Universo Means Access in Brazil

Paulo Rebêlo
Wired News
January 2001

On the surface, Universo Online appears to be just another Internet service provider failing to turn up a profit.

Bad news on the bottom line led to a sober business decision. It followed the steps of many other prominent companies and in November scrapped free Internet access offerings in order to cut losses.

But UOL isn’t just any Internet company. It’s actually the “800-pound gorilla” in Brazil, as one analyst called it, that probably can’t be put down.

So even though it began charging for access — and even though there are still free ISPs holding on to dear life in the country — UOL continues to be Brazil’s market leader.

“They dominate the market in dialup subscribers and in terms of traffic online to an extent that no single player can match in any other market — even in the United States,” Jupiter Communications analyst Lucas Graves said. “Their biggest advantage is they are truly early arrivals (in Brazil). They’ve been in the market for five years.”

“And they are owned by two of the biggest companies (Folha de São Paulo and Grupo Abril). It’s given them money and given them access to unique content.”

And UOL’s reach goes well beyond Brazil’s borders.

Though analysts say UOL’s entrance in other Latin American countries followed the lead of some competitors, the company still has about 920,000 subscribers in Brazil, 8.9 million unique visitors each month and 36 million page views a day. It also has Spanish language portals in Mexico, Argentina, Venezuela, Chile, Colombia, Spain and the United States.

However, it’s also part of a fray of Internet startups faced with a growing demand to turn a profit. UOL scrapped its free Internet access offering, known as “NetGratuita,” on Nov. 10.

“It’s completely unfeasible,” said UOL director Caio Tulio Costa. “There’s no profitability” in offering free Internet access.

UOL is not alone.

Super11, which used to be the second largest free ISP, closed its doors in September — seven months after it received a $10 million investment.

Tutopia still offers free Internet access, though it recently laid off its content producers when it couldn’t pay them.

“(These companies) bet on enough traffic to create revenues through publicity, but then they fail,” said Clóvis Lacerda, CEO of Inter.Net, an international ISP that operates in 20 countries.

Meanwhile, Latin American ISP StarMedia offers free Net access. But its stock price (STRM) has tanked to an all-time low.

Apparently UOL, which has built an empire and its name on the content of traditional media, isn’t discouraged. UOL plans to offer an IPO at a time the Nasdaq has been moving up and down — mostly down — at a dizzying pace.

UOL started in 1995 when it launched the online site of one of its parent companies — São Paulo’s major newspaper Folha de São Paulo.

“Since then we haven’t stopped growing,” Costa said. “(Folha de São Paulo president Luis Frias) analyzed the future of the media market and realized that they couldn’t not be involved with the Internet. It was a strategic and visionary decision to launch Folha Online.”

Since then the company has built partnerships with other traditional favorites like the New York Times, USA Today, Financial Times, France’s Le Monde, Spain’s El Pais and Playboy.

“StarMedia is not media-backed,” Yankee Group analyst Luciana Hayashi said. “In Brazil they have not done strong content partnerships. I don’t see StarMedia the same way UOL is in Brazil because UOL has Folha de São Paulo and Grupo Abril (which owns many magazines in the country) so they have a lot of content in UOL.”

However, one thorn in its side was that it did not have the user base advertisers wanted. And its late arrival in the rest of Latin America puts it behind StarMedia and newcomer Terra.

The Brazilian government controlled the telecommunications system and charged whatever it wanted for home phone service. This meant the price for Internet access was hefty.

But ever since StarMedia, UOL and America Online began offering free Net access and the telecommunications system was privatized in 1998, the number of users in Brazil skyrocketed.

There are 14.5 million Internet users in Brazil today, but this number is expected to triple to 47.5 million in 2003, according to market researcher Chase H&Q. But even with the substantial user base, UOL is losing money.

Still, Costa is not worried. Seventy percent of its revenues today come from users paying for its services.

And up to now the company has successfully staved off competition by well-funded newcomers like Terra Networks, ZipNet and iG, Costa said.

“The market is already established,” Hayashi said. “I don’t think there’s more space to enter in a new (ISP) in Brazil.

“UOL — they are the top for-pay access. What is good about them is they have a lot of content.”