Net Loss

How LatinoNet -- the poster child for Washington's attempt to empower the poor with technology -- wasted money and networked almost no one

The other audit report, issued by the Commerce Department's Office of Inspector General last January, suggests that LatinoNet may have been part of a wider pattern of waste at the agency.

The Commerce Department grant program that made LatinoNet a founding recipient was intended to link charities and government agencies to a computer network -- community empowerment through technology, in the lingo of the day. During the program's first three years, it awarded $78.6 million in grants.

According to the inspector general's report, the grant program's 230 staff members allowed it to spin out of control. They rarely followed up on the progress of grant recipients. Even when they did, staffers did little more than place a phone call, the report complains.

As a result, groups like LatinoNet were left on their own to use, or misuse, funds as they saw fit.

And, as one might expect, money was squandered. In one case, a grant recipient boasted that it had distributed computer equipment to boys clubs and YMCAs, where it could be used by the poor. When inspector general auditors finally checked up on these claims, they found equipment locked away, unused.

LatinoNet eventually managed to get out of trouble with Commerce Department auditors. The group fulfilled its matching-funds requirement by counting the time volunteers worked as in-kind contributions, and by obtaining some donated Apple computers, which it applied toward the match.

The Commerce Department says it has added staffers in order to correct systemic problems in its grant program. The Inspector General's Office, as a matter of policy, will not comment on the matter. But the Commerce Department has made plenty of public pronouncements about its technology empowerment programs.

Indeed, as the Office of Inspector General was documenting the Commerce Department's see-no-evil practices in its audit report, department bureaucrats seemed to demonstrate those practices at a June 1996 conference in Washington to honor technology empowerment grant recipients. The conference was heavy on celebration.

According to the summary report drawn from the conference, department grants such as the one received by LatinoNet were described as "a catalyst for economic, educational and social development in communities through information infrastructure."

Oddly, LatinoNet, which by then had burned through the better part of $1 million with nothing to show for it, was absent from the proceedings.

"We were their flagship project, but we weren't invited," Dr. Armando Valdez complains. "I don't know what they were thinking."

In hindsight, LatinoNet would seem to have been doomed to fail from the moment it was conceived. LatinoNet was set up as a paid-subscription site on America Online just as World Wide Web search engines and cheap Web-page-hosting services made the same sort of information available for free.

The price tag for LatinoNet's service was absurdly steep: an $80, one-time fee for nonprofit agencies and $60 for individuals, plus a monthly fee of $8.95 to access the America Online service where LatinoNet was housed.

While this seemed like a reasonable price to pay in early 1994, by mid-1995 it was a ridiculous fee schedule. And now there are dozens of free, Latino-specific Web sites offering services that range from culture to academia to news to immigration information. A quick Web search will turn up organizations called Latino Web, Hispanic Link -- and even Latinonet, a Web site run out of UCLA.

"In retrospect, it's very easy to see that the technology's changing, but at the time that it was changing, we had no idea. We could have used -- we needed someone who could give us a sense of how the hell technology was changing. We thought we had a grasp of it, and it turns out -- hell, nobody in this country anticipated the Web, nobody," Valdez says.

This statement is true, as far as it goes. But former LatinoNet staff members, former members of its board, and people who came in contact with the organization say LatinoNet wasn't necessarily doomed to fail. According to these sources, Valdez drove it to failure.

Former staff members say Valdez stubbornly refused to heed recommendations that he abandon the original, paid-subscription LatinoNet model. Modern Web accouterments such as free access, corporate Web site sponsorship, banner advertising, and the like were, in Valdez's view, profanely capitalist. And, staff members say, he used his influence with the board of directors, which he had personally recruited, to block such changes.

After a year of operation, LatinoNet had earned $10,960 in subscriptions. During the next nine months it attracted only $1,468. The plummet corresponded, of course, with the explosion of the World Wide Web.

But this should not have come as a surprise to Latino-Net. The America Online engineer who worked with LatinoNet warned staff members that they needed to obtain an AOL public -- or free -- site in order to survive.

"Armando sat on it for months. He would not allow us to do it," one staff member recalls. "By the time we said we wanted to get a public site, AOL said, 'No, we don't want to do it now.' "

By that time, AOL had already signed on Hispanic Magazine as its Latino public site sponsor.

Jose Montes de Oca, LatinoNet's executive director, acknowledges that he, too, saw the writing on the wall. Montes de Oca says he drafted, redrafted, and drafted again business plans that might allow LatinoNet to continue, only to be rebuffed by Valdez. The new business plans included free access, corporate sponsorship, and banner advertising -- now standard for any Internet business plan.

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