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Posts Tagged ‘latin-america’

So you’re hopping on a flight and you sit next to a sexy member of the opposite sex. You’ve got to get some work done so you whip out your nasty laptop, a fat and ugly IT department-supplied monstrosity (probably from Dell or HP). Your seatmate looks over, idly contemplating your potential as a lifemate, and sees your junk laptop and starts reading the Skymall catalog.

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Dell Vostro 3000-series: You know, for small businesses and entrepreneurs

Yay, taxes! It looks like more and more states are considering forcing the likes of Amazon and Overstock.com (note: I’ve never bought anything from there!) to pay taxes. This is good and bad: it helps, however little, state governments balance the books, but it also raises the cost of “doing business” in those states

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Paying the Amazon tax

As a full-time systems administrator, it’s important to me to keep an eye on the servers and hardware I manage. Pages and email alerts in the middle of the night are no fun, so I’m frequently on the lookout for more proactive monitoring tools.

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Proactive RAID monitoring from your iPhone

Back before Brazil was the darling economy of Latin America, all eyes were on Argentina—or at least the dot com “eyeballs” were. In the late 1990s, when VCs, private equity houses and wealthy individuals where throwing Internet money around the globe, Argentina got more than its fair share. The relatively small country was home to the fifth-largest number of registered Internet domain names in the world, and in early 2000 the now-defunct Industry Standard estimated that some 50% of the Latin America’s Web startups were concentrated in Argentina.

Of course, when the Nasdaq crashed, most of those global investments did as well. Just like in India, investors bailed on funding commitments happy to write off their far-flung bets and move on. Left in a lurch, most of these Latin American companies went out of business, many others sold, and one—just one—went public on the Nasdaq.

That was MercadoLibre, the so-called eBay of Latin America. And it took until 2003 to take off in a big way and until August 2007 to go public. The company did just $1.7 million in revenues in 2002—that jumped to $135 million in 2008. MercadoLibre’s stock has done well too. Although it’s down from its pre-recession high of $78.81 per share, it’s up some 175% so far this year, giving the company a healthy $2.18 billion market capitalization.

The trends are all going in the right direction for the company. More Latin Americans are adopting the Net, and its PayPal-like product MercadoPago is taking off as ecommerce expands more broadly in the region. There are 600 million people in Latin America, 150 million on the Internet and 40 million of those are MercadoLibre users. Not content to be the eBay and the PayPal of the Latin world, the company has recently launched free classifieds, throwing down a gauntlet to OLX, an up-and-coming Argentine company that set out to be the world’s Craigslist. OLX has a more global focus, operating in 80 countries and in 40 different languages.

[Gossipy side note: OLX was founded by Alec Oxenford—the same guy who started DeRemate, one of MercadoLibre’s chief rivals back in the day. DeRemate eventually sold to MercadoLibre in 2005, so Oxenford and his partner started OLX. And now MercadoLibre is competing with them again by going after the classifieds market. And if that’s not enough insidery coincidence, OXL is backed by Peter Thiel, the PayPal co-founder who made his money from selling to—you guessed it!—eBay, part-owner of MercadoLibre. Confused? You won’t be after this episode of Soap.]

MercadoLibre isn’t exactly a cutting-edge company, but here’s why it’s important. I met a lot of young, hopeful Web entrepreneurs during my trip to Argentina last week. Unfortunately, most of them said they consider success to be selling for a few million to a U.S. company. While they may be big believers in the talent in Buenos Aires, the entrepreneurial resilience found there and the strong creative class, they complain there’s not a large enough local market and tapping into inward-looking Brazil is almost as hard for them as tapping into China. One of the few local venture investors I spoke with described his model saying, “Copy cats and early exits. That’s what I’m looking for.”

I get the practicality of using any level of wins to build a venture ecosystem, but aiming small is dangerous thinking. That’s about building an ecosystem of mercenaries, not innovators. To state that as the ultimate goal is like admitting to the world that Argentines don’t think they can innovate on the Web. And if they don’t believe in it, why should anyone else? Also, who said the business of startups was supposed to be practical? You want practical? Work for a multinational and invest in mutual funds.

