MercadoLibre Grows Latin America’s Online Marketplace
STANFORD GRADUATE SCHOOL OF BUSINESS -- In its early days, the founders of MercadoLibre wanted to ensure that their online company, considered the eBay of Latin America, just survived.
The e-commerce enterprise, founded in 1999 by several Stanford Graduate School of Business alumni, has not only survived but thrived, and is now taking strategic steps to beef up its services as more users throughout the region flock to the internet.
The Latin American online e-commerce site recently announced its first quarterly dividend on the heels of a $6 million profit and $200 million in revenue last year. “It’s a great thing to be able to give back to our shareholders some of the money they have invested,” said CEO Marcos Galperin, MBA ’99, who founded MercadoLibre - Spanish for “free market” - right after graduating from the GSB.
Galperin addressed more than 100 students at the GSB on March 3 as part of the Global Speaker Series, an event cosponsored by the Latin America Student Association and the Entrepreneurship Club. He detailed moves the company is making to capitalize on the trends that have boosted internet penetration in the region from 3% in 1999 to 36% today.
MercadoLibre is the dominant e-commerce platform in Latin America, with 31.8 million unique visitors last year and an average of 1.7 billion pages viewed monthly. Launched in Argentina, the company now operates in 12 countries, including Brazil, its largest single market. U.S.-based auction giant eBay took a 20% stake in 2001 and is MercadoLibre’s biggest minority shareholder.
While 30% of the Latin American population uses the internet today - still a fraction of North America’s 75% rate - Galperin remains optimistic. “Internet and broadband penetration is still low,” he admits, “but it’s growing very fast. We believe that during the next 10 years we will continue to see very strong growth in our business.”
In addition to buoying investors, MercadoLibre is also boosting the fortunes of Latin American entrepreneurs. During the Argentine economic crisis of 2001 and 2002 traffic increased as residents who had lost access to their financial holdings turned to MercadoLibre to sell their assets. Last year, 16 million Latin Americans sold items using the company’s site, and 52,000 people make their living selling goods there.
“Recently, I was in Brazil with a seller who has 160 employees. They solely sell on our platform, so we are really enabling very large businesses,” Galperin said. “That’s something that I’m very proud of.”
After an initial public offering on the NASDAQ in 2007, the company used its cash for a string of acquisitions, starting with classifieds payer Tucarro.com, a business that’s strong in Colombia and Venezuela, which MercadoLibre bought in 2008.
Also in 2008, the business spent $50 million to purchase the remaining half of competitor DeRemate.com, which was founded and run by a group of Harvard MBAs. The rival startup had raised more first-round funding than MercadoLibre’s $52 million. However, after reaching break-even status in 2005, MercadoLibre began buying an interest in DeRemate.com. “So, Stanford is better than Harvard,” Galperin quipped.
Joking aside, he added that that MercadoLibre ended up a survivor in part because they spent frugally on expensive advertising in the early 2000s, when internet penetration was in the single digits. “We really saved the money for the rainy days,” said Galperin. “So, when our competitors ran out of cash, we still had $40 million in the bank. That was important.”
Since 2004, his firm has operated its own secure payments system, MercadoPago, which functions much like PayPal in the United States. Shoppers are required to use the system when buying in six countries and about 20% of online transactions are processed with MercadoPago now, up from 6% in 2005.
In 2009 came the launch of two new divisions - the MercadoClics search advertising business and MercadoShops, a collection of 5,000 web stores.
Taking a page from Craigslist, the company also offers free classified listings, a segment that was considered a gamble when MercadoLibre introduced it recently. Since the company also sells paid listings, there was concern that no-cost ads would cannibalize that business.
However, Galperin said, “In Latin America you have millions of people who are accessing the internet for the first time. We didn’t want to have any barrier between these people and our platform, so we’re happy to have them list for free.” As it turned out, some customers placed free listings initially, but eventually upgraded to paid listings, which are more prominently displayed.
MercadoLibre’s relationship with investor eBay extends beyond the cash. Sharing best practices has also been extremely valuable, Galperin explained: “Coming to the board meetings of eBay and sharing knowledge with them - learning from the things they were doing right and the things they were doing wrong - was incredibly advantageous for us.”
Some students attending the talk aim to start their own internet ventures and peppered Galperin for advice. One of his regrets is not having a stronger technical background.
“You leave here knowing accounting, and you can interact with an auditor and discuss profit and losses with them,” he said. “You cannot interact with a developer and discuss the way they have written code. That’s a big handicap.”
To compensate, he urged MBA entrepreneurs to find a partner with an ironclad grounding in technology.
He also encouraged students to think long term. With many unexpected snags an inevitable part of the entrepreneurial journey, he cautioned, “If your motivation is just to do an initial public offering or have an exit or sell your company, it’s not enough.”