The recent bankruptcy announcement of AOL LatAm draws to an end a six-year case study in how not to expand a business into new markets. This article touches on many of the challenges that AOL encountered when it ventured south (some local and some self-inflicted).
According to the article, AOL’s strategy of mass-mailing software CDs to every household didn’t make much sense in markets with very low PC and credit card penetration. Says the article, “A former AOL Latin America executive, speaking on condition of anonymity, agreed that AOL’s U.S. strategy hadn’t translated well in the failed venture. The executive noted that CD mailing costs were about 30 percent to 40 percent higher in Latin America and response rates about half those in the United States.”
And then there is the local compeitition. In Mexico, for example, there is Telmex, which is not only a virtual monopoly but also a pretty creative company. It sells the Prodigy Internet service and has enjoyed great success by selling a package that includes the service along with a low-priced PC. And, the last I heard, Telmex is now the largest distributor of PCs in Mexico. While AOL was pushing CDs to people who may or may not have had a PC, Telmex was selling a total solution.
So what are lessons other companies can take away from AOL’s saga? For starters, it’s probably best not to call yourself a regional player until you truly are one. Better to pick one market and expand from there.
Next, be prepared to ditch the strategy that made you a success in your home market. If you’re not prepared to do that, then maybe you should look at just those markets that will support your home-grown strategy.
And be prepared for the locals to work together to see that you fail. Nothing unites local competitors like a foreign competitor with deep pockets. AOL clearly faced a tough, and not entirely fair, fight in every market it entered.