Should you Franchise Internet Concepts in Brazil?
This article will discuss the possibilities and challenges you will face when considering to franchise an online project in Brazil
Over the last years we have seen a new trend within the internet industry: the traditional portal start-ups often turn to a franchise model in order to expand their business. The trend might have a relation with the difficulties portals meet when they try to raise venture funding. Many of the concepts are related to “super-local” sites, travel portals or other type of localized content.
Franchisee license and Software license
At a first glance the franchise model seems very similar to the old traditional way of selling IT software with license fee and maintenance fee but with the franchise business terminology like franchisee license and administration fee.
It's important to understand the difference in valuation. In traditional software sales the values are related to the output generated by the application you are purchasing, while when you purchase a franchisee license for an internet concept the valuation is related to a proven business model and relevant brand value.
Previously we have written about how foreign companies can locate partners in Brazil. A software company will aim to locate a VAR (Value Added Reseller) that can provide professional service on the top of their software, not a franchisee.
Why franchise an Internet concept in Brazil?
Having a market penetration strategy for a relatively closed market like Brazil is almost impossible for a foreign internet company without a local presence that knows the local industry and can provide the content. During the peak of the dotcom era the internet focused business would establish local presence by investing in local employees and infrastructure.
In the current economic reality there are very few online ventures that have the necessary funding to setup local operations all around the world. The idea of franchising the concept can seem like an easy shortcut for aspiring internet entrepreneurs with mediocre ideas to expand internationally.
Why Internet Franchise are Failing in Brazil
We have seen dozen foreign internet companies wanting to enter the Brazilian market with an internet franchise business model. Sadly many are tuned for failure by blindly believe in their international concept.
The franchise owners are usually targeting franchisee with a background from content production and advertisement sales, and never targeting internet experts or web developers that actually know the market in Brazil.
To summarize the 6 most common reasons why Internet franchise concepts fail in Brazil:
- Lack of local internet marketing skills
- Lack of platform localization
- Revenue models base on USA or China, not Brazil
- Not the targeted traffic to the website
- Underestimating market penetration time in Brazil
- Lack of focus as time goes without results
When Brazilian based franchisees with little or no local Internet business experience trust international Internet business experts with impressive track records in North-America, Europe and Asia you have the cocktail needed for a dead-end business venture.
How to do it right!
We clearly don't recommend anybody to enter the Brazilian market with a franchise model, so here are our tips for both foreign and Brazilian businesses that consider becoming a franchisee:
1. Choose a Joint Venture Approach
When engaging in a joint venture the foreign party cannot expect any upfront payment, and you will have to trust the local business knowledge of your Brazilian partner more carefully then with a franchise model.
2. Leave Room for Modifications
The idea with franchising is to have a proven business concept that works. If you have never done business in Latin America before, the chance that your business concept is tuned for the Brazilian market is very small.
3. Talk with local Internet Business Experts
Brazilians love to talk and we highly recommend you to talk to somebody that knows the Internet business in Brazil.
You might try to get in touch with some of the top Brazilian Internet business experts: