MercadoLibre (MELI) is one of the largest digital marketplaces in Latin America. In 2023, MELI will have more than 100 million online users. It has a strong regional presence in Brazil, Mexico, and Argentina, which together account for more than 80% of its total visits. This growing audience has also allowed it to become a relevant player in the advertising market, both in terms of volume and growth. In support of this strategy, MELI launched Mercado Pay, an ad-supported streaming service (AVOD), in August 2023. AVOD has a high potential to grow in Latam, as it is a tool used to gain a better understanding of users' habits.
Since Q2 2020, MELI's operating metrics have been on an upward trajectory. Between Q2 2020 and Q2 2023, the number of unique users of MELI increased by 111%, the number of unique buyers by 51% and the number of shipped items by 108%. In this context, MELI's advertising business has taken shape. Dataxis calculated that MELI had advertising revenues of approximately $434 million in 2022, a 77.7% increase from 2021. While this figure represented 7.5% of the marketplace's 2022 revenue, there was still plenty of room for growth. In 2023, for example, advertising revenue was on its way to a new record: in just six months, it already generated 70% of the previous year's volume. Dataxis estimates that, in 2023, advertising could reach 9.4% of the marketplace revenues. Mercado Play is a key asset to consolidate this growing advertising segment.
The incremental weight of AVOD in advertising
As of the second quarter, Mercado Play was already available in test phase and will be at the center of several promotional actions, but the main goal is to use it as an advertising tool. In Latin America, online advertising is on the rise, holding a 50% share of total advertising revenues in 2022. Within the online segment, video shows a very rapid development. During 2022 it captured 17% of digital revenues, 6 points more than in 2019. In Latam, the AVOD market is dominated by three holdings focused on social networks - Alphabet, Bytedance, and Meta Group - which together hold 78% of the revenues. It has not been easy to compete there, even though the industry counts many players, including competitors from adjacent businesses such as TV broadcasters, SmarTV platforms, SVOD systems, etc. MELI differs from all of them because it already has a running advertising business and an audience. Another difference is that MELI will use video to leverage the purchases on its platform by means of targeted advertising for its own offer. In this regard, the strategy of Amazon with Prime Video may offer some clues. Jeff Bezos, Amazon's founder and chairman, said of Prime Video in 2016, "we can monetize [our subscription video] in very unusual ways. If we win a Golden Globe, it helps us sell more shoes. And it does that in a very direct way. Because if you look at Prime members, they buy more on Amazon than non-Prime members."
Will MELI follow in Amazon's footsteps?
Amazon has a solid video strategy with multiple edges and is the mirror in which MELI looks at itself. In Amazon's strategy, video plays several roles. It is part of Prime, a paid membership for priority delivery of packages that has been enhanced with multiple benefits, the main one being video. It is also Prime Video, a retail SVOD platform that also has "Channels," a section from which it sells - and aggregates - subscriptions from multiple OTTs. Users watch the content of these other platforms without leaving the Prime Video ecosystem, which improves the indicators of the permanence and loyalty of its users. It also has Freevee, which is an AVOD and FAST that is integrated into the Prime Video experience and acts as an advertising driver. Twitch, the world's largest live-streaming platform, is another powerful video asset. In addition to programmatic advertising capabilities, Amazon uses these assets to deliver campaigns with surgical precision based on all the information it has about its users' preferences.
As of Q2 2023, Mercado Play is a section within the marketplace and not an independent platform. It is still very new. The goal for the end of 2023 is to reach a catalog size of more than 10,000 hours of video; by Q2 2023 they were only offering films and only 30% of the library goal had been achieved. In that initial stage, there are some recognizable features from Amazon. Among the content shown, MELI also recommends titles from paid OTTs with which it has partnerships. And it makes them available for play on Mercado Play. This type of aggregation is not common in Latam and it is similar to Amazon. MELI has several alliances with OTTs to promote its loyalty program, and in return, it provides them with an audience and a payment method, as the company also provides fintech services. Depending on the value of the purchases made in the marketplace, the company awards points to its customers. Different levels of benefits are available depending on the amount of points accumulated. At the highest level, the sixth, MELI grants free access to Disney platforms and significant discounts on the price of HBO Max and Paramount+ subscriptions. Like Amazon, video is the main benefit. Users can either accumulate points or pay a fee to access level 6. AVOD could then leverage its own subscription-based system through content recommendations. But this proximity to some of the main SVOD platforms could also positions MELI as a reference partner to sells advertising for the increasing number of subscription services who want to enter the AVOD market.
This research highlight is based on our data coverage of OTT and Video and Advertising in Latin America. Please contact us to get a demo and see the depth of our service. This topic will also be addressed during Nextv Series Mexico (co-located with Next Giga Connect Latam), the event that revolves around innovation and transformation of the main players in the new streaming industry around the country. 
