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Meltdown of Hispanic Sites Calls for Reassessment of Business Model
Apr 4 2001 12:41PM
By Abelardo de la Peña April 2001
Original Article: http://www.hispanicbusiness.com/news/newsbyid.asp?id=3579

Early in the apocalyptic year 2001, the once-bright Internet industry ground to a halt. Besides racking up billions of dollars in losses for institutional and individual investors, the meltdown took out some major players from the Hispanic space. The casualties include: Quepasa.com. In January, the Phoenix-based Internet portal was delisted from Nasdaq. A few weeks earlier, the board had approved plans to liquidate the company's assets. Latino.com. Later in January, Latino.com, which under the name LatinoLink began as one of the first sites targeting the U.S. Hispanic community, announced that it would begin charging for original content. Following that news came an announcement that all staff except the two founders would be let go. Yupi Internet. In February, Yupi withdrew plans for its initial public offering of $172.5 million after nearly a year on hold, citing market conditions as the culprit. Yupi laid off half its staff in December and two months later announced more cuts in its regional offices. El Sitio. Also in February, Buenos Aires-based El Sitio cut a quarter of its work force to trim costs ahead of its acquisition by Venezuela's Cisneros Group and investment bank Hicks, Muse, Tate & Furst. The site expects to save between $8 million and $9 million a year with the elimination of about 125 jobs. StarMedia Networks. At the end of the month, StarMedia announced total losses of $204.6 million in 2000. On an upbeat note, however, CEO Fernando Espuelas stated, "Our revenues and audience continue to grow and our outlook for 2001 remains positive." The company claims it will reach profitability by the end of 2001.

The market contraction affected every segment of the Hispanic Web – portal, webzine, e-commerce, B2B, B2C, B2G, P2P. The common thread running through these companies is a business model based on advertising revenues – a model that never produced enough money to pay the bills. Quepasa, for example, reportedly used $60 million in venture funding during its three years in existence, with much of it spent on technology, staff, acquisition of other sites, and a massive advertising campaign (mostly on billboards) in major Hispanic markets. For a company based on advertising sales, the losses – despite a growing subscription base in the millions and substantial page views – far outweighed the gains. The hope was that once the site attracted a critical mass of visitors, ad revenues to cover the costs would follow. But with an ever-increasing number of sites on the Web, the low rates paid for advertising, and the relative inability to measure results, advertisers continued to place their dollars in the more traditional media.

Obviously, the Internet cannot compete with radio and TV as a broadcast medium," says Arturo Villar, publisher of industry newsletter Hispanic Market Weekly. "It was putting the cart before the horse. … They spent the money trying to get users to visit them, from IPO or investors. But the revenue that they were hoping for never materialized. The moment of truth came and the investors pulled the plug." Despite the infrastructure woes, viewers are still flocking to the Internet. "Latinos are not much different from anybody else. They have seen the promise of the Internet to make their lives easier and they are embracing it," says Richard Koffler of Koffler Ventures, an Internet incubator that counts the Los Angeles-based site LatinoLA.com among its clients. "But just because it's a Latino site doesn't guarantee its success. We want to visit the sites that have the news we want, when we want it, to buy at the sites with the best price and service."

Instead of trying to build international portals or high-volume sites, the second-phase entrepreneurs of the Hispanic Internet are adopting a smaller, more manageable business model. Cesar Plata, Founder of muybueno.net, a community guide in the San Francisco Bay area, asserts that sites like his and LatinoLA, rooted in a geographical community, will continue to have a place on the Web. "My strategy is based on local, useful content – things like a calendar of events, jobs, directory of community resources, volunteer information. We are selling ads to local merchants and services, which don't bring massive revenue, but allow us to stay online. That's how we are going to succeed."
Source: HISPANIC BUSINESS magazine

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