At Php4/hour, will the net cafe business go bust?

Abe Olandres Editor-in-chief October 12, 2006 · 2 min read

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An article on Inq7.net today points out to a booming internet cafe industry in Davao City. The business is so competitive that one only has to pay as low as 4 to 8 pesos an hour to surf the net.

Now, doesn’t Php4/hour spell the death of this lucrative business? Here in Makati, the cheapest I’ve ever seen is the one at the corner of Arnaiz Ave (Pasay Road) and Evangelista Street operated by Pempe Networks. They offer as low as Php8 per hour for prepaid members. Regular rate in the area is Php25/hour.

I’m no so sure if there’s still money to be made with an Php8 an hour rate much more the Php4 in Davao.

A regular PC would eat about 350 to 400 watts of electricity per hour right? That’s already around Php3 when you compute the current power rate of Php8.9 per kilowatt hour. Them you still have the air con, the lease of the place and the people to pay every fortnight.

I don’t think Php8 would even cut it. But yeah, everyone wants to compete for customers and the fastest and most effective way to attract them or retain them is by lowering your prices. But for what? At the cost of just breaking even? For how long?

So, will the bubble burst?

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Abe Olandres

Editor-in-chief

Abe is the founder and Editor-in-Chief of YugaTech with over 20 years of experience in the technology industry. He is one of the pioneers of blogging in the country and is considered by many as the Father of Tech Blogging in the Philippines.

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52 Comments

Ervin · 13 years ago

This internet cafe is still alive and kickin’. Oh Yeah! Rate is now Php 8/hr. ^_^

RandmwerdZ · 15 years ago

Suicide nang maituturing to.

We are planning to have COOP, and regulate a standard rate for every LANSHOPs. Para maiwasan yung ganitong scenario. Most of the time, yung mga nag lalagay lang nga ganung prices eh either, counterfeit yung OS, or illegal yung kuryente. Sooner or later, mahuhuli din yan kung aaksyunan ng authority, lalo na yung PAPT, at OMB( sana, hindi ningas-kugon) Kung maisasasra yung mga ganyang shop, maibabalik natin yung tamang pricing sa market. Yang mga “Kolorum” lang naman ang nagpapagulo sa pricing since mas mababa sila mag offer. Kaya tuloy pati mga legit, napipilitang mag baba, which is sobrang UNFAIR. Kung mag-tutulungan tayong i resolve ang problema dito, hopefully, maibabalik natin sa tamang presyo ang internet shops/cafes sa market. “WALANG IMPOSIBLE KUNG NAGKAKAISA.” ” Kung tulong-tulong, lahat susulong!”

So I guess we should start questioning our neighboring shop;s softwares. Most esp the games. Check the OMB/PAPT(Philippine against piracy team)website para mabisita nila yung mga katabi niyo.

joel · 16 years ago

hi mcgarianala can you send me an email at ja****@yahoo.com
Im interested in what you have mentioned on your post here.

thanks,
joel

mcgarianala · 19 years ago

Just a sample computation on costing sa operation ng Internet cafe, for reference.

I am not an accountant so some items migth be debatable i.e. how to compute the ROI and Depreciation. However most of the figures are based on my experience.

Monthly Power Consumption:
Based on Meralco Calculator
Assumption: CafÃ© with 10 PC, 1 Printer, 2 HP ACU, 2 Fans, 3 CFL

Equipment Qty Cost
Computers 10 Php 7,746.00
Printer 1 602.46
ACU 2 Hp 1 5,400.36
Orbit fan 2 550.82
10W CFL 3 103.29
Total Php 14,402.93

Monthly Operating Expenses
Electricity Php 14,402.93
Space rental (30 sq.m) 7,000.00
DSL Service + Phone (PLDT) 5,600.00
Water 300.00
Operator’s Salary 6,000.00
Personnal Salary 6,000.00
Taxes, Permits, etc. 1,000.00
Depreciation 5,000.00
Return of Investement 5,000.00
Total Php 50,302.93
Notes:
1. 10 PC @ Php 18,000/Unit – Straigth Depreciation amortized 36 months (3 years)
180,000/36 months = 5,000.00 month depreciation

