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October 09, 2011

Lessons learned from a failed internet cafe business

Several months ago, we finally closed our little internet cafe business. I wrote about the viability of the net cafe business many years ago and actually started one about 2 years ago. Despite its eventual failure, I learned a lot of lessons from that little experiment.

I’d like to share these lessons with my readers and, hopefully, it will also help them decide when they want to get into the business in the future.

  • Price Competition is the biggest killer. Filipinos are a very price-sensitive bunch of people. They will look at price as the top consideration. As such, internet cafe owners will bank and fiercely compete in this front to the point that they will almost always operate at a loss just to get market share.
  • Home-court advantage. A lot of the community or baranggay-based internet cafes operate under the hood of their houses to cut down on the expensive rent. They then pass this “savings” to offset the cost of operation (DSL subs, electricity, labor) leaving renting competitors at a dis-advantage. I’d stay away from locations where this is a very likely scenario, unless otherwise it is to your advantage.
  • Reliability of internet connection. You need the best connection uptime as possible. Otherwise, you’ll bleed. In the two years we’ve operated, we encountered a number of downtimes. A single downtime would last several days to a week. That’s already a huge blow to the bottom line. Instead of getting a single huge pipe, I’d suggest getting a redundant connection that can be combined or load-balanced. That way, if one connection is down, there’s a backup to take over.
  • Forces of Nature. Natural disasters are to be expected but the most common of them all is the yearly typhoon and floods. During Ondoy, a lot of the shops near our location were closed down due to the flood waters that remained for several weeks. We were fortunate our place wasn’t affected and we benefitted from the influx of displaced customers. This year, we saw a lot of typhoons and floods that a single incident can take 2 to 5 days operational downtime. Next time, I’d pick a better location where there’s less likely to get affected by these.
  • Business Intelligence. We struggled with how to make the best margins. Will operating 24/7 make us better returns? What’s the optimal number of workstations needed to maximize customer traffic at peak hours. How do we effectively manage bandwidth to improve internet experience between gamers, chatters, surfers and YouTube streamers.
  • Preparing for upgrade cycle. Our first upgrade was in 2009. The work stations needed to be upgraded after two years. This is to cope up with faster processors, RAM and graphics cards. That does not include the already busted and out-of-warranty computers and monitors. By the end of the cycle, you should have enough funds to do the upgrade. If not, then it’s a losing proposition.

Lastly, and this is my biggest lesson — invest in money you are willing to lose. That way, you are able to make a sound and objective judgement when it is needed. You are not too emotionally attached to the business and you can easily let go when it’s time to let go.

Will I go back and do this again? Absolutely. When that happens, I think I’ll be wiser and hopefully succeed.


65 Responses to “Lessons learned from a failed internet cafe business”

  1. kapitan
    Twitter: keywordspeak
    says:

    sabi nga nila, location location location.
    masarap magkanet cafe sa malapit sa school.
    yung mga toping on-the-go ang mga target customers mo.

  2. Owen Lacoste
    Twitter: RaiLacoste
    says:

    I worked for several Internet Cafes before but now I think of it as a slowly dying business. Internet packages are so cheap and you can even do facebook at your mobile. PC has become affordable also. Most of the cafes I’ve worked for are closed now. Glad I shifted into social media :D

  3. kuya dan
    Twitter: dante noe
    says:

    It was my dream business way back early 2000… when I was employed as an internet cafe attendant…

    for 4 yrs, I saw big changes prior to your list! Lalo na pede ka ng mag set-up ng game type desktop sa mababang halaga…

    mas ok pang mag benta ng isaw+kwek2x+buko juice sa kalapit ng school kc walang price competition…

    it was an eye opener to me. :)

  4. Mon Macutay says:

    That’s sad to hear Abe. I also have a small i-Cafe and times are tough. I actually wrote a couple of articles so that entrepreneurs willing to start up have a guide of some sort. But you’re right, the best teacher is still “experience”.

    http://gmtristan.com/how-to-start-your-own-internet-cafe-business/

    http://gmtristan.com/start-an-internet-cafe-business-in-the-philippines-part-2/

  5. Mon Macutay says:

    That’s sad to hear Abe. I also have a small i-Cafe and times are tough. I actually wrote a couple of articles so that entrepreneurs willing to start up have a guide of some sort. But you’re right, the best teacher is still “experience”.

