Reinventing the Internet Cafe Business

Is there still a chance for the Internet Cafe Industry in the Philippines to evolve itself into something new? This business used to be so lucrative because it was a portal that gave access to something people wanted in on, The Internet.

Even Netopia, the country’s biggest internet cafe chain with 154 branches and 75% owned by PLDT, failed to eke a profit in 2008 as it reported a loss of P8 M. In 2007 they had even bigger losses totalling P29 M.

I remember a friend who started their business around 1997. To begin he ponied up 1 Million. The P1 Million covered the server, the furniture, the licensing and the bank of computers. He said that within a year he was able to recover the cost of the P1M and was looking to expand even more.

A few years later, the prices of PC’s and Broadband spiralled down due to the Internet Bubble bursting and the end of the Y2K scare. 1996 could be considered a technology company bull run as demand for PC’s and Broadband access rose dramatically due to the Internet Gold Rush and the Y2K bug that had businesses scrambling for new hardware.

That in turn opened the gateway for competition in the Internet Cafe business as people who were pining to enter that industry finally found it within reach with the proliferation of telco’s offering cheaper broadband access and the near 50% drop in hardware prices.

Internet Cafe’s were sprouting like mushrooms. The price drop in computer rentals was starting to become absurd, given the capital cost that had to be paid back.

Internet Cafe’s soon started evolving into Gaming Centers and it became lucrative, for a while. Internet Cafe’s were feeling the crunch of capital costs eating into their meager profits because as gaming centers they had to have the latest equipment and pay the high licensing fees of games.

They were saved once again by the phenomenon known as MMORPG. Or more lengthily defined as Massively multi player online role-playing game. Internet Cafe’s were freed from the burden of paying licensing fees as the software was free and one had but to pay for the access cards. The games were addictive as it enabled one to play in a virtual world against a lot of players. Players were lining up to play in Internet Cafe’s.

When you look at the development of the Internet Cafe, you can’t but help think that the success of an Internet Cafe business is being determined more by geographical location and distance from competitors rather than what you have to offer.

I was looking into the Pros and Cons of the Internet business before and Cons seemed to outweigh the Pros.

Cons of the Internet Cafe Business

1. Any tech savvy person can enter the Internet Cafe Business - Its so easy with the current technology available, that anybody can set up an Internet Cafe on their own, thereby leading to more competition.
2. You business model and service can be easily copied - anything that you can do in the business that can make it unique can be easily copied. From printing service to typing, logo making, gaming card selling, you name it your competition can copy it.
3. Predatory Pricing - with the increased competition Internet Cafe’s resorted to dropping prices in order to gain market share. Profit margins just become slimmer.
4. Constant Update of Hardware Required - especially if you are in the gaming center business. New games will always need new hardware. With meager income this might be near impossible. If you don’t upgrade you’ll lose business to the Internet Cafe down the block that just recently opened.
5. Proliferation of cheap home broadband access offered by the Telcos - people used to go to the Internet Cafe to have access to fast broadband Internet. But with the recent price drops in home access, people can now afford to get their own broadband internet and surf at the convenience of their home.
6. Limited time for business - most of the Internet Cafe owners I spoke to said that business usually picks up in the evening because that is the time when the kids get off school and are ready to do some gaming.
7. Security - because the Internet Cafe’s operating hours have moved to night time, it has made it enticing for robbers to make them targets for hold ups.

Despite these Cons however, there are still some people who make money with their Internet Cafe’s, but the income doesn’t just come from just the renting of computers. Listed below are some of ingenious changes being done in the Internet Cafe business model in order to make it more profitable.

How to Reinvent Your Internet Cafe Business

Take Online Job’s - I remember before that some IT companies had Internet Cafe’s so as to supplement the cost of the broadband internet they were using. Now it can go the opposite, Internet Cafe’s can use their broadband access to get online jobs.

With the advent of online payment systems being made available to the Philippines, one can convert their Internet Cafe’s to take on simple jobs online such as data entry and transcribing. Site’s like Odesk, which match buyers and providers, can be used to easily find a client.

The business model changes somewhat to outsourcing and people management.

Selling Virtual Gaming Items - if you are a gaming center you have the advantage of a ready market available to you. Kids who want to improve their characters will usually spend a lot to buy Virtual Items. From weapons to even simple things as online currency.

Sell Stuff Online - with cheap broadband, the Internet has been made more accessible resulting in more people going online. Selling stuff online has never been easier. One doesn’t necessarily have to have a website as there are a lot of online buy and sell sites available that one can post their items in.

And with Paypal being made available to the Philippines, it has made it easier for Filipino’s to trade goods Internationally. One has but to leverage the goods that are available in one’s geographic location to make an honest profit.

Should You Still Continue with the Business?

Of course after looking back at these suggestions, one can’t help but think: “why shouldn’t I just shut down the Internet Cafe and concentrate on these money making options?” And that is the risk you have to consider. Quite similar actually to the risk you took when you opened up your Internet Cafe.