Don Enrico G. Concepcion
Internet Access has been profitable since 1996 on start of the boom of the
Internet café business in the country. First it started out by offering
Internet access for 90 pesos an hour in urban areas and as much as 120 pesos
an hour in rural areas. Access to information has been very expensive to the
consumers but has been very profitable for the capitalists. Establishing an
Internet café needed a huge capital to start with considering the costs
of Internet subscription and costs of personal computers in 1996 to 1997. The
successive release of upgrades to the computer processor has been very fast.
For example the Pentium class processor 75 MHz has been outdated in just six
months by Pentium 133 MHz. In 1998 Pentium 200 MHz was top of the line and a
few months later another Pentium class came out, the Pentium II processor class
ranging from 233 MHz to 500MHz. Now presently, the release of Pentium 4 processors
shadowed the Pentium III 500MHz to 755MHz. Pentium 4 are in the gigabyte range
in speed. They cost so much and it would be impractical to use them for Internet
access, but definitely appropriate for network games. The real solution for
faster Internet access is increasing the RAM of the computer and increasing
modem speeds and speeds of the Internet Service Providers. Specially, now the
introduction of broadband, like DSL and cable have made the competition for
the Internet café market more competitive. If you can afford cable you'd
rather have it at home than rent in a café that is only capable of 56Kbps
and sometimes 33Kbps and pay as much as 60 pesos an hour.
It is still profitable at the moment to invest in an Internet café, even though there are several sprouting in every corner and even at the malls. Now the price of an hour of internet use has gone down to 30 pesos an hour in some places specially in the cities, this is due to the high return on investment, they have gain their initial investment and to be more competitive they are wise enough to lower their prices to kill the competition.
There is no doubt in the profitability of establishing an Internet café in the province even if there are several in the area. The key is the unique service to offer and competitive prices. Other services can also be offered such as network games, which is quite the favorite of school children in the elementary up to high school. Printing jobs could also augment income. Printing services such as thesis and greeting cards have a high demand. Only needed is a DeskJet printer and lots of high quality paper. Having the computers rented for typing purposes to college students is also profitable especially when the semester is almost over, during the month of March and October. Thesis writing and other requirements are usually done during these times and require typing jobs.
Another service available that can augment income to the café aside from selling coffee and snacks is a computer shop where various computer paraphernalia can be obtained ranging from diskettes to computer parts and software.
Establishing the Internet Café
According to an interview in 1999, to start an Internet café you would
need about 500,00 pesos that would cover the hardware and building construction.
During those times the cost of hardware is relatively cheap and the specifications
of those computers were very minimal such as low quality motherboard like Tomato
or Cyrix, which are cheap and processors that reach about 200 MHz and Random
Access Memory of about 32 MB. Those specs were just enough to put up an Internet
café very fast and therefore a high return on investment because prices
of access were about 60 to 90 pesos an hour back then. But today, those computers
will be useless and they cannot be resold because of low value. The return on
investment would now be a little bit longer because of lower prices due to competition.
Some cafes have closed down due to failing profits and also because they couldn't
pay their creditors and increasing cost of commercial space in commercial establishment.
Everyone wants to make a profit even those who own the commercial space down to those who sell paper and computer parts and also the giant phone companies who figured that the use of the Internet would increase phone use consequently increased the phone costs by devising a scheme of metering use of the phone and inserting out of this world taxes that they don't even remit to the government.
There are things that you should consider in establishing an Internet café. What would your café look like? Will it use minimalist ideas in its design? How much money are you going to spend? Will your café be air-conditioned? Will you be selling snacks in your café? Do you need a bathroom in your café? How much lighting would you need? Would you need furniture? Will you need security measures in the café? Do you need a steel door to protect your assets? Would you hire a security guard? Will you be renting commercial space or build your own building in your own property? How many computers will you be using? Where will you procure your hardware? How many employees will you employ? How are going to finance your Internet café? What are other services would you offer in your café? Are there reliable Internet Service providers in your area? How much is the Internet subscription? How much is the installation of a phone line in your area? Is your phone subscription metered? What are the necessary permits to obtain in opening a business establishment in your area? Is there no power problem in your area?
The location of the project will be in Bayombong, Nueva Viscaya. Mike Mantala
happens to have a vacant lot owned by his uncle adjacent to their house, which
is just 20 meters from a university. Their house is located at 24 Saquing St.
Barangay Don Mariano Marcos Bayombong, Nueva Viscaya, which is just at the back
of the city hall. The location is the most important factor in the profitability
of the Internet café. Here the target market is so close by. Naturally
the most abundant customers will be the students and members of the academe.