  6. Dexter | Techathand
    Twitter: techathand
    says:

    Mahirap talaga ang internet business sa Pinas, medyo dami ng competition..

  7. cocolumboy says:

    buti na lang construction supplies ang business ko,,,, ang laki ng kita, ahehehehe

  8. What happend to the computers you used in the internet cafe?

  9. iloveboracay
    Twitter: iloveboracay2
    says:

    Internet cafe business is very saturated already and most household today owns a computer with an internet, free wifi all over the place, thus making this type of business really not demanding too much now.

  10. Chazper says:

    @iloveboracay saturation is relative to location. University belt, yes I’ll agree with you bro that it’s very saturated. But I know of a prime location that has only one internet cafe. Around it are multinational companies and an international school… it’s charging Php50/hour. Their customers have access to the internet in their office and they can use their mobile phones for surfing, but how come they still hangout in that internet cafe during their breaktime and after office hours? And how come it has no competitors? hmmm…

    @Yuga. We have the same experience Abe. All the things you mentioned are true. The typical business model of internet cafe is surely dying. What is needed for this industry is to adapt and evolve to the changing time. When starting, one should be fully aware of the threats and should have a sound strategy to overcome them.

    Nowadays, those that are planning to start like a typical carinderia will surely lose. But those that will follow a structured and well thought of business plan like those first class restaurants will have a fighting chance, especially if taking the advice of people who have been burned and became wiser by venturing in this type of business. This is no longer a business that anyone can setup and expect success without careful planning.

    ———————————-
    Tips and Guides in starting an iCafe
    http://www.icafeproject.com
    ———————————-

    • PhillipAnn says:

      Yes, truly this business is saturated. But in my case strategy matters and I’m still alive and earning the same income as before when I was the only one standing here 3-5 years ago. Today there are 7 others in our zone (a radius of 200m).

  11. omar says:

    @yuga. Do you have licensed MS Windows installed in your (recently closed) internet center? me and my wifey are going to open an internet center but I’m torn between getting licensed windows or not. majority of internet centers all use jack sparrows, and quite frankly, I don’t see any advantage of purchasing licenses. dagdag gastos lang if you ask me since law enforcement is impotent.

    but still, I would like to go legit with our business. is it still advisable to get licenses for windows?

  12. imzky says:

    I just opened an internet cafe this year and it’s not doing good. I must admit it was a wrong decision as I jump into it without doing much research and study. There are a lot of competitors in the area, though we manage to have regular customers (suki), still the gross income is not enough to pay for the expenses.Plus the problems that arise such as PC crash, connection error etc. which give me much headache. I am not good technically on computers that’s why I still look for a technician anytime there is a problem with the PC and network which means additional expenses. Any valuable inputs to help me survive in this business will be highly appreciated. Or does this mean I should give up?

  13. cyberbhlue says:

    nagwork din ako sa net cafe sa amin. sa sobrang dami ng computer shop eh ang pinakamura na rent eh 9/hour. peru di namin ginaya ung price nung nag ooffer ng mababang rent kasi madami kaming valued customer na kahit 15/hour pa rin kami eh sa amin pa rin sila talaga pumupunta. hanggang ngayon buhay pa rin ung business. lesson learned: be good to your customer, cgurado babalik sila na may kasama. dapat assist kung assist. maging approachable.

  14. michael says:

    4 years na ako nag-operate ng internet cafe ko, ang experience ko taas baba ang income kasi minsan may games na gaganahan silang maglaro, minsan naman hindi pero mga alternate lang na buwan pag may ma install na magandang laro babalik ulit ang customer. Talagang sa games lang nagsu-survive ang cafe pero ngayon mga half a year na humina na ang cafe ko, kababago ko pa lang mag upgrade kasi akala ko sa pc spec ang problema pero hindi na talaga bumalik mga customer ko. Marami na ring hulog piso na mga internet at game box sa paligid. Nasa residential ang area ko pero urban na may dalawang university na malapit pero hindi ko makuha kung bakit pakunti-konti nalang customer ko. Balak ko nga mag shift ng business pero hindi ko pa alam kung ano at kung magagamit ko paba ang mga pc ko. Any advice kung ano magandang business na magagamit pa ang mga PC ko.