So the fact MercadoLibre was able to go public on the Nasdaq, create a big market in Brazil and continue to thrive makes it an important role model, even though, yes, OK, it’s “just a copycat.” (Regular readers know I hate that word as a negative description of International startups, as much as I keep finding myself using it.)

I spent some time in Buenos Aires with Ignacio Vidaguren (pictured above), one of MercadoLibre’s early executives, to get some advice for this much-too-pragmatic Argentine entrepreneur class. What had MercadoLibre done right that even all those other frothy 1999 Argentine startups hadn’t?

Vidaguren fully admitted the company benefited from a lot of lucky timing, but it was scrappy enough to take advantage of it. The company first got its start in 1999 when Marcos Galperin—then at Stanford Graduate School of Business—offered to give John Muse of private equity firm Hicks, Muse, Tate and Furst (now called HM Capital Partners) a ride back to his private plane after a guest lecture and pitched him on an eBay-of-Latin-America business on the way. Muse invested. The company burned through some of that cash with some ill-advised TV ads, but learned quickly and was lucky enough to raise another $45 million round in May 2000, just as the market was crashing.

MercadoLibre pulled the handbrake on spending hard. No more expensive branding, no more business class flights, no more perks of any kind. In 2001 it got another boost when eBay picked MercadoLibre to be its Latin American partner, over larger competitors. eBay treated the young company like part of the family bringing MercadoLibre executives into company meetings and giving it advice on what had worked for eBay and what hadn’t.

So a lot of Vidaguren’s advice for Latin American startups may sound obvious. Hoard your money. Get to profitability. Don’t give up on a market that’s growing more slowly than people expected as long as it is still growing. And watch your competitors closely: Copy what worked for them, avoid what didn’t.

But MercadoLibre did make one notably gutsy move that flew in the face of advice from US investors: Focusing on the Latin American market, not the Spanish speaking US market. While many younger companies talk up the idea of “being global from day one” ten years later, MercadoLibre still focuses on its home continent. “A lot of people are aiming for the world market, but for us, Latin America is still a challenge,” Vidaguren says. “You have to be able to convey a pretty compelling story before you can be global.”

You can argue that MercadoLibre would have never made it, had it not been able to exploit the froth of the late 1990s and then used all that cash wisely. You can argue MercadoLibre would never have made it if it had not been such a copycat that eBay—one of the few dot coms doing well after the crash—took a financial interest in the business.

But all that aside, it’s an important role model for a country that suffers extreme vicissitudes in economic and political fortunes and is frequently treated like the less-sexy Brazil in today’s global economy: You don’t have to sell just because you’re from Argentina. You can go public. MercadoLibre did.

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Several airlines have been offering Wifi for a while now. United Airlines wants to ensure that people are actually trying it out and so through the end of the year, you can get one free session if you create a new account with Aircell’s Gogo Inflight.

Read the original here:
United Airlines & Gogo offering try-before-you-buy in-flight Wifi promo

I’ve been taking a brief respite from my international travels, but the last weekend in August I am hitting the tarmac again. This time, it’s a few weeks in Brazil. Right now, I’m planning on spending the time in Sao Paolo but am open to exploring the country further if anyone knows of great start-up activity elsewhere.

I’m working closely with Endeavor which has done amazing work in South and Latin America for more than a decade. But as always, I want to ferret out the best entrepreneurs and investors in the country so send me an email if you have any suggestions at sarah (at) techcrunch (dot) com.

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The term “e-commerce” still lacks a universally valid definition, but even if you just bundle B2B and B2C transactions under it, it’s a multi-trillion dollar business globally. Last year, Nielsen found [PDF] 86% of the global web population made an online purchase already (North America: 92%). For the US alone, B2C sales are expected to grow from $130 billion this year to over $200 billion by 2013 (excluding travel).

In North America, Amazon is the 800-pound gorilla in the B2C arena - by very, very far. After the US launch in 1995, the company quickly established separate websites in Canada, the United Kingdom, Germany, France, China, and Japan. But although Amazon wins in Canada and Europe, things are not going as well in Asia. In China (where Amazon started offering a localized site in 2004), it practically gets destroyed by local player Taobao [CN]. Traffic-wise, Amazon gets dwarfed by a local e-commerce site in Japan, too: Rakuten [JP].

