Constantly in a state of flux, the Indian cybercafe business initially saw the emergence of small cybercafes, then the larger ones, and is now witnessing the invasion of the giants branded cybercafe chains, offering everything from plain vanilla access to gaming to high-end communication. Srikanth R P, Rajneesh De & Chitra Padmanabhan bring you the latest from this market

With the number of Internet users currently pegged at around eight million and PC penetration unfortunately nowhere close to this level, cybercafes are still popular in India. True, they are no longer as lucrative a business prospect as they were about three to four years back, but contrary to many doomsayers, there is no need yet to prepare obits. What has happened is that individual unbranded cafes have mostly become unviable, but this hitherto unorganised market is heading towards some kind of consolidation with the entry of branded cybercafe networks into the public Internet access market.

KETAN ZAVERI says the only way out for small cybercafes would be to join the branded franchisee chains

Major branded cybercafe networks like Tata Internet Services, Satyam Infoway’s i-way, DishnetDSL’s Internet Hubs, Junction96 and BPL Net are eyeing this potential segment to break the stronghold of the unorganised sector which currently controls over 90 percent of the market. While Nasscom has predicted 23 million Internet users in India by 2003 from the current eight million, all the major players are planning to actualise the potential of India’s Internet user market. According to one estimate, there are around 8,000 Internet cafes spread across the country, out of which around 900 fall in the branded network category where the large players operate. An IMRB study estimates the total number of cybercafes in the top 16 Indian cities to be around 12,000, which include all kinds of public access terminals like a small STD booth having one or two PCs on a dial-up connection, to around 600-700 branded cybercafes.

Clearly, with the branded segment booming, especially in urban areas, setting up an individual cybercafe might not be much of a judicious business proposition today. Besides, the branded players are still extremely bullish on the cybercafe business and all of them harbour plans of big ongoing expansion. Says V V Kannan, VP, Public Internet Access, Satyam Infoway (Sify), “In a market like India with very low home PC penetration, there is a great need for public access, much like how the low penetration of telephones led to the proliferation of telephone booths with STD/ISD/local call facilities. Cybercafes being a very affordable proposition will further fuel the demand for such a service. Therefore, Sify does plan to expand the number of its cybercafes, branded as i-way, both in depth (in cities where it is operational) and width (new cities) based on the potential and market demand.”

Another major, Dishnet DSL, is also extremely bullish on tapping the exponential growth of Internet users. Dishnet was one of the first to spot the potential of the Internet user market by making use of services like scanning and printing in its hubs. Being an ISP like Sify also gives it an excellent chance to sell its Internet access services to all users. Agrees V Srinivasan, COO, Dishnet-DSL “The DishnetDSL hub division is an integral part of DishnetDSL and falls in line with our plans of becoming a complete ISP. We are looking at more rollouts for public access but we will be very choosy about our locations.” Dishnet currently has more than 130 centres across the country, spread over 56 towns and cities. The latest entrant, Tata Internet Services, has ambitious plans to set up over 2,000 public Internet centres across the country.

The roadmap to expansion

As was the case of the computer education industry, which took advantage of the franchisee route to spread rapidly across the length and breadth of the company, branded players are looking at the same concept to expand operations. Take the example of Sify. The company currently has 600 cybercafes operational in ten cities across India. All these are branded as i-way. But the company only owns 22 of the 600 centres. Being a predominantly franchisee-run operation, Sify saves a lot of money, besides giving it the advantage of expanding rapidly. Another small but successful player is the Bangalore-based Junction96. This company too has effectively used the franchisee route to grow from a mere 22 parlours in January 2001 to over 125 parlours today. Junction96 uses a mix of owned centres, franchisees and affiliations to expand its network.

However, the significant exception to the franchisee strategy is Dishnet, which owns all the 130 centres operated by the company, to ensure quality of service. A look at the numbers of Dishnet, Satyam and Junction96 shows the effectiveness of the franchisee route for expansion. But Dishnet too is now looking at strategic tie-ups for expansion. For example, the company entered into a tie-up with the Indian Oil Corporation (IOC), which would allow it to establish Internet access centres at any IOC gas station. Also on the anvil is the setting up of cybercafes at vantage points like Chennai Railway station, Anna University and Bangalore Interstate Bus Terminals. Dishnet officials claim that the locations are chosen carefully by DishnetDSL.

Finito for standalone cybercafes?

The going seems to be getting tougher than ever for the standalone guys. Explains Kannan, “In a nascent market, with lack of uniformity in access and quality standards, customers view the Internet access market as a commodity and therefore go to any cybercafe. As the market grows and matures as it is doing currently, customers start recognising other benefits, service quality and value additions. Currently there is a strong trend of customers preferring cybercafes like i-way, and this situation can be compared to the shift from ‘kirana’ shops to departmental stores.”

V Srinivasan says that the cybercafe business plays a key role in Dishnet’s plans of becoming a complete ISP

Besides ambience, branded cybercafes provide the same quality of surfing throughout all their centres, ensuring customer loyalty. And a high surfing speed is the key differentiator that unbranded cybercafes are not able to guarantee. As the speed of downloads is much faster, the customer uses less time and thereby pays less for surfing. Also, branded cybercafes like Sify charge users by the minute instead of standard hourly slots. In addition, users who keep travelling frequently find the option of using the same account anywhere in the country very attractive. Besides all the advantages, Sify for instance, due to its subscriber-based model, gets an opportunity to cross sell its Internet access products to subscribers in the database.

Even the one factor price which was working in favour of unbranded cybercafes, is now no longer an advantage as branded players have cut costs massively and are at par with unbranded players. This, combined with the emergence of local cable players who have also entered the Internet access business with promises of abundant speed, has succeeded in almost wiping out the one-man shops from the cybercafe map of India.

Ketan Zaveri, proprietor of One on One, a cybercafe in Marine Lines in Mumbai, says that the cybercafe model is no longer viable, due to cut throat competition from branded players, which he can’t afford to match up to. Zaveri is looking for a way out and concludes that a franchisee model could be the answer. Zaveri’s case is not a rare one and the market is gradually but surely headed for a shakeout. Agrees Kannan, “In an evolving market, the Darwinian theory applies with survival of the fittest. It is not just deep pockets, but the quality of services being provided and efficiency of operations that will determine the success of the players in the market. Also, smaller players will find the going tough in matching services and value adds provided by us.”

In spite of huge investments, major players like DishnetDSL and Sify are extremely confident of recovering their investments and making huge profits. DishnetDSL, which has invested around Rs 50 crore, is looking at a cash break-even point in the near future. Sify is looking at earning revenues of Rs 1 billion from the cybercafe business once the network stabilises and more value-added services are introduced.

Currently, almost 80 percent of public access consumers come for checking e-mail or for chatting. But as the industry matures, branded players are looking to provide value-added services that would add to their differentiation over other players. For example, Sify is looking at exploiting opportunities in VoIP (Voice over IP) availability which would boost cybercafes as the preferred points of communication by the masses, very much like the PCO booths we have today. Another branded player, Junction96, is planning to offer facilities like video conferencing, voice chat and e-commerce. As branded players compete aggressively with each other in providing value-added services, one thing has become crystal clear smaller players will have to invest big bucks to match up to competition. Going by the Indian experience, that seems unlikely, thus further clearing up the road for branded players to compete with each other and not with the small players anymore.