Joe Kutchera: A New Wave of Digital Entrepreneurs in Latin America

Engel Fonseca of Neurona Digital with Geoff Ramsey, CEO of eMarketer at the IAB Mexico’s annual conference in Mexico City.

eMarketer projects that between 2012 and 2016, Latin America will be one of the world’s fastest-growing regions for online advertising spending, growing from $3.62 billion in 2012 to $7.68 billion in 2016, a 112 percent increase in just four years.

Yet, legacy monopolies like Televisa, creator of many of the world’s most popular telenovelas along with its competitor TV Azteca, still dominate media spending, where 56 percent of advertising dollars go toward broadcast television while only 10 percent goes toward digital advertising.

Can today’s Spanish-speaking, social media-oriented start-ups break into the big time alongside monopolies to further drive digital growth in Latin America?

Social Media Taking Off

Another recent eMarketer report shows that five of the top 10 countries that spend the most time on social media sites are located in Latin America: Argentina, Chile, Peru, Colombia, and Mexico. In addition, Mexico appears in third place among the top five social networking countries by consumer growth rate, behind India and Indonesia. Even with stratospheric growth in social and mobile media usage, those two categories represent only 6 and 5 percent, respectively, within all digital media spending.

Alejandro Fosk, comScore senior vice president of Latin America, says, “Nearly 100 percent of the Latin American Internet population visits social networking destinations each month.” comScore’s latest research shows that more than 127 million Latin Americans ages 15 and older visited a social networking destination from a home or work computer in April 2012. And Facebook Accounts for one in Every four Minutes Spent Online in Latin America.

Infrastructure Challenge

Geoff Ramsey, the CEO of eMarketer, points out that a lack of infrastructure in Latin America and especially in Mexico hold back digital media growth.

“I hope that the infrastructure problems can be resolved so that digital media flourishes and Latin Americans have price points that attract the middle class, not just the affluent,” Ramsey said after presenting at the Internet Advertising Bureau Mexico’s annual conference. “There’s a huge skew towards the affluent here.”

eMarketer shows that 41 percent of Mexicans have access to the Internet, well below other countries in Latin America, such as Argentina, where 54 percent of the populations has access to the Internet, for example. Ramsey points out that the difference in broadband is even more severe: only 26 percent of Mexicans have access to high-speed Internet versus 47 percent of Argentineans, a 21 percent difference.

When you look at mobile penetration in the region, only 55 percent of Mexicans have a mobile phone, again lower than Argentina with 79 percent penetration and even below the average for all of Latin America, which is 65 percent.

Investment Lag

If we look at Internet ad spending per user as a relative measure by country, you see that developed markets like the UK or the US invest $185 and $165 per person, respectively. Yet, in markets like Brazil or Argentina, companies only invest $24 and $20 per user. And Mexico invests even less: only $10 per user.

Ramsey says, “Even though you have fewer people online, Mexico’s online marketers are not investing as much per person as developed markets.” eMarketer finds a similar trend among other developing markets. China, for example, invests only $13 per Internet user.

Gian Fulgoni, the CEO of comScore who also presented at the IAB Mexico’s annual conference last month, says “In 2011, Latin America online advertising grew at a rate of 42 percent with Mexico growing at 36 percent. There is much more room to grow since online advertising represents only 8 percent of the total media spend in the region.”

comScore shows that Latin American online advertising spending came to $2.5 billion dollars, a 42 percent year-over-year growth rate.

Appetite for Start-Ups

With the explosive growth in social media in Latin America, clearly there is demand from a fast-growing digital audience to encourage Internet entrepreneurs in Mexico. Perhaps these start-ups can foster innovation, more competitive prices and even improve the digital infrastructure.

Yet, the timing may be right for investors who are willing to look outside of Silicon Valley for the growth that Mexico and Latin America can provide. In addition, a healthy number of graduates in engineering from reputable universities like Tec de Monterrey provide start-ups with the talent they need, well below the cost of engineers in the U.S.

Techcrunch recently reported that Alta Ventures closed a $70 Million fund to invest in Mexican technology startups. The article says, “of all the countries benefiting from the investment, Mexico seems to be hottest, especially since its economy grew even faster than Brazil last year.”

And earlier this summer, 500 Startups’ founder and former PayPal executive Dave McClure announced that 500 Startups would acquire Mexican startup accelerator Mexican.VC. (Read more about Mexican.VC in my previous article here)

500 Startups’ seed companies in Mexico include Wowzer, a video-screening tool for interviewing and recruiting candidates using technology, and Fontacto, which provides local phone numbers in the major cities across Mexico to small businesses without a local office.

Interestingly, McClure isn’t the only foreigner to invest in Mexico. Ulrich Noel recently ramped up operations in Mexico for Rocket, a privately held investment company based in Germany that rolls out Internet businesses across the world. He set up the company and hired 100 employees to launch an e-commerce website, Linio, in Mexico City this past May, according to a recent article in Expansion Magazine.

Some people criticize Rocket for blatantly “copying and improving” web business models while bringing them to new markets. The company has successfully copied eBay with Alando, Groupon with CityDeal and AirBnB with Wimdu, all in Germany. Now, the company hopes to roll out similar models in Mexico and use that as a launching pad for expanding into Latin America.

What do you think? Can foreign investors in tandem with Mexico’s entrepreneurs develop a more fertile digital business environment and solve its e-commerce challenges at the same time? Respond on Twitter @FoxNewsLatino and @JoeKutchera.