Latin American Internet is

muy

hip. Consolidations, takeovers and IPOs are sweeping the region as the dot-com boom moves south. But the big players from

El Norte

, hoping to use their size and experience to cash in on this mania, may be in for a shock: The companies in the strongest position may be those that know the local markets best.

U.S. companies are eager to join the Latin Internet craze.

Yahoo!

(YHOO)

has launched Spanish- and Portuguese-language portals in Brazil and Mexico and announced its intention to launch in Argentina. Yahoo! sees its advantage not in its understanding of the local markets, but in its unique tools.

"Content is something that is nice to see," says Yahoo! Latin America chief Roberto Alonso. "But if I can have a reminder sent to my email from my calendar and emailed notes when a stock goes up 10%, I feel we can build a solid audience that will keep coming back to us."

But U.S. companies may be making a mistake by lumping all Latin American countries together. True, most in the region speak either Spanish or Portuguese, making a tidy link to Europe's Iberian Peninsula and a large minority in the U.S. Yet some argue that by casting a wide net, these Internet businesses are losing important local content and appeal.

Investors seeking opportunities in Latin American Internet stocks and private-equity plays need to be wary of what one managing director calls the "

English Patient

" problem. The English Patient merely translates English-language content into Spanish or Portuguese without a sense of slang or culture. These predominantly U.S. companies also offer links to other English-language sites, including U.S.-based e-tailers, pulling money and eyes away from the region.

Many Latin Americans also view U.S. cultural offerings indifferently. "It is clear from prime-time Latin American television ratings that Latin Americans prefer locally produced content over programming purchased even from the likes of

Disney

(DIS) - Get Report

and

Fox

(FOX) - Get Report

," says Michel Morin, Latin American Internet analyst at

Merrill Lynch

.

"There is no such thing as a Latin American community because there are so many cultures," says Horatio Milberg, chief financial officer of

El Sitio

( LCTO).

One of the two pure Latin American Internet equity plays and a test case for regional success, Argentina-originated El Sitio emphasizes a local content approach. El Sitio operates five country-specific Web sites and one site dedicated to a more global reach. Forty percent of its content is locally produced and is the foundation from which El Sitio seeks to build regional connectivity.

Luis Mario Bilenky, the new president of

StarMedia Interactive Group

, a new unit of

StarMedia Network

(STRM) - Get Report

-- the other publicly traded Latin Internet company -- agrees. "There is a need for local reliable content." To gain that local voice, StarMedia, which claims market leadership in the region, isn't expanding its in-house writers. Instead, the New York-based group is partnering with dozens of local traditional media companies.

Companies outside the region should consider the example of

America Online

(AOL)

. Its journey south has been filled with problems.

AOL Latin America

, currently only in Brazil, mistakenly distributed CD-ROMs that altered browsing software -- and in some cases contained reggae music instead of software. Even before the IPO announcement, the president of AOL Brazil resigned. Local competitors have been aggressive and better at slaking the Brazilian thirst for Internet.

With its recent merger with

Time Warner

(TWX)

, AOL hopes to become the region's dominant ISP. Local dot-coms aren't as worried as one would think. El Sitio's Milberg does not feel that AOL is a threat. AOL's connectivity focus differs from El Sitio's community content orientation.

And as in Europe, AOL faces competition from free ISPs.

Universo Online

, the leading Brazilian ISP with more than 600,000 subscribers, last week announced free service. It is planning to issue an IPO soon and has successfully used a local approach to woo the online Brazilian. UOL is now moving toward Spanish-speaking services to expand its market into Argentina, Mexico, Chile, Venezuela and Colombia, as well as the U.S. Merrill's analyst Morin upgraded StarMedia to buy from accumulate on Monday, in part because he thinks the advent of free providers will send consumers to StarMedia's content-driven sites. (Merrill Lynch has done underwriting for StarMedia.)

Despite the tendency to reach far and wide, a few companies, like

TV Azteca's

(TZA) - Get Report

Todito.com

, are tightly focused on one country or smaller region. While Todito.com concentrates on North America and has no immediate plans to go panregional, it has a vertical hold on the Spanish-speaking North American Internet with computer schools, kiosks in Elektra stores and certain PCs, all offered with Todito.com software.

Investor enthusiasm surrounding the IPOs of StarMedia and El Sitio and the poor reputations of U.S. ventures gone south attest that behind Latin Internet success is the credo: Write locally, appeal globally.

As originally published, this story contained an error. Please see

Corrections and Clarifications.