2. Return od Investment – Amortized 36 months
5,000 * 36 months = 180,000 in 3 years

Hourly Operating Expenses
No. of Units 10 Units
Operating Hours/Day 12 Hrs
Gross Operational Hours/Day 120 Hrs
Gross Operational Hours/Month (28 Days) 3360 Hrs

50 % Occupancy is equivalent to 1680 Hrs
75 % Occupancy is equivalent to 2520 Hrs
100 % Occupancy is equivalent to 3360 Hrs

To get the hour operating expenses, divide the month expenses by the occupancy hours

50% Occupancy i.e. 6 hours full pack=Php 29.94/hr.
75% Occupancy i.e. 9 hours full pack=Php 19.96/hr.
100% Occupancy i.e. 12 hours full pack=Php 14.97/hr.

These rates do not include any profit margin yet!!!
By charging PhP 20.00/Hr
At 50% occupancy you loose approx Php 9.94/hour or PhP 16702.93/month
At 70% occupancy you only earn approx Php 0.04/hour or PhP 97.07/month
At 100% occupancy you earn approx Php 5.03/hour or PhP 16897.07/month
Is you shop filled 100% of the time????

Gross Sales –
Computer Rental 20/Hr 25/Hr
Daily Gross Sales Rental only
50% Occupancy 1,200.00 1,500.00
60% Occupancy 1,440.00 1,800.00
70% Occupancy 1,680.00 2,100.00
80% Occupancy 1,920.00 2,400.00

Monthly Gross Sales – Rental only
50% Occupancy 36,000.00 45,000.00
60% Occupancy 43,200.00 54,000.00
70% Occupancy 50,400.00 63,000.00
80% Occupancy 57,600.00 72,000.00

Difference in Gross Sales
50% Occupancy 9,000.00
60% Occupancy 10,800.00
70% Occupancy 12,600.00
80% Occupancy 14,400.00

Inkjet Printing cost 5% coverage
Ink – Refill 0.25
Ink – Original 1.00
Paper – letter size, Subs 24 0.30
Electricity 0.20
Printer Maintenance/Depreciation 0.10
Average cost per print 1.23

Gross Sales – Printing 3.00/Page 5.00/Page
Daily Net Sales
Printing only 50 prints/day 88.75 188.75

100 prints/day 177.50 377.50

200 prints/day 355.00 755.00

Monthly Net Sales – Printing only
50 prints/day 2,662.50 5,662.50
100 prints/day 5,325.00 11,325.00
200 prints/day 10,650.00 22,650.00

Difference in Net Sales
50 prints/day 3,000.00
100 prints/day 6,000.00
200 prints/day 12,000.00

Bottom Line: We stand to lose a minimum of PhP 12,000.00 Per Month by pricing our services (rental and printing)down.

Usually people forget to differentiate between their profit and salary. Also, there is usually no provision for Depreciation or ROI. On electric bill the only way to reduce cost is to use LCD’s, there is approx a difference of 60w-30W between an LCD and a CRT.

Tech3 · 19 years ago

In addition

Capital

More likely if your budget per computer is P20k for gaming units.
If you bought it now, you can have a DualCore 1.6 Processor, 512mb RAM, Asusboard w/ 1gig lan, 256 pci video card, 80gig HD(sata), Casing w/ mouse n keyboard and a 17″ LCD.

You will be able to have a discount, cause for crying out loud, your buying 100 computer units.

P20k x 100units = P2M
P16k on internet pc x 20 = P320k

P2,320,000 on the units alone.

Buy the OS license, half of the number of units, (if your here in cebu) cause they have some sort of licensing program. “Its the so called requirement”. That would be 120 units x P4,500 = P540,000
More likely, youre budget for all, a wooping 3.5Million.

But if you have a clean P250k a month. Thats only a 1 year and 4 months for you to be able to get your Capital back, and after that… use your imagination.