    • jeff says:

      obserbahan mo pre kung ano status nung mga pumasok na hulog piso,,, kung maganda income nila gayahin mo,, den spread ur pc to your area,, as simple as that,, kaysa magbukas ka ulit ng walang kasiguruhan na new business. para di rin ma junk mga pc mo.. gud luck

  15. Phillip Lopez says:

    I have i-cafe here @ ph sa totoo lang mahirap talaga for now pero sa tingin ko di naman lahat ng internet cafe mahina. dapat servicing din meron like computer repair, xerox, cd-burn, accessories snacks. style ko kasi buy n sell wag mong hintayin na malumaan ka ng computer for sure pagnalumaan ka at di ka pa nag dispose sigurado lugi ka kagad…

    advantage kagad kung marunong ka sa pc-trouble shooting disassembly and assembly networking sideline din yan. check mo rin mga pc mo baka di gamers type and internet connection baka mabagal mapapansin mo tutumal mga costumers.

  16. jeff says:

    meron din ako internet cafe, as of now working fine.. ok ang kita.. i maintain my pc’s tumatatngap din kami pc repairs, console repair, electronic repair, celphone repair,repair sa lahat ng gadget,, naexperience ko kc dati nung my competitor ako d2 sa baryo namin my pumasok na mga hulog piso. medyo humina ung net cafe ko.. so i decide to convert my other pc na gawing hulog piso at kinalat namin ol over the place,, lahat ng posibleng pwede nila lagyan sa buong baryo naglagay kami.. well after 2 months haha nadoble ung dati gross income namin… and its my advantage kc ako lng ang my internet all over the place.. kaya napilitan cla mg pull out ng unit… as of now buhay ang business..baryo kc ung lugar namin…

    • Billy says:

      Good to know Jeff. Those tips are very helpful. Thank you

    • PhillipAnn says:

      Ako din ganon nangyari. Nong nabalitaan ko na may magtatayo ng pesonet sa harap ko kinanvert ko agad to pesonet ang cafe ko. Kaya nung magbukas sila hindi na nanibago mga customer at sa akin pa rin sila pumupunta. Pero binababa ko rate ko in 1 month, tsaka ko binalik to standard price. Ngayon ganun pa rin ang kita ko sa dati.

    • Jayson says:

      isa pang tip kahit hindi mo convert sa hulog piso basta higitan mo ang rate niya may laban ka padin kung kaya mas gandahan mo spec like upgrade. Kaaka tayo lang ng negosyo niya ikaw anjan na mas eager yon makabawi sa pinuhunan ikaw sa malamang bawi na or atleast pumasok na ang balik focus ka lang sa advantage mo & lalo mong alagaan ang regular customer mo. Ito ang ating tatandaan kahit saan larangan ng negosyo as long na may kaalaman ka sa iyong tinataguyod may laban ka.

  17. Billy says:

    Games are now and will always be the bread and butter of Internet Cafes. I remember when I was in the elementary, we have ataris and family computers and we call it arcades not internet cafes. So if you study the trend back then and now it has always been on games. Upgrade on the games and surely you will stay in business.

    Social networking, office and school tasks are mere sidelines in cafes nowadays. Stick to games.

  18. widosy says:

    i invite all internet cafe owners to visit us, we can help you rise up and be at the Top! as we will help you with are services, features including battle-lan (interconnection of internet cafe antionwide or worldwide!)..

    https://www.facebook.com/widosy

  19. It is good to here na marami na ring mga Filipino na nagnenegosyo.

    Para sa akin napakaganda ng Piso Net Cafe Business kasi may business na ako kahit full time working ako.

    Para makatulong din sa mga may balak na magbibizness ng Piso net cafe, gumawa ako ng Piso Net Cafe Tutorials kung paano magsimula ng ganitong bizness from scratch to operational.

