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Brazilian auction site Mercado Livre (www.mercadolivre.com.br) (ML) renewed earlier in September an advertising contract that lapsed one year ago with the local operations of US-based portal America Online Latin America (Nasdaq: AOLA), Mercado Livre CEO Stelleo Tolda told BNamericas.
"We now have partnerships with all major portals [in Brazil]," Tolda said, adding that AOLA is a key portal for Mercado Livre because of its rapid growth in Brazil.
AOLA and Mercado Livre's parent company, Argentina-based Mercado Libre, will extend the agreement to Mexico and Argentina during October, Tolda said.
In early July, Mercado Livre signed an 18-month marketing agreement with Spanish portal Terra Lycos (Nasdaq: TRLY) (www.terra.com.br). The deal was expected to boost Mercado Livre's roster of new registered users by 30% a month and sales volume by 20% a month, Tolda said at the time.
The AOLA agreement was renewed to duplicate Mercado Livre's success with Terra, he said more recently. The two companies entered a marketing agreement in early 2000 when AOLA launched operations in Brazil, but that agreement was not extended when the contract expired in mid-2001.
Under the terms of the latest contract the partners will be more attuned to the success of their partnership, such as how many AOLA subscribers become Mercado Livre users. Mercado Livre will also do exclusive promotions for AOLA users, he said.
The company has refined its own online advertising model to focus on offering a specific product at a discount rather than banner ads with its logo, Tolda said. By year-end Mercado Livre aims to offer products specific to AOLA editorial page themes, which is expected to generate a high amount of click-through rates, he said.
Mercado Livre has already closed deals to be the "defacto" auction channel with local portals Universo Online (UOL), Brasil Online (BOL) and MSN. UOL is Brazil's portal leader. Mercado Livre currently does not have partnerships with Brazil's second and third-most popular portals, IG (www.ig.com.br) and Globo (www.globo.com.br).
The company charges a 4% commission on each sale, and derives additional revenue from publicity and fixed fees for advertising products on its site. Its only significant competitor is the local version of Argentina's Deremate, Arremate (www.arremate.com.br). According to both companies, Mercado Livre has a higher market share than Arremate in Brazil, though the companies disagree on the percentages.
Parent company Mercado Libre closed its first round of financing for US$7.6mn in 1999 with Chase Capital Partners, Flatiron, and Hicks, Muse, Tate & Furst. A second round in May 2000 saw ML take in US$46.5mn from the original investors as well as Goldman Sachs, SCH and GE Equity.
Mercado Libre expects to reach operational breakeven in Brazil, Argentina and Mexico during 2H02 in that order, Tolda said in July. The company also has operations in Venezuela, Colombia, Chile and Uruguay.
Mercado Libre has as minority shareholder US-based auctions site giant Ebay (www.ebay.com) (Nasdaq: EBAY). Ebay and the Argentine company entered into a strategic alliance in October 2001 whereby Ebay transferred ownership of its Brazilian subsidiary Ibazar to Mercado Livre in exchange for 19.5% in Mercado Libre.