Amazon is active in Japan for a good reason: In its last report [JP, PDF], the Japanese government said the country’s online B2C sector grew by 21.7% to over $55 billion in 2007 on a year-on-year basis. (Note: Statistics from different sources can vary widely because of totally different methods of measurement. The Japanese numbers, for examples, do include travel.)

Now it seems Rakuten wants to take its global plans (laid out numerous times in the past) to the next level, with CEO Hiroshi Mikitani saying just this weekend he wants to see his company generating $1 million in daily sales outside Japan by the end of this year.

This short case study tries to shed light on Rakuten’s background and key success factors, why they win against Amazon in Japan and what efforts they make to go global.

1. Rakuten vs. Amazon Japan
With 47 million members (1 in 3 Japanese is registered), Rakuten Ichiba (Rakuten Marketplace) is a household name in this country. The biggest difference to Amazon is that Rakuten was founded as a B2B2C company without a warehousing function. It’s a platform for individual merchants to sell their products to individual customers online.

And they’ve been very successful with it, even though Amazon launched their Japanese site as early as 2000. Look at the table below for a head-to-head and a Google Trends traffic comparison chart:

2. Rakuten’s success factors: Aggressive pricing and wide diversification
The idea and main success factor for Rakuten was helping Japanese brick and mortar businesses that wanted to set up customized online storefronts by themselves. As early as around the end of the 1990s, CEO Mikitani began systematically undercutting prices of existing hosting services by several hundred percent and combined this with an aggressive sales and consulting model. As a trade-off for cutting out middlemen, merchants had to pay upfront, which made it possible for Rakuten to maintain a positive cash flow. Until today, the site offers its merchants a number of services to make their lives easier (real-world seminars, a monthly merchant-only magazine, phone support etc.). In return, Rakuten pockets fixed “virtual real estate” fees from the 28,000+ merchants currently registered on the site, in addition to commission payments (2.6% of each retailer’s sales revenue).

In parallel, the company stepped away from its original B2B2C roots in the last years, quickly turning into a gigantic web conglomerate. And the company transformed more radically than Amazon did in the US: Rakuten acquired popular online portal Infoseek (Alexa Japan rank: 20) to drive traffic to the main site, established an auction service (now Japan’s third largest), provides online securities brokerage, bought an online travel service (Rakuten Travel is now Japan’s biggest hotel reservation site) and offers a blogging platform (the No. 3 in blogging-crazy Japan). In addition, there is a Rakuten credit card (nearly 2 million Japanese own one), a personal consumer credit service, an e-bank (Japan’s biggest), a ticket sales service, a real-world Rakuten soccer team, a popular golf court reservation sub-site etc. etc. You get the picture.

3. Rakuten Marketplace: 35 million items from $1 to $100,000
But despite the rapid diversification in recent years, Rakuten is still known mainly as an online shopping site for the Japanese. And in contrast to Amazon, they can get anything on Rakuten, from used $70,000 four ton-trucks, Gucci handbags, digital content (Amazon Japan doesn’t offer downloads), down to apples and oranges directly offered by regional farmers.

The price level is relatively low for many items, as many shops offer identical products and the collected setting allows for users to quickly compare prices. Shipping is generally free on all books, DVDs, CDs and similar media. Rakuten also has the so-called “Super Points” system in place, a reward program for members (you are not required to register to buy on the site). Amazon’s counter offer, “Amazon Point”, was established as late as 2007.

Here is the translated version of Rakuten Ichiba’s massive top page (click to enlarge):

4. Amazon Japan’s strong position
Seeing this cluttered top page (which isn’t regarded unusual in Japan at all), it’s interesting to notice Amazon resists the urge to change their globally uniform design approach to accommodate Japanese tastes (Amazon’s US site basically serves as a design blueprint for all their sites worldwide).

But Amazon isn’t doing business as usual in Japan, making additional investments in its subsidiary instead. Next month, the company will set up a new distribution center just outside Osaka (it will be Amazon’s biggest in Japan). In the last weeks, three new categories with some 130,000 items were added to the site. And it’s possible for Japanese retailers to open an online shop on Amazon since 2006 already.

