Free ISPs in Brazil have been falling apart for quite some time, despite the growing number of Net users.
Recently, Internet Gratis (iG), the biggest of the free ISPs, acquired hpG, the biggest free Web-hosting service in Brazil. Two free services getting together won’t make a profitable business, right?
Wrong. Both may be running toward profitability.
Last month, iG may have turned a corner, after the announcement of the break-even for May and June. Break-even numbers are being audited by PriceWaterhouse, and official numbers will be revealed at the end of the year.
“The perfect wedding,” said Nizan Guanaes, iG’s president.
HpG has about 540,000 hosted sites on its servers. One year ago, there were only 37,000. And HpG said they have 270 million banner ads each month.
The portal was launched in 2000, following the example of Geocities. People could create their own personal websites online, without too much technical knowledge.
It’s not a killer app, or even a new resource, but hpG provided a reliable service. Also, the hosted pages have unlimited space for storage. Maybe that’s what made hpG well known in the Brazil.
“We were moving toward full break-even for August,” said Caio Paes de Andrade, one of hpG’s directors.
The buying contract between iG and hpG requires that hpG creators must maintain the current performance. The value of the acquisition wasn’t revealed but it will be paid in cash over three years.
According to Roberto Simões, iG’s vice president for operations, the acquisition had been planned since January, but the portal was “very focused in reaching the break-even, which came in May. Since then, new negotiations became possible.”
Other big players, such as Terra Networks and Globo.com, were also trying to buy hpG. “But iG’s offer was better in financial terms,” Andrade said.
(Terra Networks is the parent company of Wired News.)
Ibope/eRatings, a Brazilian census institute for the Web, classified iG as the seventh most-visited website in Brazil in its June report. HpG was third. Combined, iG and hpG have the second-highest number of visitors within the Brazilian Internet, right behind Universo Online.
But size alone won’t determine iG’s fate.
Free ISPs — most of them funded by advertising — have proven to be unrealistic business models. Free connection services in Brazil started to disappear last year.
But iG does not rely solely on ad revenue from its free-access business. Besides minor paid services, its revenue also comes from different sources such as wireless broad content portal Selig, an online pizza delivery service, an electronic boutique and high-speed connection services.
In many Brazilian cities, iG provides ISDN and DSL connections.
In March 2001, iG had a $50 million deal with Telemar, one of the Brazilian telecommunications operators. In the deal, iG sold Telemar its Internet access infrastructure and a data center. The problem is that, until now, no one exactly knows what Telemar is going to do with it.
With Telemar’s help, it’s possible the broadband business will become the new main revenue source for iG very soon.
Broadband in Brazil is growing very slowly. The free connections are always “dial-up” services that require a modem and a phone line. Connections are slow, and since many people try to log on at the same time, they usually can’t get a free slot to connect.
By providing paid, broadband connections, iG is entering a very attractive — and profitable — market. This should enable it to recover a reasonable part of its expenses, according to market analysts.
In Brazil, phone costs are the most expensive issue for the Internet. People may have money to buy a computer and even a subscription with a paid ISP, but they can’t afford to pay the monthly costs of the phone line if they use the Internet for many hours every day. With broadband connections, the phone line becomes free, and the users can stay online 24 hours a day for a fixed price.
Although iG is the lone free ISP standing, the concept of free ISPs has made an impact on Brazil’s Internet.
After the demise of Super11 — then the second-biggest free ISP — some of the bigger for-pay ISPs engaged in a sort of restricted, but free, Net access. For some time, Universo Online and Terra Networks had projects that included free access. They all failed, and the companies closed the free access but maintained their paid subscription services.
CidadeInternet, which is also present in Mexico and Argentina, also canceled its free access.
Last year, Tutopia dismissed its content employees when it could no longer pay their salaries. The company still provides free connections. For how long, nobody knows.