Latin CEO / May 2000
By Larry Luxner
At the end of a dark and rather dingy hallway, on a lower floor of the aging Folha de São Paulo building, stands a door with a piece of paper reading "UOL" taped to it.
Hard to believe, but this is the main entrance to the office of Universo Online -- one of Brazil's leading advertisers and easily the largest Internet conglomerate in Latin America.
Luís Frias, the 36-year-old president of UOL Inc., says his company's website at www.uol.com.br is the most popular non-English website in the world, with just over one billion page views during February alone
According to Frias, UOL's portal is visited regularly by 4.8 million of Brazil's 6.2 million paying and non-paying netsurfers -- a reach of 78%. And that doesn't even count the tens of thousands of Spanish-speaking cybernauts accessing UOL through its newly created portals in the United States and half a dozen Latin countries.
"The Internet is changing lives in Brazil and around the world," a harried Frias told Latin CEO during an interview marked by constant phone calls and interruptions. "It's changing the way people live and the way people work, not to mention the way people communicate."
It's also changing the skyline of São Paulo. From the moment a visitor lands at Guarulhos International Airport, one is bombarded by advertisements for rival Internet service providers (ISPs). Duty-free shopping carts carry logos for UOL and Telefónica's Terra Networks S.A., and huge billboards lining the road to the city trumpet the glories of America Online, ZipNet and StarMedia. It's hard to spend more than five minutes in São Paulo traffic and not run into some sign pushing UOL or its competitors.
Although UOL had sales of only $70 million last year -- chump change in this nation of multibillion-dollar conglomerates -- Frias claims his company already ranks as one of Brazil's top three advertisers, outspending even Coca-Cola.
"We are everywhere, and we're by far the biggest spender in the Internet industry," said Frias, though he declined to give out any numbers.
When it comes to market share, though, Frias doesn't mind getting specific. In the paid access market, UOL claims 637,000 out of Brazil's 1.73 million Internet subscribers (a 37% share), according to IBOPE, a São Paulo-based research institute. That puts UOL well ahead of Terra and its franchises (22%); PSINet (6%); Sol (2%) and America Online (2%). The remaining 26% is spread among 280 smaller ISPs.
Andy Castonguay, Latin American telecom analyst at Pyramid Research in São Paulo, says UOL has a "tremendous backbone link" with Brazilian international long-distance monopoly Embratel, and "has made strong plays in offering broadband service over DSL and cable modems," which are dramatically faster than standard dial-up ISP accounts.
"UOL has been able to raise international financing, and they've been the standard-bearer for pricing in Brazil," Castonguay explains. "Due to their connections with Abril and Folha, they have some of the most popular content on the Internet."
Agrees William Grindley, managing director of Pacific Strategies in San Francisco: "UOL is a very sophisticated world-class company. The whole point of the dot.com world is getting mind share. It's all a matter of who got there first."
And Frias certainly got in on the ground floor.
"Being the first mover in this market is more than half the battle," says the young executive, who earned a master's degree in economics from the University of São Paulo and also studied at Cambridge and the Sorbonne. "I have a media background, and this business is about media, not about hardware, software or telecommunications. At the end of the day, it's all about media."
In fact, 87.5% of UOL is held jointly by Empresa Folha da Manha S.A. and Grupo Abril, two of the largest media groups in Brazil. The remaining 12.5% slice was purchased for $100 million last September by a consortium led by Morgan Stanley Dean Witter, Credit Suisse First Boston and Deutsche Bank.
Frias joined Folha in 1981 as a 17-year-old salesman for classified and display ads. At that time, the company had about $30 million in total sales, and Folha de São Paulo's paid circulation was under 150,000 copies. He zoomed to the top in only eight years, winning an appointment as CEO in 1989 and chairman in 1991. That was the year Frias began looking at online possibilities.
"In 1991, I got a feeling that the Internet was going to be huge," he said. "At that time, CompuServe was owned by a graphics company that wasn't related to media. Prodigy was a combination of IBM and Sears -- a very weird combination -- and America Online was becoming the No. 3 player.
"The 1990s in Brazil was dominated by pay TV. All the major groups were concentrating on the pay TV market. This was another reason for us to look at online products. The more I learned about the industry, the more I was impressed. By 1993, we had been to lots of seminars and conferences, following very closely what AOL and the others were doing."
Frias and his team spent the next year and a half converting articles, encyclopedias, account and billing information and other data into digital format. In 1994, he launched the first site in HTML format, called Folha Online. In 1995, UOL was officially inaugurated.
