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The E-Commerce Titan
How Marcos Galperin Revolutionized Online Shopping in Latin America With Mercado Libre
Justin Gordon
May 14, 2023
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Marcos Galperin
Marcos Galperin, Founder and CEO of Mercado Libre, is another understated billionaire who we can learn a lot from.
He created an empire by defying the early doubters, having a long-term focus, and staying true to his mission of democratizing e-commerce and financial services in Latin America.
Today Mercado Libre, translated as “Free market” in English, is valued at around $64 billion and does more than $11 billion in revenue each year.
Not bad for a company that everybody said was a terrible idea at the beginning.
How did Marcos take this “terrible idea” and build it into a juggernaut?
Let’s get to it.
Early Days
Marcos was born in Buenos Aires, Argentina, and competed as a teen in rugby.
He didn’t just compete though, he excelled, being selected to play for Argentina’s junior national rugby team, but he turned it down.
Instead, he chose to move to the U.S. where he’d attend the University of Pennsylvania to study finance.
But it’s clear his early rugby experience stuck with him.
He talked later in life about how in rugby you win sometimes and you lose sometimes but it’s about enjoying the game, a sentiment he also echoed in regards to building Mercado Libre.
After graduating from the University of Pennsylvania, he went back to Argentina to work for YPF, a large oil and gas company, before coming back to the United States in 1997 to attend Stanford’s Graduate School of Business.
This move would prove critical in his story and would set his life on another trajectory entirely.
Starting Mercado Libre
It’s 1997 and Marcos starts business school at Stanford.
In an interview in 2020, it seems clear that he was inevitably going to start a company:
I’ve always been very passionate about technology and I was convinced that the internet was really going to transform the world.
At the time, Marcos admits to not studying all that much, but he did enjoy classes, particularly ones with guest speakers.
He’d habitually arrive at class early and sit in the front row.
On one such occasion, he arrived early and someone else was already sitting in the front row so he struck up a conversation.
The man said his name was Joe Doe and that he was dressed up as Warren Buffett.
Seemed like an odd thing for someone to say.
What Marcos didn’t realize?
It actually was Warren Buffett, who was the guest speaker that day.
Now, that tidbit has no real tie into the story of how Marcos started Mercado Libre, but it does give you an idea of the level of thinking that Marcos was exposed to while at Stanford, something that had an effect on him.
With you reading about the world’s best founders in Just Go Grind, I’m hoping this has a similar effect on you.
I digress.
Anyways, Marcos is at Stanford and one of his classmates had a summer job working at eBay, which, at the time, was an absolute giant of an internet company.
Marcos eventually has the idea of applying the same model to a different market - Latin America.
He did a survey with 20 classmates at the time and 100% of them said his model of e-commerce would never work in Latin America.
One of the big issues at the time was trust.
For context, internet penetration in Latin America at this time was only 3% and e-commerce was 10% of that 3%.
Different times indeed.
But Marcos had conviction in his idea:
I was convinced it was going to work, partly because having been a Latin American who studied in the U.S. I realized how Latin Americans behave when they’re in Latin America but then how they behave when they are here in a system that works well.
So I just knew that we needed to create a system that works well, with clear rules and regulations, and I was convinced… that didn’t discourage me at all.
Actually, I was a little bit naive because I thought, “This is great, everybody thinks it’s not gonna work, there won’t be that much competition,” which Hernán said before it was a mistake, there was a lot of competition.
While his classmates had multiple job offers from top companies, Marcos knew he wanted to take a different path - he wanted to start a company of his own.
He had an idea he believed in, but the next step?
Getting capital.
And he’d do it with a little luck and a little resourcefulness.
John Muse, the co-founder of HM Capital Partners, was a guest speaker in one of Marcos’ MBA classes at Stanford.
Marcos volunteered to drive John back to the airport after his talk.
This was his opportunity to pitch.
But Marcos didn’t exactly have a quick pitch nailed down and he needed more time, so he purposely drove John to the commercial airport first, pretending not to know that John had a private plane and would be going to a different airport.
This is pre-September 11th, so by the time they arrived, they drove right up to John’s private plane.
John got out, went up the stairs, then came back down to tell Marcos that he liked his pitch and he was going to invest.
Game time.
Marcos cancels a Europe trip he had planned to go on with his girlfriend after graduating from Stanford.
He wasn’t trying to party like it’s 1999.
It was time to get to work.
