the region's population, but that is expected to grow to 86 million people by 2006, or 15 percent of the population. By comparison, in the much more mature U.S. market, 66 percent of the population will use the Internet by 2006, he said.

The challenge for Internet companies, such as Internet service providers, portals and online retailers, is to win a share of this ever-increasing mass of users coming online in Latin America, Graves said.

This is why America Online Latin America's goal is to persuade as many of these new users as possible to sign up for its service, which includes Internet access and proprietary online content, said Charles Herington, the company's president and CEO.

"The Internet mass market is just beginning to come online in Latin America," he said, adding that each, more and more Latin Americans realize the convenience of using the Internet, and integrate it into their daily lives. "Convenience is king. ... The convenience of using the Internet is becoming a necessity in Latin America."

Those who have said that his company came late to the region don't understand that a company such as AOL Latin America doesn't have to steal customers from its competitors, because the growth in new users is so phenomenal, he said. AOL Latin America was founded in late 1998 and launched its first service in Brazil in late 1999. It now offers service in Brazil, Mexico, Argentina -- the region's three largest Internet markets -- and Puerto Rico.

"The Internet is being adopted at record rates in Latin America," Herington said.

AOL Latin America announced Tuesday that its subscriber base increased to 647,000 in its first fiscal quarter of 2001, ended March 31, compared with 449,000 in the immediately preceding quarter ended Dec. 31. Yet, that 647,000 subscriber figure includes people who are on a free trial period. (AOL Time Warner is the parent company of CNN.com.)

In an aside before his presentation, Herington declined to say how many of the company's subscribers are actually paying for the service. He did point out that its subscribers spend an average of 30 minutes per day online and that revenue generated from subscription fees increased 80 percent in the first quarter, compared with the same quarter last year.

Another question mark in the company's future is when it might turn a profit. The company racked up a net loss of $88.6 million ($1.41 loss per diluted share) during its first quarter of 2001. Fernando Figueredo, AOL Latin America's VP of corporate communications, in an interview declined to say when the company plans to turn a profit.

He did say that it can for the moment keep its focus on growing its subscriber base without having to worry as much as others about reaching profitability. This is because AOL Latin America has a pair of backers with deep pockets in AOL Time Warner and the Venezuelan media conglomerate Cisneros Group, which hold, respectively, 42 percent and 37 percent stakes in the company, he said. The company's revenue did rise fivefold to $12.8 million, compared with the first quarter of 2000.

The company is now focused on expanding its presence in the four markets in which it operates, as opposed to launching services in other countries, although the latter remains its ultimate goal, Herington said. IDC's Alford praised that strategy during her presentation.

"Strength in one country is better than weakness in many," she said.

As far as consumer online spending, online retailers in the region hold some advantages over their counterparts in the U.S., Graves said. For example, most Internet users in Latin America are concentrated in their countries' main urban areas, which makes it easier for these companies to conduct marketing campaigns and provide in-country delivery and fulfillment, he said. In Brazil, about 60 percent of users are in Sao Paulo, Rio de Janeiro and Curitiba, while 78 percent of Argentinean users are in Buenos Aires, he said.

A U.S. online retailer such as Amazon.com, in turn, has to blanket-cover the country in order to compete, because users in the U.S. are much more evenly distributed throughout the country, Graves said. Jupiter is forecasting that Latin American consumers will spend $10.7 billion in online purchases in 2006.