    Thanks

  20. Jayson says:

    Maipapayo ko lang tatag ng loob, kaalaman sa negosyo, puhunan na hindi tinipid & good customer service. Simula tayo sa tatag ng loob tandaan hindi biro ang puhunan dito hindi din to masasabing tubong lugaw pero bakit dami nagkaka interest sa ganitong negosyo? Dahil sa kabataan, daming bata ano? Siguro dating kading bata na naglalaro ng pa rent kaya akala mo malakas ang kita ano? Pero sa totoo lang maraming namamatay sa maling akala. Pangalawa kaalaman sa negosyo ito ang sandata na kailangan para may laban ka, tandaan pag alam mo panong mag-asembol ng computer, mag network, mag trouble shoot ng may problemang PC sa pag hire palang ng technician malaki na matitipid mo. Ma makakaiwas ka na din sa technician na palit or bawas pyesa. Kelangan din na meron kang plan a,b,c kahit hanggang z! Ito yung mga hakbang na kelangan mong isunod kapag hindi nag work ang plan a, tandaan dahil dati ka din rumerenta alam mo panong maging isang customer ituloy na lang natin ito sa panghuli. Pangatlo puhunan nasabi ko na sa pang-una malaki puhunan ang kailangan dito HUWAG mong titipidin dahil makakaapekto to sa performance ng PC mo sa labanan ngayon hindi na din padamihan pabilisan na ngayon kahit 10 lang at isang server (for other service like Photo Editing, Printing, Typing etc…)as long na kayang maglaro ng gustong laruin ng potential customer mo mabibigay mo. Pang huli ito good customer service tandaan na nasabi ko na dapat may kaalaman ka mas makakabuti kung ex customer para alam mo pano ka makikiharap sa potential loyal mo na customer kahit medyo hustle ang kaharap wag kang mag-susungit matatandaan nila yan at sa malamang hindi na sila babalik ika nga 1st impression last! Kahit pikon na pikon ka na sa customer upakan mo na lang paisip ahihihi!
    Ito ang 4 na importante kong mai-share sa 4 years kong pag nenegosyo nito. Sa totoo lang marami din ups & down pero ito survivor padin at nakapag patayo na ng bagong negosyo dadagdag inspirasyon lang 10 lang ang PC ko tamang diskarte lang po! Salamat…

  21. Joseph Buquiran says:

    Sa panahun ngayun magkanu ba ang dapat e.puhunan pra sa isang internet shop na may 11 PC?

  22. Jayson says:

    @Joseph survey ka then look if ano bang laro uso sa location then research anong spec requirements nung game don mo malalaman if how much kelangan mong ipuhunan.

  23. sarah says:

    s akin din may peso net din ako 7moths p lng ako s business ko at 3 unit p lng itong akin ok lng ang income s umpisa ngayon humina n tlga ang kita s dami din ng compitition dito sa amin ang mga customers ko palipat lipat lng cla kung saan cla gusto magnet nakaka give up tlga nakakapagod ikong peso net daming compitition kailangan p ng maitenace at repair technician bawasan p buwan2 ng billing ko expencess p namin wla akong saving npakahrap tlga ito

    • sarah says:

      anu po b ang magandang payo ipagpa2toy ko n lng 2ng peso net khip n napaghihina ng isip?aside 4 advice anu pang ibang business n hindi mdaling makuyya s iba n maccmula p lng ng buseniss?

    • Jayson says:

      May advice is let it go focus ka na lang sa alam mong negosyo ang piso net now natatalo ng mga shop dahil sa shop andun yung tunay na may alam sa ganitong negosyo.

  24. marwin says:

    i work for the pc supplier since 2007, nakita ko ung market ng net cafe dami nga bumabagsak. pero last month sinubukan ko sumugal with a basic knowledge, inisip ko more on gaming ung install sa kc kung internet lang ung mga phone ngayon accessible sa mga net. halos lahat ng kabahayan ngayon may kanya kanyang computer nma sa bahay. pero mas masarap pa din kc maglaro pag madami kyo ung tipong may kanchawan asaral lan game ba, ika nila di kc nila nagagawa un sa bahay nila.. so far sa 6 unit na meron ako medyo kumikita naman,, bullshit lang kc ung brownout dito sa zamboanga city,, imagine 10 pesos lang per d2.
    dami kc adik sa laro,,

  25. Jayson says:

    nabalitaan ko nga sa TV na grabe ang brownout sa Mindanao mali ang price na 10 pesos sa totoo lang dahil nga sa competition kaya ito nanyare sana yung mga may shop mag bigay na lang ng discount don sa mga matatatagal maglaro or sa suki na hindi yang 10 pesos per hour! Hindi din totoo na dahil afford na ng tao ang net at PC eh mahina na ang shop or PC rent boring po ang maglaro sa bahay kaya ang mag totropa sa shop naglalaro iba din kapag magkakatabi mas madali ang paglalaro.

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