In June 1999 he moved back to Argentina with a few friends and his cousin to start Mercado Libre.
Early Struggles
For the first version of Mercado Libre, Marcos and his team actually didn’t write the code.
Instead, they paid $15,000 for off-the-shelf auction software from another company.
Although, as Marcos describes, the technology was terrible, it allowed them to launch while their developers worked on their own platform.
The launch took place in August 1999.
Within 3 months they had 15,000 users and $2 million in GMV.
Not long after, in November 1999, the round of funding that John Muse agreed to, closed, giving Mercado Libre $7.6 million and including additional investors JP Morgan and Flatiron Fund.
While Mercado Libre started as an online auction service, like eBay, in Argentina, it quickly expanded regionally.
But their first big challenge came shortly after, with the 2000 dotcom crash.
The crash, which started in March, was right during the time at which Marcos was trying to raise their second round of funding.
This round would end up closing on May 2000.
The crazy part though?
They had a signed term sheet during this time, but it’d be weeks before the round actually closed.
Because of the crash, they had to renegotiate many of the terms.
Marcos described this as a painful few weeks, a nightmare really.
However, while many competitors would run out of cash during the ensuing months and years, Marcos and his team stayed frugal early on, spending minimally from the funding they had.
This was advice Marcos later gave to students at Stanford, mentioning how whenever you do a round of financing, make sure you secure more than what you think you might need, in case you don’t grow as fast as you think you will.
Marcos elaborated on their strategy early on:
I think what we wanted to do is do enough advertising to make sure we would be amongst the survivors but do as little as we could to save as much money as possible because we knew that we were just throwing money out the window because it was like advertising something and then when people go to the supermarket it’s not there.
Internet penetration was 3%, and with TV you target 100% of the population, so straight away you’re wasting 97% of the money.
We did very little TV but we did enough because, interestingly enough, the venture capitalists and all the financial community were the ones asking, pushing for people to spend money, so we were like ok we have to do something otherwise they won’t invest in our round of financing because they won’t think we will survive, but we know that this is not the way to go.
Sometimes you have to play the game.
Another piece of advice from that same talk?
Educate yourself on the technological side of the business.
Marcos mentioned the value of being able to interact with developers and needing some level of fluency.
He regretted not having a stronger technological background.
One way you could do that?
Learning to code from a coding bootcamp like the one from today’s sponsor, Sabio.
But Marcos would hire for his weaknesses and in 2001 Mercado Libre made an important strategic move.
eBay <> Mercado Libre
eBay had acquired a company in Europe that also had a subsidiary in Brazil, this company was a competitor of Mercado Libre and eBay ended up giving Mercado Libre that company in exchange for a 19.5% stake in Mercado Libre in 2001.
This was a huge deal and as part of it, they signed a 5-year strategic partnership and non-compete agreement.
It was a big win for Mercado Libre and Marcos later mentioned he was willing to do the deal at almost any price because it was that important to them.
Years later, in 2006, when eBay still owned almost 20% of Mercado Libre, they offered to buy the remaining 80% for $700 million.
Marcos actually agreed to sell to them, but eBay ended up backing out of the deal.
Asked later about the failed acquisition and his team’s thoughts on it, Marcos offered up this:
The team was always very focused on our mission which is basically to democratize commerce and more recently financial services to Latin America, that is to make commerce and access to financial services widely available to everyone in Latin America so as long as we focused on that, if this investor owned our shares or if the public markets owned our shares it wasn’t that much of a difference to the employees and to most of the management team.
And I’m sure he’s glad it didn’t work out because Mercado Libre would grow and grow and grow.
eBay would also later sell its stake in Mercado Libre in 2016.
But let’s come back to the early years.
In 2001, Mercado Libre would pass $20 million in GMV.
The next year, they bought a Brazilian competitor and in 2003, 4 years after launching, they really start to see some growth.
This was also the year when they launched Mercado Pago for processing payments on their site and marking their foray into the fintech world.
Pago allowed them to tackle one of the biggest challenges in operating in Latin America - a large unbanked population.
With Pago, Marcos essentially launched an escrow service between buyers and sellers on their platform. This built trust and fueled growth.
Pago would process around 8% of Mercado Libre’s GMV by 2006 and that number would grow to half of Mercado Libre’s GMV by the end of 2014.