"We had a clear idea that one thing was a newspaper site; another was a full-package online company," he said.
It helps that Grupo Folha today is a $700 million conglomerate. Under its umbrella are four newspapers including Folha de São Paulo -- which boasts a circulation of 600,000 weekdays and 700,000 to one million on Sundays -- as well as a market research firm and a 600-vehicle transportation fleet.
UOL currently boasts four million pages of news and information organized into 32 channels and 750 subchannels ranging from games, sports statistics and auction sites to arts and entertainment, municipal news, weather and archives of past articles. Says Frias: "Folha is the local New York Times, and our weekly Veja is the local Time magazine."
UOL's arch-rival is Terra, which was known as Zaz up until two months ago. Industry figures show that during the first half of 1999, UOL had revenues of $28.9 million, compared to $30.1 million for Terra. Both companies lost money -- not surprising considering the vast sums they're spending on advertising -- but while UOL was only $8.2 million in the red, Terra reported $81 million in losses.
According to those same industry figures, UOL enjoyed 1.003 billion page views in February, up from 824 million in January and 503 million in September 1999. Terra, meanwhile, reported 506 million page views in February, up from 460 million in January and 291 million in September. Together, UOL and Terra now account for 98% of all page views, up from 73% six months ago.
Frias is only too happy to reel off a few more stats: UOL, with 1,400 employees, administers 2.6 million e-mail accounts and has 72.7% of Brazilian Internet "chat rooms." The subscriber base of UOL, which analysts value at around $1 billion, is growing by 12% a month, while the number of "internautas" -- as websurfers are known in Brazil -- is likely to triple or even quadruple by 2003.
"Changes are occurring faster here than the worldwide average, probably because Brazilians are very fast to adapt to new technologies," says Frias. "The same thing happened with cellular phones. This is helping to deploy the Internet in Brazil."
What's really pushing the Internet along, though, is the sudden explosion in free Internet access.
This latest revolution began in December 1999, when Banco an in December 1999, when private banks began to offer free access to their clients. Despite legal protests from local ISPs, the idea caught on, opening up the online world to hundreds of thousands of Brazilians who had never logged on before. At least a dozen Brazilian entities including the Catholic Church now offer free Internet access, with most of them hoping to recoup their investments through advertising, partnerships, content, auctions, classified ads and e-commerce. In the southern state of Rio Grande do Sul, even the Catholic Church offers free Internet access to its members.
Not to be caught off-guard, UOL also jumped on the free-access bandwagon, quickly, introducing its Nete Gratuita service in competition with iG.com -- a $120 million venture between investment bank Opportunity and Garantia Partners, a private-equity fund. Both services contrast with AOL, whose Latin America unit -- a 50-50 joint venture with Venezuela's Grupo Cisneros -- entered the Brazilian market in November and has no immediate plans to offer free access.
Even so, isn't Frias worried that Nete Gratuita and all these other free services will siphon off traffic away from UOL, effectively cannabilizing UOL's paid customer base?
"No," he answers. "We think that most likely, the two markets will live together. Paying subscribers have a much higher per-capita income, they're more educated, and their demands are much higher in terms of exclusive content, quality of access and quality of customer support. You need to be a UOL subscriber to have access to the most prestigious content. If you go via Nete Gratuita, for example, you can't search our archives for past Folha articles. You'll get only the normal content open to any Internet user."
Also, he points out, "70% of those who visit chat rooms are doing it on UOL. If you're a UOL member, you don't have to wait in line to enter the chat room."
Waiting is clearly something Frias doesn't like to do -- especially when he has so many competitors and so little time to conquer the rest of Latin America.
In only nine months, Buenos Aires-based UOL International has already begun offering customized Spanish-language portals in Argentina, Chile, Colombia, Mexico, Spain and Venezuela. It's also reaching out to Portugal, and is trying to develop the lucrative U.S. Hispanic market as well.
Frias, who's tapped Claus Vieira -- a 32-year-old former sales director of Nextel Brazil -- to head up that international effort, doesn't like to talk much about himself. When asked what personal qualities have contributed to UOL's meteoric rise to prominence in such a short time, he mentioned only his "ability to grab together talented people and to be willing to work 15 hours a day."
If Frias sounds like he's got a one-track mind, it's probably because he does.
I'm usually online," he says, checking e-mail one last time as he rushes to catch a pl Miami. "And when I'm offline, I'm talking about online services."