Those people who use computers in their work and need to access information
from the web, May it either be email or chat are the main consumers of the Internet
café. The demand for this service will not be outdated for sure with
the present technology and needs of the people around.
The area has also been known for a high demand for Internet access. There are already several established cafes according to Mike there are approximately 4 in Bayombong. And according to him 3 Internet service providers. The prevailing price of Internet access there is 60 pesos an hour and Internet subscription from ISPs would not exceed 3000 pesos monthly.
The demand is said to be high enough for the need for more Internet cafes.
The Hardware needed
Ideally it would be best to have several computers for Internet access. There should be at least 20 units. One will be the server and 19 units will be for hands-on. The server should have a CD-ROM and floppy and the rest would not include this feature to cut down on cost and prevent the spread of computer viruses thru the floppy drive. A 4 or 6 gigabyte hard drive would be sufficient for the 19 units but the server must have at least 15 or 20 gigabytes of storage.
We would also need an external voice fax modem 56 Kbps V.90 and an Internet hub with UTP cables. Each computer should also have a LAN card or Ethernet card installed. Every computer has the basic parts such as preferably 17 inch digital monitor keyboard and mouse pointer. The mother board should be a good one with on board audio to reduce cost of buying a sound card. It should also have the mini ATX feature for the power supply to match with and AGP (accelerated graphics port). The board should also support USB devices. The AGP cards should be at least 32 MB SDRAM. It should also have speakers for the on board audio to work.
The units should at least have a 700 MHz processor for sufficient speed for network games and internet access. The RAM should be at least 64 for internet access and 128 for gaming. Pentium III processors are optimum with 128 MB of RAM.
We would also need a DeskJet printer of which the prices have gone down significantly.
It would also be wise to have a UPS (uninterrupted power supply) if there is a prevalence of power failures in the area.
Optional hardware would include a CD-R-W and a scanner which would be useful for other purposes and might be offered as an extra service.
Procurement of the hardware and financing
Originally, the financing scheme to establish this Internet café was
thru the contribution of friends, a group business, in a basic sense. Each interested
individual would contribute a specified amount to come up with the necessary
capital. It was estimated to reach 500,000 pesos, so it was conceived that about
50 people contributing 10,000 pesos each would do the trick. The yase group
and alumni would be the prospective investors. It was conceptualized that the
students who are members of yase would invest for their future and by the time
they graduate they would have money to spend. And to those alumni, they would
have a good investment to put their money in. But that solicitation seemed unthinkable.
Each contributor can invest more than the said amount and wait for 2 years before he can get his return on investment. The dividend computation is as follows:
Dividend = average capital share of member X the factor
Factor = total earnings/total average capital share
To cut down on cost, it was suggested that we use the vacant lot near Mike's place. But there was no building to start with and building that would amount to heavy costs. It was also suggested that making a simple housing on the lot would be sufficient and the hardware be moved in to their house after each day, since the lot is adjacent to their home.
Mike suggested instead to rent commercial space instead of asking his uncle to build a housing for which we shall lease.
As for the hardware, it would not be a good idea to buy everything whole- sale since we didn't have the money to start with. It was suggested that we start with a few computers then we gradually upgrade and expand as we make income. But that would be not be feasible, the best thing was to get the hardware thru installment, that way we have all the computers to start the business full swing and just pay the monthly installment since we will definitely be going to make money in the long run.
Another way to get the computers is by applying a loan from a bank. But this would entail more details like collateral and proper cash-flow presentation. If anyone would like to take this path let me know and we'll work out the details.
The prevailing price on Internet access in the area is 60 pesos an hour, which
is still high compared here in the city. To capture the market we should be
wise enough to be competitive and sell for half the price. The profit margin
would be small compared to the others but it would definitely increase revenue
for the reason being that customers would prefer us than the others.
If we will offer 30 pesos an hour for internet access and open the shop for 12 hours from 8 in the morning until 8 in the evening we would realize an income of 360 pesos in one business day for one computer unit alone assuming that the computer would not be idle during the day.
Extrapolating that amount for the rest of the computers assuming all computers will not be idle for 12 hours, that would be 19 units multiplied by 360 pesos a day would be equal to 6,840 pesos for all the units in one business day.
But this is too ideal, actually there is a fluctuation in the demand for internet access and other computer services. It would seem that demand on computer services like typing hands-on and printing increases during the end of the semester to college students especially in the months of March and October, this is said to be thesis season. A lot of printing jobs are needed and also typing services because of those term papers and manuscripts that they need to submit. During school days there is a constant demand for internet access and declines during the weekend. The demand also declines during the summer months and increases again when the school year starts again.