Overall, Amazon has positioned itself very well in Japan, proving that foreign web companies can enter this country successfully. And they also show that being inferior in traffic doesn’t always translate to being (proportionally) inferior in sales. Amazon’s parent company doesn’t break down sales figures on a country level, but some sources [JP] estimate the Japanese subsidiary rakes in roughly 10% of Amazon’s total sales and income. Assuming this is true, this would bring sales in this country to around $1.9 billion and operating income to a handsome $84 million (even though just yesterday, Japanese tax authorities reportedly demanded back $119 million in taxes from the company for unreported income).

5. Rakuten’s internationalization efforts and English services
Rakuten has been talking about going international for years now, and they’re already testing waters in a handful of countries. In the US, Rakuten acquired New York-based e-commerce company LinkShare for $425 million four years ago (Rakuten USA itself is headquartered in Boston). Rakuten Taiwan and Rakuten Europe (in Luxembourg) were established last year. Rakuten Travel has expanded to Korea, Guam, Thailand and China.

International customers can already book hotels in many Asian countries through Rakuten Travel’s English interface (which is on Rakuten Japan and works very well). About a fourth of all items available for Japanese customers can be ordered from selected countries through a service called Rakuten International Shipping Services. Non-Japanese users can access Google-translated item pages (24 languages are currently supported), place an order, pay via credit card and then wait for direct delivery from Japan (it’s even possible for foreigners to collect Super Points).

This is just a makeshift solution, sure, but way better than what many other Japanese online retailers offer.

6. Conclusion
Rakuten says sales outside Japan currently account for less than 10% of total sales, and overseas sales are currently growing at an average of about 20% monthly. Mikitani regularly mentions Asia (China in particular) as the next big market for his company.

But the current economic crisis has triggered what seems to become a trend among online giants: selective internationalization. MySpace decimated non-US staff just recently, Facebook is rumored to have second thoughts about China and Germany-based business social network Xing last week decided to shelve expansion plans for the US and China.

That’s why my guess is Rakuten will avoid battling it out with Amazon in their core markets and focus on untapped countries or niche segments instead - despite those aggressive announcements of the past. (In January last year, for example, the company said it will make inroads into 27 different countries by 2013. Mikitani regularly claims his final aim is to build the world’s biggest Internet company.)

Things are going quite well in Japan, but on a global level, Rakuten will have a tough time. The big competitors will certainly not cede markets such as Latin America, Africa, India or South East Asia to them standing by and doing nothing. In the US and core markets in Europe, Amazon dominates. In China, Taobao already established itself with 120 million users.

For the time being, there shouldn’t be a realistic chance for external players to win these markets over. This is true even for a conglomerate like Rakuten and its charismatic leader (who, in addition, still has to deal with a pretty strong service called Amazon domestically).

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6,000 or so people have congregated at the Rio hotel in Las Vegas for this year’s World Series of Poker to fight for $50 million or so that will be split among the last 10% of players left standing. Among them are a number of tech startup entrepreneurs. We’re tracking four of them, plus any others that pop up.

This is David Sacks’ third WSOP. Sacks, a former PayPal exec and the CEO of Geni/Yammer, walked away with nothing two years ago. Last year he took home $25k in prize money, and twittered every hand. This year he’s way up after the first day, with $91k in chips. That likely puts him in the top 10% of players. He is twittering summaries of his play at @davidsacks. You can see his player card here with last year’s results.

Jason Calacanis (Mahalo founder) is playing today for the first time. He’s been sponsored by FullTiltPoker (they paid his $10k buy in) and looks absolutely ridiculous (he’s pictured above). Look for his twitters later this afternoon.

Facebook exec Chamath Palihapitiya is playing beginning today as well. And we’ve heard but haven’t verified that former Yahoo exec David Goldberg (currently CEO of SurveyMonkey) is at the WSOP too.

The tournament has just started so there isn’t much to report yet. One concern we have - Sacks is set to speak at our real time event this Friday, which is day three of the tournament. He told me today that if he makes it to day three he “has to play,” and won’t make the event. My response? It was NSFW.

Good luck to everyone. Except Sacks. I hope he loses it all on day 2.

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