Thinking back for a second to 2006 when eBay pulled out of a deal to acquire Mercado Libre, a deal which Marcos was ready to go through with, we see why, very soon, that move was great for Marcos and Mercado Libre.
Going Public
In 2007, a year after eBay backed out of the deal to buy Mercado Libre, they become the first Latin American company to go public in the U.S., doing so on the NASDAQ on August 9.
The IPO was priced at $18 per share and closed at $28.
But the journey to the IPO was another challenge, happening during the global financial crisis.
In fact, Bear Stearns went bankrupt in the middle of Mercado Libre’s roadshow for the IPO!
Absolute craziness.
Even after the IPO, in the next year or so, the stock would go as high as around $80 but then crater to a low of around $10.
But Marcos and his team kept their composure.
How?
By focusing on the real aspects of the business, the key operating metrics.
They’ve always had a long-term focus and this helped tremendously.
Growth
This long-term focus manifested in a variety of ways in the coming years.
In 2008, they purchased Classified Media Group, which owned a couple of different sites.
By 2010, they were doing 39 million transactions and their GMV went from $55 million in 2002 to $3.4 billion in 2010. They also did $210 million in revenue with $56 million in net income.
15 million buyers and sellers are actively using their marketplace at this time, with 4 million people selling on the platform and 52,000 people making their living selling on Mercado Libre.
That last piece stands out to me. 52,000 people are making a living from a company which, a decade earlier, everybody thought was terrible, but that Marcos went through with anyways. Founders move the world forward.
Around this time, Mercado Libre also allows sellers to list items for free.
While it was risky at first, the number of listings grew, and, ultimately, the amount of revenue grew.
But why allow free listings in the first place?
With millions of new users coming onto the internet for the first time, Marcos and his team didn’t want any barrier to be between those people and the platform.
It was a much easier onramp for sellers because they could start with free listings and then upgrade later to paid listings for added visibility.
Remember how internet penetration in Latin America was 3% when they started?
By 2010 it was at 40% and growing.
And with this growth, Marcos and his team found ways to capitalize on it.
The Mercado Libre Ecosystem
One of the ways Mercado Libre expanded was by transitioning its platform to open-source technology in 2011, which allowed API developers to expand their offerings.
They’d also launch their venture fund two years later to invest in some of those companies.
The open-source expansion was a monumental change and a huge bet for Marcos to make, but it proved to be the right one.
By this time, they’re the largest eCommerce site in Latin America and in every country they operate in and they’re valued at around $3 billion.
They’re the 11th largest retail site in the world at this time behind eBay then Amazon then Apple then Alibaba among others.
It’s a good time to mention just how far they expanded from the initial concept of being the eBay of Latin America.
Marcos starts with an auction site, Mercado Libre, but by 2011 about 96% of the items are fixed price, 75% of which are new items, much like Amazon’s marketplace. This is the first main business unit of their ecosystem.
Their payments platform, Mercado Pago, which we talked about earlier and that launched in 2003, is the second main business unit and it operates much like PayPal.
Within those two main business units, there are a number of other services.
On the e-commerce side of things, besides their marketplace, they have:
Mercado Libre Publicidad - Started in 2009, this is their AdWords type of service where advertisers can promote their products within the Mercado Libre marketplace
Mercado Shops - Started in the second half of 2010, this is their webstore solution, allowing sellers to set up storefronts powered by Mercado Libre
Mercado Envios - Launched in 2013, this is the logistics arm of Mercado Libre, where they partner with leading carriers and logistics providers
On the fintech side, in addition to Mercado Pago, they have Mercado Crédito, which was launched in 2017, and provides cash advances and working capital loans to professional sellers as well as loans to Mercado Libre buyers.
All of the various components of their ecosystem, built up over two decades, put them in a great position to take advantage of the e-commerce explosion that would happen with covid in 2020.
Covid Growth Explosion
In 2017, Mercado Libre had 10 million sellers and 500k of them make a living selling on the platform, selling in volume.
By 2018, they have a $12B+ market cap and around 50 million buyers and sellers overall on the platform.
The next year, they’d end up with about 74 million users on the platform.
But then Covid hits and growth absolutely explodes.
As Marcos would later describe, Covid essentially moved Mercado Libre forward at least 3 years, more in some of the markets they operate in.
They’d end 2020 with nearly 133 million users on the platform, their GMV would grow from almost $14 billion in 2019 to nearly $21 billion in 2020, and their net revenue increased from about $2.3 billion in 2019 to more than $3.9 billion.
