COMPANIES & FINANCE THE AMERICAS - UOL makes capital out of Steve
Jobs' business model.
By RAYMOND COLITT.
08/31/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved
COMPANIES & FINANCE THE AMERICAS - UOL makes capital out of Steve Jobs'
business model - By emulating AOL, Universo Online has gained a strong foothold in the
Brazilian internet market, writes Raymond Colitt.
In 1992 Steve Case gave a presentation on America
Online during an internet conference sponsored by a big investment bank. Sitting in the
audience was Luis Frias, who, fascinated by AOL, later approached the internet service
provider's chairman to learn more about the business.
Learn he did. Universo Online (UOL), the ISP Mr Frias helped create and now heads, has
become the largest in Latin America and the biggest headache for AOL in its efforts to
tap the fast-growing Brazilian market. "Much of our strategy was inspired by AOL," Mr
Frias admits.
Bucking the trend of global dotcom gloom, UOL this week announced a net revenue
increase of 70 per cent and a reduction of its net loss by 35 per cent for the first two
quarters year-on-year.
The Brazilian ISP expects to reach cash break-even in the first or second quarter of next
year, possibly becoming the first main Latin American dotcom to do so.
According to Jupiter Media Metrix, the consultancy, UOL's sites had more than 4.6m
unique visitors in July, reaching 79.3 per cent of the Brazilian online audience - the
highest penetration level of any portal in a main market.
That is far ahead of Starmedia with a 46 per cent market reach in Brazil , Terra Lycos
with 45 per cent, and AOL with 15 per cent.
UOL has 1.1m paying subscribers, which it says equals roughly 40 per cent of the
subscriber market in Brazil and makes it one of the 20 largest ISPs in the world.
One of UOL's advantages in its battle to reach the top was its early approach. When it
launched its service in April 1996, the internet in Brazil was still in its infancy and the
market wide open.
More important, it benefited from the market reach of Folha de Sao Paulo and the Abril
group, its principal shareholders and two of the country's leading media groups.
"UOL efficiently used their media channels to capture a share of mind in the market,"
says Marcos Wettreich, whose iBest company has prized UOL as the best ISP in Brazil .
AOL's Brazilian debut, by contrast, came only in November 1999 and was dogged by
technical difficulties with its software.
UOL insists it has better knowledge of the home market than its competitors. "We know
Brazil and Latin America better than the US or Spanish players," says Mr Frias, in
reference to AOL and Terra.
In June General Motors chose UOL over AOL to form a strategic online marketing
alliance in Latin America.
Beyond its market penetration, "the functionality of UOL's sites and the quality of their
content is a force that will leverage GM 's internet strategies in the entire region", says
Fritz Henderson, GM vice-president for Latin America, Africa and the Middle East.
Even though UOL generates 90 per cent of its content in-house, it has benefited from
partnerships with leading media groups not only in Brazil but in Venezuela, Colombia,
and Argentina as well.
"It has more quantity and variety of content than its competitors," says Mr Wettreich.
Last year's Nasdaq crash led UOL to postpone its plans for an initial public offering,
forcing it instead to seek additional private equity.
UOL sold an initial 17.9 per cent equity stake to Portugal Telecom in exchange for both a
$200m cash injection and for Zip.net, Portugal Telecom's online unit.
Next it sold Accessnet, its traffic management subsidiary, to Embratel, the long-distance
phone carrier, for $100m. In six months UOL had raised $300m - effectively ensuring its
financial survival.
Akey advantage of UOL is that "it was quick to move out of the free ISP model and focus
on strengthening its subscriber base", says Lucas Graves, senior analyst for Latin
America with Jupiter Matrix. Subscriber fees make up 77 per cent of its total revenue.
The biggest challenge now is for UOL to repeat its success in markets outside of Brazil .
"Mexico is a tough market for us," says Mr Frias. Yet he insists that UOL will reinforce not retreat - from its international foray. "It is harder for us to increase our market share
in Brazil ."
However, even holding its market share in Brazil could be tough, analysts say.
Terra has a strong customer base and AOL has deep financial pockets and a technological
edge, says Will Landers, internet and media analyst with CSFB, the investment bank. "It
is going to be a tough battle between the three of them."
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