StarMedia Network Sells Internet Assets

StarMedia Network, the former high-flying Alley portal from a bygone dot-com era, has sold its Web-based assets to Spanish Internet company eresMas in an $8 million cash deal.

StarMedia said it would instead focus on its wireless network assets and services, which are in use by all the major wireless carriers across Latin America. Jose Manuel Tost, president of StarMedia Network, said the sale would allow the company to focus resources on mobile Internet services via voice, SMS or WAP protocols.

The sale includes StaMedia’s interactive community, known as Latin Red, and its flagship StarMedia portal. The Latin Red community is known for its e-mail products LatinMail, greeting cards section LatinCards and GratisWeb, a portal left over from StarMedia venture into providing free ISP services through its Gratis1 service, which it eventually unplugged.

The Madrid-headquartered eresMas said the deal fits in with its strategy of breaking into Latin American portal markets. For example, the GratisWeb portal is used by Latin America, Spain and Spanish-speaking communities in the U.S. and counts over 2.5 million monthly active e-mail accounts and about 950 million page views a month. In all, it says it has about 12.3 million unique users.

EresMas said the StarMedia portal would help catapult it past Terra Lycos as the leading residential Internet portal in Spain, giving it another million visitors to add to the 2 million it currently counts.(The company is the Internet subsidiary of telecommunications group Auna, formed by SCH, Endesa, Union Fenosa and other financial partners.)

For the past year, StarMedia has been moving in the exclusive direction of wireless portals and services, especially after it took in a $36 million investment from backers and signed a five year alliance with BellSouth Corp. to create multi-access portals in Latin America. At the same time, BellSouth bought about $25 million worth of StarMedia stock, a transaction that gave the telecommunications firm an 11 percent stake in company.

Since then, StarMedia has rolled out wireless portals in Latin American markets, much like its alliance with Brazilian mobile telco Telemig Celular to offer location-based wireless service. That arrangement gave Telemig Celular subscribers information on location-based content — like movie listings or nearby restaurants and bars — published by StarMedia.

The company also offers StarMedia LBS, a service that enables users to send information requests directly from their wireless devices.

The sale of the Web portal marks the end of another chapter in the dot-com rise and fall of StarMedia Network, whose early backers included Flatiron Partners.

Launched amid the so-called portal wars of the mid-1990s with plans to dominate Latin American and Spanish-speaking markets as a kind of Spanish version of Yahoo!, StarMedia once boasted a market capitalization of about $2 billion at the height of the tech bubble. At the time, few doubted its online advertising revenue model.

After spending lavishly to grab early market share, the Nasdaq sell-off in the spring of 2000 cut off its capital spigot. With the collapse of the online advertising market later that year, its financial difficulties kept mounting.

Many saw StarMedia’s moves to set up multi-access portals for mobile phone operators in Latin American countries as a gamble. But the company also appeared to have little options beyond branching out when a bulk of its revenues evaporated after the online advertising market collapsed in late 2000.

StarMedia officials are also preparing to re-file the company’s financial statements from 2000 and for the first half of 2001 after two subsidiaries — AdNet and StarMedia Mexico — improperly recognized approximately $10 million in revenues.

StarMedia blamed the internal investigation for the delay in filing its third quarterly earnings statement last year. By February, the Nasdaq Stock Market had delisted the company’s shares. StarMedia said once its filings are up to date, it plans to provide more information about its plans and financial position.

Once it closes the sale, StarMedia plans to change its trade name to CycleLogic and move the rest of its operations to Miami.

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