Wild.
That same year, they created Meli Air to speed up deliveries, and by 2023 they had 10 planes in their fleet.
2020 was the year of their hockey stick growth, but it’s important to remember that Mercado Libre had been growing steadily for two decades:
It’s very unlikely that we do something and right away we get it right and it’s a home run. It’s almost never been like that in Latin America.
I always say that’s one of the big differences between the stories that you read about the big success cases in Silicon Valley and us - we never had that hockey stick moment until maybe now with COVID. We were always growing at 30% to 40% for 20 years, but we never grew 700% from one year to the next.
Off of that growth, they’d invest $1.8 billion in their Brazilian operations in 2021, a time when they had almost 8,000 employees.
By this time, Marcos was also spending a lot of energy thinking of how he could transition out of his role at Mercado Libre and how they would succeed without him as CEO.
Marcos Today
It’s been 24 years since Marcos started Mercado Libre.
He’s now a billionaire multiple times over, an angel investor, an LP in a few funds, and he’s mentored a number of entrepreneurs.
And yet, like the billionaire healthcare software founder Judy Faulkner, Marcos mostly keeps a low profile:
I see many entrepreneurs who use their company as a platform to be famous. For us it's exactly the opposite, we want the company to be famous. The lower our personal profile, the better.
He’s had to overcome a number of challenges over the years, but by playing the long game and executing repeatedly, he’s managed to build an enduring company.
And yet, even after 24 years, there still seems to be so much opportunity ahead for Mercado Libre.
What will they do next?
What role will Marcos play in the future?
Only time will tell.
Marcos’ Wisdom
In each edition of the Just Go Grind newsletter, I like to include a few more quotes at the end from my research into the founder who is featured, sharing their wisdom.
On navigating a crisis:
Competition is permanent, it’s not a crisis, it’s a constant. It’s the only thing that never changes, but to navigate through these things you need to basically love what you’re doing. If you are doing an endeavor because you are interested in the financial rewards, it’s very hard to be able to make it through these crises because in the middle of the crisis, it seems like it will never stop, but if you really love what you’re doing and you have a great team, then it’s not that hard to sail through these hard times.
On working hard:
I don’t know if I’m a workaholic, I really love my work.
I always say if I wouldn’t be working, at least half of what I do every day I would continue to do so which is getting informed, understanding what’s going on in technology, thinking about how these things will impact our business, so at least half of what I do every day I would continue to do even if I wouldn’t be working and yea certainly I think I work every day, but I also travel and I can be golfing with my family for a week, but I would check emails and do conference calls in the morning and in the evening so… I love my life it gives me a lot of freedom and I do what I like but for me my family is very very important.
My friends, my lifelong friends, entrepreneurs, I really enjoy trying to build an entrepreneurial ecosystem in Latin America, I get inspired by entrepreneurs and their stories.
On getting through difficult times:
Many of the people that work with me have been with me from day zero so having a team of friends that I work with makes it easier to go through the hard times.
I think as a team we have always been focused on the long-term and in really changing people’s lives for real and for good and therefore the short-term frustrations and the failures that we have encountered in the past, we always looked at them as something… it’s like if you’re running a marathon or you’re starting a very long journey, you’re gonna have a lot of setbacks on the way and we always saw that as part of the journey and we really tried to enjoy the journey because, it’s not about the destination for us so we really try to have this mentality of enjoying every day and not getting too psyched when things are going up and to the right and not getting too bummed when we encounter failure because it happens.
On competition:
We don’t play the game based on what our competition is doing…
When you look at the last 22 years, had we focused on the competition, our main competitors have changed so many times that it would have been the wrong strategy. And I’m sure in the next decades our main competitor is going to again change many times.
On the mistakes of entrepreneurs in emerging markets:
Overspending, probably, and not focusing on building a great product. What we've seen a lot is entrepreneurs imitating this model that you see a lot in developed markets where you have a lot of access to funds, like stories like the ones we're reading in the newspapers now WeWork, just to say one, or Uber, they’ve raised billions and billions of capital.
It’s very rare that you can raise that much money in emerging markets. But at some point in time, there is a lot of liquidity in emerging markets, so people raise a lot of money in those points, in times, and they try to recreate that strategy of spending and, “eventually we will figure out the business, and eventually we will figure out the product,” and I’ve never seen one of those stories succeed in the region.”
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