The McDonald's of Net Access? (int'l edition)
It's pushing midnight near Amsterdam's Rembrandt Square, and the bicycles are piled so deep in front of the easyEverything Internet café that they almost block the sidewalk. Inside, a veritable U.N. of Netizens occupies about a fifth of the store's 600 computer workstations. A 35-year-old English businessman wearing jeans and a T-shirt is chatting online with his girlfriend in London. Two young Indians laugh as they check e-mail from home. And two U.S. college grads slurp lattes while booking rooms at a youth hostel in Prague.
It's just another night at Europe's newest phenomenon: a chain of 24-hour cybercafés launched by Greek entrepreneur Stelios Haji-Ioannou, the founder of Europe's No. 2 discount airline, easyJet. Cybercafés? Didn't they go out with the Macarena? It might seem that way in the U.S., where 60% of households have computers and there are just 400 Net cafés, says market tracker CSNetwork. But in Europe, only 31% of homes have PCs, and tourists clog city centers year-round, helping sustain more than 1,300 Net cafés.
Well-oiled. None of them can match easyEverything. Launched in mid-1999, the privately held chain, with 20 outlets across Europe plus one in New York, gets a half-million visitors a week, and sales could hit $50 million this year. Revenues at the nine outlets open more than a year are up 30%, and most turn a profit, although the chain loses money. Still, at a time when PC sales are sluggish, broadband Net connections are rarer than a sunny day in Scotland, and the wireless Web remains a fuzzy promise, easyEverything is an exceptional success story. And Haji-Ioannou's ambitions go further. He aims to build the McDonald's of Net access. "The idea is to make it as ubiquitous as possible," he says.
He might just pull it off. Haji-Ioannou is no wild-eyed dot-commer with a wad of cash and a willy-nilly business plan. He and CEO Maurice Kelly run easyEverything like a well-oiled machine. To keep costs low, all the cafés share the same inexpensive design: rows of blond wood partitions and chairs, set off with bright orange trim. EasyEverything keeps the cost of each store around $3 million by striking aggressive volume deals and marketing relationships with vendors of everything from keyboards to coffee beans.
Some suppliers are so impressed that they've signed up as partners. Microsoft Corp. (MSFT ) sees easyEverything as a test bed for its scheme to deliver software on tap and last November started supplying its Office programs to the chain. Customers pay about $2 a day to use the software in the cafés, and the two companies split the take. Meanwhile, Hewlett-Packard Co. (HWP ) provides cut-rate PCs and has put up $15 million of easyEverything's $60 million in funding to date. Haji-Ioannou himself has invested $29 million.
EasyEverything's biggest innovation is its revenue model. The price for Net access varies based on demand, rising to as much as $5.50 an hour in mid-afternoon, when stores are nearly full. That gives bargain hunters an incentive to visit in the wee hours, when prices bottom out at about 50 cents an hour. Extras, including coffee, advertising, and services such as printing, account for roughly 40% of sales.
Although the numbers look good so far, easyEverything has a long way to go before it can claim Big Mac's success. Management is still tinkering with the formula. Some cafés, including the giant one in Rembrandt Square, are too big and must be shrunk by half to become profitable, says Kelly. The company is now testing how small its cafés can go: A second Amsterdam location, opened in January, has just 158 PCs and is already among the chain's most profitable stores.
There's some urgency to the quest. The company realizes there are only so many spots in Europe offering the right mix of tourists--who make up half its customers--and a local population big enough to support megastores. That could cap growth, unless easyEverything can make smaller shops pay. The chain's overall utilization rate is still below the 35% needed to turn a profit. Plus, it's not the only kid on the block. British rival Internet Exchange has signed up 200 smaller cafés as franchisees, and mom-and-pop outfits still claim thousands of users.
A longer-term concern is competition from home computers. As PCs become more common in Europe, customers may opt to surf the Net in their bedrooms. Amsterdam customer David Mirone, 29, says he frequents easyEverything "because it's cheap and the connection is fast," but admits he would "never come if I had a PC at home." CEO Kelly is unfazed. As more people use PCs, demand will only rise, he says. What's more, easyEverything cafés have become social hubs where young people hang out for hours chatting online. In fact, half the local clientele have PCs at home or school but still visit the cafés.
Deep pockets. Then there's the question of money. Haji-Ioannou, the 33-year-old son of a Greek shipping magnate, is a serial entrepreneur with seven startups under his belt. He had hoped to take easyEverything public this year, but the market chill has put it on hold. Even though his pockets are deep, Haji-Ioannou can't provide easyEverything with unlimited dough, concedes Kelly.
Tighter capital has already forced easyEverything to slow down. In 2000, it added 15 cafés with a total of 6,520 seats. In 2001 so far, it has opened just three cafés with 950 seats and plans only one more location by yearend. To kick-start growth, Haji-Ioannou plans to franchise stores from Budapest to Bogot´. Such a move lessens the capital required to enter other regions--but yields the parent company only a fraction of the revenue. The advantage is that the easyEverything brand will spread more quickly. Plus, the chain gets a cut of ad revenues, which Kelly expects will approach 20% of the total at mature stores.
Haji-Ioannou also is trying to squeeze more revenues from every seat. Newer stores have handsets at each PC to let customers make cheap phone calls over the Net. For a bit more, you can use a Webcam to video-chat with friends. With more ideas like that, the piles of bikes in front of easyEverything are likely to get deeper.
By Andy Reinhardt