Tech3 · 19 years ago

Internet Cafe has 100 units for gaming and 20 units for Internet

Rate P8 7AM to 12MN Gaming
Rate x Units
P8 x 100 = P800 per hour
P800 x 15 hours = P12,000

Why 15 hours only? take it 2 hours that the computer was vacant

Rate P4 12MN to 7 AM Gaming
Rate x Units
P4 x 100 = P400 per hour
P400 x 6 = P2,400

Rate P15 Internet Users
Rate x Units
P15 x 20 = P300
P300 x 15 Hours = P4,500 a day

Only 15 hours for the Internet Users

P12,000 + P2,400 + P4,500 = P18,900

P18,900 a day, thats a 24 hours, that doesnt include the printing, refreshments and other stuffs.

These people uses Energy Saver for there electricity.

More likely a P20-P25k a day.
P20k x 30 days = P600k a month
Range from P600k to P750k a month
Even if they will have a P500k expenses for a month. P250k is still good money.

Abe Olandres Editor-in-chief · 19 years ago

@ sharie, nope it’s not. Hindi po bawal yun.

sharie · 19 years ago

just wanna ask if there is a law na bawal magtayo ng internet cafe business sa tabi mismo ng isa pang internet cafe, as in magkatabi talaga?

otoy · 19 years ago

back then when internet rates were not yet regulated here in davao, rates would go as low as i think 10 pesos per hour, but it would also go lower siguro from 11PM until the wee hours of the morning.. internet cafe owners are concerned coz most of them are pa lugi na and come to think of it their computer units are utang pa, good thing na regulate ang internet cafe rates here in davao atleast di namatay tong industry na to.

its very hard to compete here in davao city specially if you dont have a good business plan, some big names franchise and companies here gone poooooff in just a short period of time.

pero alam nyo kung ano ang cool.. try going to some coffee shop here in davao and you’ll get a free wifi access PLUS! libre pa charge ng laptop nyo :)

astig ano hehehe

Davaoeno · 19 years ago

Aw, come on, mga uto uto talaga kayo. Walang internet cafe sa DAVAO na umaabot sa Php 4.00 noh!!! Gawa gawa kayu dyan, meron nga city ordinance na bawal bumaba sa Php 20.00 /hr ang rate, pero meron din pasaway na umaabot Php 10, at malakas ang raiding sa mga internet cafe sa amin ngayon, (based on experience…) so if ever bumaba masyado rate, niraraid agad.

PS – meron noon 5 Php per hour, pero ni raid agad at nagsira. In my entire life, as a computer science student and gaming adik, chismis lang yan na umaabot ng 4 Php/hr dito sa amin. 15.hr standard rate dito.

eathan27 · 19 years ago

Hi peepz! I am currently running a cafe owned by my husband and his mother.

We currently have 15 units for the clients, and two others for us(for the monitoring and his personal use). Price started at P25/hr at our hometown, with 4 units as his starting venture. 6 months after this, it grew into 12 units. We transferred after an accident hits us (Beware of late gamers)…A hard core player himself he preffered to prioritize gaming than internet services. Sa gaming kasi you don’t need to fill in more expensive facilities to suit older clients. We installed exhaust fans aside from ceiling and stand fans. At a rate of P15/hr it is really hard to run aircondition on a daily basis. Umaabot ng 9 to 14k ang electricitity cost plus 7k rental. Presently, we charge P10/hr since our competitor is just a door away from us. We maintain a lagless, faster net connection with our dual dsl line. I say, mas malaki returns ng P10 per hour na fully loaded with players from 7:00 am to 1:00am, than P15 which would only be fully booked pag-uwian ng mga bata. Tubong instik kumbaga (aside from the fact that my husband is a pure chinese), paunti-unting tubo pero sure naman and umiikot ang pera than mahal na rate pero hindi naman punuan.

We aim to transfer sooner into a bigger place and sell some units too. God’s will, it will turn good. We had some falls too that had almost crushed us to the ground (mainly the Reming disaster), pero thank god andito pa rin kami.

One thing i’ve learned the most,,,”when income seems to decline, lower the expenses, ‘wag ipasulot ang mga clients and for sure there will be no LUGIAN!! ….sell the pan cakes while it is still hot or else mapapanis yan….

