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AOL goes bust in Latin America

FORT LAUDERDALE - There isn't even a place to sit in the unlit reception area of the nearly empty office that was to have been America Online Inc.'s launchpad to Internet domination in Latin America.

Just a handful of employees now remain and a security guard in the mirrored-glass office building that houses AOL Latin America wasn't sure the company was still there.

Only six years ago, AOL seemed to have everything going for it when it ventured south of the Rio Grande into a fast-growing market. It had the strength of a powerful U.S. brand, lots of money and a partnership with a media company based in the region. But now, America Online Latin America Inc. has filed for bankruptcy protection after losing $1-billion. From 1.4-million paying subscribers at its 2002 peak - based mostly in Argentina, Brazil, Mexico and Puerto Rico - AOL Latin America was down in March to about 400,000 subscribers, the most recent figures available.

The failure is a result of getting into the area's Internet boom late, underestimating the competition and a stubborn reliance on strategies more suited to the U.S. market, analysts say.

AOL and the Cisneros Group, a successful Venezuela-based media company, announced their Latin American venture in December 1998. But the service wasn't up and running until the following November in Brazil, the region's biggest Internet market. By that time, competitors like Universo Online Inc. were already established. Brazil's largest Internet provider had already been operating its own portal for 31/2 years.

What's more, the UOL portal used content familiar to Brazilians. Its owners included the parent company of Brazil's largest newspaper, Folha de Sao Paulo, and a magazine publisher, Editora Abril.

Many Brazilians also considered AOL arrogant, as its slogan translated as "the best because we're the biggest," even though it was just a startup in their country.

AOL Brazil also faltered because it relied on the very strategy that rocketed AOL to the top in the U.S. - the massive distribution of setup CDs, said Jose Otero, president of Signals Consulting. A credit card is needed to sign up for an account using the CDs, and the much lower use of plastic in Latin America hurt, he said.

AOL faced similar problems when it expanded in the summer of 2000 into Argentina and Mexico, the region's second-largest Internet market.

The Internet in Mexico was dominated by Telefonos de Mexico SA, or Telmex, which used the Prodigy brand name for its Internet service.

A former AOL Latin America executive, speaking on condition of anonymity, agreed that AOL's U.S. strategy hadn't translated well in the failed venture. The executive noted that CD mailing costs were about 30 percent to 40 percent higher in Latin America and response rates about half those in the United States.

AOL Latin America filed for Chapter 11 bankruptcy protection on June 24. The company "as a whole has never been and is not projected to be profitable," said the filing in Delaware federal bankruptcy court.

[Last modified July 31, 2005, 01:30:13]