MercadoLibre: Leading In Latin America

Via The Financial Times, a report on MercadoLibre, South America’s dominant ecommerce platform:

Stelleo Tolda, chief operating officer of MercadoLibre, says he really didn’t think the company he helped launch in 1999 would grow to become Latin America’s largest online trading platform.

Thirteen years later, with 1,600 employees and almost 70m registered users, MercadoLibre – which means “free market” in Spanish – dominates ecommerce in the region, where it matches buyers with sellers and facilitates payments in 13 countries.

Tolda, a Brazilian who trained in mechanical engineering at Stanford University, recalls that when the company  started, it was loosely based on eBay’s auction site model. But MercadoLibre has since evolved in line with the deep economic and cultural transformations experienced in Latin America in the past decade.

The company was founded by Argentine entrepreneur Marcos Galperin, who met Tolda in graduate school at Stanford and persuaded him to head up MercadoLibre’s operation in Brazil – where it is called MercadoLivre – which quickly followed the initial launch in Argentina.

“Much has changed  for ecommerce platforms like MercadoLibre since those early days,” Tolda told beyondbrics in an interview.

“Technological evolution has come at a breakneck speed. Users have become more engaged, new platforms have emerged and access to the site is now possible in various ways, including smartphone and tablet applications,” he said.

As Latin America’s internet population rose from 3 per cent in 1999 to 40 per cent in the past decade, MercadoLibre stuck to its core revenue model: marketplace fees, online advertising and its own secure payment system named MercadoPago.

The strategy has paid off.

The company’s net revenue reached a record $299m in 2011, a 37 per cent jump from 2010. In a departure from that initial eBay model, most of the 11m products on sale daily through the platform now have fixed prices. This has helped bring total payments volume to $402m last year.

Results were also positive in the first quarter, even as the economy in Brazil – which accounts for 50 per cent of MercadoLibre’s sales – lost growth momentum. Net income in the period increased almost 40 per cent year-over-year to $19.6m.

“We are fortunate that key fundamentals for growth in our business, such as growing access to internet and banking services, remain somewhat insulated from the recent turbulence in global markets,” Tolda said.

But for all the transformation in the region and MercadoLibre in the past decade, doing business in Latin America remains challenging.

The region is prone to political and market volatility , which exposes the Nasdaq-listed company to currency losses, as it generates revenues in local currencies but reports them in US dollars. Competition has also  increased, with the arrival of several local eplatforms and improved online presence of local and global retailers, such as Wal-Mart and Carrefour.

More recently, the region’s growth potential has attracted the interest of US-based Amazon. The world’s largest internet retailer launched a contact site in the region in 2008 and since then has been increasing its staff in Brazil. The country accounts for roughly 60 per cent of the $43bn ecommerce business in Latin America, according to a study by AmericaEconomia Intelligence and Visa.

“It has become much easier to launch a platform these days,” Tolda said. “There are markets and structures in place in the region which simply didn’t exist when we started.”

“But  many of the start ups and sometimes even large players forget that ultimately we are in the technology business. Investing and having the best technology is almost as important as having good products on your site,” he explained.

Tolda said the company embarked in a complete overhaul of its platforms two years ago and now has its eyes set on the next decade.  With a market of over 550m people and a region with one of the world’s fastest-growing internet penetration rates, MercadoLibre is aiming to capture at least 100m users in the next couple of years.

“It’s truly amazing to be in my position and see how much we have grown as a company and as an industry since 1999,” Tolda said. “But we are not done. We have big goals and frankly, I believe that for us these goals are totally feasible.”

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