For the future net entreps…don’t be afraid to venture, basta kabisado mo ang business mo and you are ready to sacrifice for the benefit of the clients, do not be afraid to take risk and maintain rules…plus…always set fair charges….and love ur work!!

JC John SESE Cuneta · 20 years ago

PLDT’s gimmick is for those who don’t have “money”. Even with that low cost of rentals, it’s only a dream if you can’t even start out your own ;)

It’s possible. I forgot to mention, I conducted different case studies in different locations here in Imperial Manila. In our place (along Evangelista St. Bangkal, Makati), we can go as low as PhP13.00 / hour. We are corner of a major road and side street. Near INC, near AMA Makati and Don Bosco, residential and commercial area.

But it’s only a dream for me as I don’t have the money to pull it out. :p

kzap · 20 years ago

so where does this set PLDT and offering their BRO and DSL as a business? heh

JC John SESE Cuneta · 20 years ago

Here’s something I learned from Davaoenos and from the people from the companies I’ve work for who went to Davao.

“The farther you go away from Imperial Manila, the cheaper life becomes.”

Cebu Internet I was told by many colleagues (who are Cebuanos) goes for as low as PhP8 ~ PhP10.00 per hour.

In Davao (as I’ve said above), even goes below PhP4.00. There is a very strong Internet Cafe in Davao that offer PhP1.00 of Internet usage per hour. Imagine that.

Here in Imperial Manila, the lowest I’ve seen for non-members is PhP10.00 per hour. For members, PhP7.00 per hour.

Major factors affecting the prices are:
1) ISP charging
2) Number of computers
3) Space rental costs (so if you own your space the cheaper you can charge)
4) Local lot/land costs and taxes
5) Electricity
6) How you acquired your computers
7) What’s the purpose of the businessman/men?
8) Location, Location, and Location!!

So in Davao, they can charge for as low as PhP1.00 per hour, because most of the factors are already cheap.

Imagine this also:
When the 1st LAN Gaming computer rentals in the country opened, the charging was PhP30.00 per hour. No internet back then, just pure LAN Party.

That was way back in 1992 if I’m not mistaken, I was only 10 years old then (the old days, yehba! kicking the arses of those college students bwahahaha).

But now, average “Internet” gaming is ranging between PhP15.00 ~ PhP25.00.

Think about it, how much is PhP30.00 back in 1992 compared to the PhP30.00 today in 2006?

Way back then, they are earning “huge”. Today, they are earning “big”. In my opinion, Imperial Manila’s INternet Cafe rentals can really charge cheap – they DONT want to do it. Who would right?

“At the end of the day, it’s all about business and making money.”

;)

SELaplana · 20 years ago

year 2001 when we started an internet cafe dyan sa New Era, Quezon city. P60.00/hr pa noon ang rental at kumikita kami an average of PhP10,000.00 daily.

year 2002 the rate decreased to P50.00/hr hanggang sa naging P30.00/hr dahil sa competition at ang netcafe namin started the price fall.

year 2003 bumaba again to P25.00/hr hanggang sa naging P20.00/hr at kumikita na lang kami dito ng average of P3,000.00 na ang pinakamalaking kita namin ay sa printing.

year 2005 naging P15.00/hr na ang rate at minsan bumababa pa sa P10.00/hr lalo na if the customers is just editing their 300 pages documents which should be printed sa cafe namin na ang price was P2.00/short page with DeskJet printing.

When the cafes sa paligid namin ay umabot na ng 20, we stopped the business dahil lugi na….

Alfie · 20 years ago

Yeah, I confirmed that. Nong nasa Cagayan De Oro ako last few weeks ago, one of the computer cafe that I rented charged me only Php 9 per hour.

vance · 20 years ago

well there might be some factors about having P4/hour

a.) is there air conditioning?
b.) how much is the electricty cost in midanao?
c.) are there special internet packages in provinces?
d.) maybe mas mura ang bilihin sa davao compared here in the metro

ralphot · 20 years ago

the last time i was in davao to surf… which was 6 years ago (!!!), the rate was still P20. WTF? ganun na lang kamura ngayon?

mapapamura ka sa mura!

elmer · 20 years ago

P4/hr? what’s the catch?? I can’t figure out how they would make money with that kind rate, maybe they’re into other value added biz and just using computer rental as side services to undermine competitors alltogether then jack up the price later on.