We could offer printing jobs for 5 pesos per page text only and 12 pesos per page for colored prints. And offer 25 pesos per hour on hands-on typing and 30 pesos an hour for network games. The demand on network games is all time high during the summer and is also high after school hours during school days and even on weekends.
There would definitely be a constant income all the time. The income on internet alone for a month would be for 24 business days, six days a week, would be 164,160 pesos.
Assuming that there will be times that computers will be ideal, a more realistic perspective would be 9 hours use on internet access in the 12 hour period business day. That would have an income of 270 pesos a day at 30 pesos an hour for one unit. Extrapolating for 19 units, that would be 5,130 pesos a day and in a month of 24 days will be approximately equal to 123,120 pesos.
Cost and Operating Expenses
The operating cost of the project would be detailed as follows:
Actually, there are two versions of some of the costs, there is the maximum and minimum. In the monthly rent of commercial space there is the 3,000 pesos and 2,500 pesos, we still have to find a good deal. These are just estimates according to Mike.
Another estimate is the electric bill, we still aren't sure of the wattage of the computers if used continuously throughout the day. We estimated 750 pesos monthly, just for the computers and a fluorescent lighting. That does not include a fan or air-conditioning. Water bill estimate is 400 pesos assuming that there is low consumption. All commercial space according to Mike has water taps.
Phone bill and Internet subscription costs are still estimates. Phone bill if its not metered would be 600 pesos. Internet subscription would not exceed 3,000 pesos but can obtain 2,500 pesos depending on the ISP. We still have no data on taxes to be paid and permits to be secured. We also have no estimates on salaries to be paid if we are going to employ help.
As an estimate, the operating costs excluding taxes and salaries would be 7,750 pesos monthly for the maximum and 6,750 pesos monthly for the minimum.
Cost of hardware if we get it thru installment, 20 units at 35,000 pesos each (estimated as maximum) would be 700,000 this may or may not include LAN cards, it also does not include the printer, modem and Internet hub and UTP cables.
If we pay in installment, 12 months to pay, assuming without interest; that would be 58,333 pesos a month.
A DeskJet printer now would just cost about 5,500pesos, which includes ink. An external V.90 56Kbps voice fax modem would only costs 2,500 pesos.
As a summary, initial cost would entail the commercial space, internet subscription, phone line installation and business permits. In commercial space, they might ask us to pay in advance. In the end of the first month, we would be paying the electric and water bills, phone bill and internet subscription and salaries if any, and the installment on the hardware, we might also pay a down payment depending on the terms of the agreement.
Total initial costs would be approximately 9,000 pesos if we get the hardware in installment without any down payment.
Simple Feasibility Computation
According to our estimates, our potential realistic income a month would be
123,120 pesos at 5,130 pesos a day for Internet access alone.
Our monthly expenses and operating costs would amount to 7,750 pesos. The monthly installment on the hardware would be 58,333 pesos. The initial cost estimate to put up is 9,000 pesos.
The net income for the month would be 48,037 pesos
That is 123,120 pesos from monthly income minus 75,083 pesos from total monthly expenses for the first month.
The second month computation would be 123,120 pesos from expected income minus 66,083 pesos from monthly expenses including second month installment would be 57,037 pesos.
In one years time we would have paid the full amount of the hardware and will be having a monthly net income of 115,370 pesos. Assuming that our competitors would not pull drastic strings to steal our customers. Besides we get other income from other computer services such as network games, typing and printing services that are not included in the computation.
I therefore humbly submit that this proposal is mathematically feasible.
Possible Problems and Recommended Solutions
Possible problems that might come up are the following: the wrong estimation
of some costs. The commercial space could be very much expensive than we thought
especially if its located in the Public market area. If the location would be
far away from the target market, it would greatly affect our business. If its
located near our competitors such as another internet café it might be
disastrous. But if we show them that our services are better they would not
hesitate to patronize us. The café should be comfortable enough for the
customers to enjoy their stay. The speed of the access and affordability are
factors why customers choose a certain service.
If we can't close a good deal on the hardware, nothing will go right. If need to pay a huge down payment that is out of our budget or if we have to pay a monthly interest, we might not have that money to start with. A total disinterest from the group would make this proposal useless, moot and academic. A total lack of money will render this as a mere model for others to follow. A possible solution would be a loan from a bank.
Possible problems would also arise if the coefficients like details on taxes and other necessary permits will be left unknown. The number and quality of Internet Service Providers must be quickly addressed so as the phone line installation requirements. Transporting the hardware to Viscaya is a problem if not properly planned. Getting insurance for the computers would be a wise thing to do, so if anything happens like fire or theft, there would be a catch. The total initial investment should be computed properly and other details should be ironed out before meeting with the investors or applying a loan from the bank.
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