BTW, couple of folks here are planning/thinking about having internet cafe/computer rental business, which is mostly deal with individual consumer, what about hardware rentals (server,desktop,laptop,mobile) for small-biz,entrepreneur,balikbayans,tourist,ofw or start-up to be exact. the first 5, sila yung may pera (even in the form of credit card) and for startup i believe most of the times equiped only with passions, ideas and guts but do not have the hardware to turn it into reality.

One time when i was in manila a friend of mine is crafting a proposal for a company and he wanted me to take a look at his presentation, and i was impressed. Then i asked him how he plan of doing the presentation, he said he doesn’t have a laptop so he will just used the client (prospective) whatever available machine, what?? eh paano kong wala o kaya nasira eh di useless din kahit gaano kaganda ang presentation mo! In short i ended up letting him used my thinkpad x30 for a day.. for free and he nailed the project. Now, how many (in metro manila) been on same situation?? I have no idea.. yet. but.. im in the process of drawing biz plan for mashup tech rental services… web 2.0 style.

Sorry guys/gals for my long and little bit derailed comment.

eric · 20 years ago

i really dont know if that 4/hr business strategy will work. but they way i see it, i guess these internet shop owners get their profit from printing jobs, snacks available at their counter, e-load, internet dial-up card sale, ragnarok cards sale, etc. bottomline here is, madami pa silang mga extras para kumita.

Abe, meron palang 10 or 15/hr sabi ng pamangkin ko nasa buendia ave. the catch is: online timeis 12midnite til 6AM. at kahit ganitong oras, puno pa rin daw ang shop.

Andrew · 20 years ago

@Joseph, Yuga’s right, there’s not that much laptop users that would worry the net cafes here or anywhere for that matter. Actually, it’s the kids that keep net cafe businesses alive by playing games, chat and print homework. So we should recognize that the laptop/wifi crowd is totally different from the net cafe crowd.

@All: There came a point then Mayor Duterte set the uniform hourly rate to P20/hr. as a way to prevent kids from spending too much time inside net cafes. Being a little bit of a gamer myself, I did notice that cafes became empty much earlier than before. But some decided to do promos to lure more customers such as giving away free snacks and C2. I guess they realized that P20 was still too much so they are able to give away freebies as a value-added service.

Since the P20 rule was lifted, the cafe I go to now charges P15 before 7pm, P10 for 7pm-12am and P8 up to 6am I think. The ones that charge P4 are really crappy (to put it bluntly, kanto) and do not have air conditioning. With the high electricity rates, I still wonder how they make money. IMHO, I don’t think selling refreshments and printing can make up for it.

Abe Olandres Editor-in-chief · 20 years ago

J, from what I read before Apple makes around 10 cents per music download.

K, Rate for gaming is usually lower since some of them don’t use the internet, just the LAN.

Joseph: I don’t think laptop users in Davao have reached critical mass to affect the gamers, chatters and Friendster fans.

j4s0n, interesting model. but you know, we Filipinos will always find a way around it. Remember, Burger King used to have bottomless drinks with the refilling stations placed in the corner — people got smarter and Burger King was forced to move the stations behind the counter so waiters can assist in refilling.

j4s0n · 20 years ago

I just find it a very interesting business model as JAngelo is saying.

FREE INTERNET and PC USE for a coffee.

All you have to do is order coffee, then you’re entitled for a free 1 hour PC use. Hehehe!

Joseph · 20 years ago

According to Alleba.com/blog, wifi access in Davao City is free. Could this be a reason for the cheap rental? I mean, if other people could get it for free, why would I charge a high price?

Kiven · 20 years ago

how much is gaming i wonder? maybe higher profit margins there…typically naman sa mga net shops esp outside of the metro e more on gaming than just net surfing

J. Angelo Racoma · 20 years ago

Maybe they can earn from the other services, like selling refreshments, printing, etc. Just like how Apple loses money with each song they sell thru iTunes but recoups the cost by selling the iPod at high margins.