You’re away from your PC, but you’ve to surf the Net. Fine, come in and have lunch while you’re at it. Eva Pascoe, co-founder of cybercaf Cyberia, is a difficult person to pin down. One month she’s off supervising the opening of a Cyberia site in Rotterdam; another, she’s in the Far East, negotiating a new franchise in Manila. There’s no doubt that Cyberia is growing; since the first branch opened in September 1994, 10 more branches have sprung up, five of them outside the UK, with more in the pipeline. But the business community is still undecided about what cybercafs really are, and whether it needs to take them seriously.
Cyberia describes itself as ‘the world’s first global chain of cybercafs,’ and its flagship branch in London’s Whitfield Street was certainly one of the first venues to combine cappucinos with rented access to PCs with access to the Internet. The venue opened just as interest in the Internet and World Wide Web started to snowball, and Cyberia’s revenues have doubled year-on-year. Starting with #500,000 in its first year, the privately-owned company achieved #1.3m turnover in its latest financial year. Though still loss-making, it expects to turn in a profit next year. ‘The cafs are profitable, but we’ve been spending a lot on development and opening new outlets,’ Ms Pascoe claims.Selling coffee and renting out PC equipment, though it’s the most visible part of what Cyberia does, only generates a small proportion of the cafs’ business. Revenues are split roughly 50-50 between individual and corporate business, though Ms Pascoe says the corporate side is growing. It also resells Internet products from Internet access provider Easynet, runs training courses for individuals and companies, hosts corporate events, and provides hi-tech marketing consultancy. There’s a certain amount of cross-over between individual and corporate business: ‘People come to us as individuals, for an e-mail account, and then bring the company with them.’
Thirty percent of the company’s corporate revenues comes from training, an area in which Ms Pascoe has been able to draw on her background as a psychologist. ‘While I was with CSBI, I looked at ways of teaching computing to people who didn’t want to learn, and found methodologies to make it easier,’ she explains. ‘For example, laying out the machines the way you see them here at Cyberia, with the screens close together so that everyone can see what other people are doing, helps people to learn.’ As a corporate training company, Cyberia offers a ‘Webmaster Institute’ aimed at the charismatic new profession spawned by the World Wide Web. Webmasters are responsible for designing and administering companies’ World Wide Web sites, and dealing with the associated networking and security issues: a complex job, in an area of technology that is constantly changing. ‘The webmaster is a very wide function, but no-one was catering for them,’ claims Ms Pascoe. ‘It’s a huge business opportunity, because in a couple of years every large company will have a webmaster, and they need to keep learning all the time.
‘A lot of webmasters come from a design background. They’ve never seen a firewall (Internet security system) in their life, and suddenly they’re responsible for running systems.’ As well as training, however, Cyberia has also turned hi-tech communications into a major money-spinner. ‘Advertising companies such as Shandwick and Ogilvy and Mather are being asked to launch high tech products, but often they don’t really understand them,’ says Ms Pascoe. ‘At Cyberia, we’re good at understanding how to make technology relevant.’ One of the company’s recent projects was to help publicise Futuresplash, a piece of software that provides animated cartoon facilities over the Internet; its approach was to develop an interface that demonstrated the product’s capabilities in action. Cyberia constantly keeps its eye on new revenue sources. In May 1996, for example, Mick Jagger and Jerry Hall graced the launch of Channel Cyberia, a Web-based TV station that carries advertising. Rebuffed by investors. But despite Cyberia’s steady expansion and diversification, and its steady revenue growth, it has encountered repeated rebuffs from investors. Ms Pascoe and co-founder Gene Teare set the company up, towards the end of the recession, with no help from the banks. Mr Teare raised some money privately. Ms Pascoe raised #50,000 by selling shares in CSBI, the Polish banking software company she’d started with business partner David Rowe. Mr Rowe is now chief executive officer of Easynet, the Internet provider with which Cyberia has an exclusive marketing deal. ‘The way we financed Cyberia is not the way anyone should think about doing it,’ Ms Pascoe now admits. ‘It was very undercapitalised. We just weren’t prepared for the size of the market, and we spent the first year paying heavily for that with slow growth. Our attempt to do it on a shoestring worked, but only just. We wouldn’t make that mistake again. We now look for #150,000 capital minimum before we’ll talk to people about franchises. It’s not a miracle business – it needs funding, it needs working capital.’ A good cybercaf’s costs are quite high, encompassing skilled – and hence highly-paid – staff plus heavyweight computer and networking equipment. Early on Cyberia tried, and rejected, the option of getting sponsorship from computer companies. ‘Apple had always been an inspiration to me, because they designed interfaces that made non-techies want to work with computers,’ recalls Ms Pascoe, ‘so when we opened Cyberia, we went to Apple and asked them to loan us some machines. And they said no. So we asked Compaq, and they said yes, but the machines they gave us were unsuitable so we gave them back. That was the end of sponsorship as far as I was concerned; the relationship’s too messy. If you want good technical support, you have to pay for your machines.’
Frustrated by the banks
Working capital has, however, been hard to come by; as Ms Pascoe puts it: ‘Our relationship with the banks has been increasingly frustrating.’ This is one reason why a number of Cyberia outlets are franchises, which provide a route for expansion at relatively low cost. This year, however, the company succeeded in getting a cash boost when Maurice Saatchi’s Megalomedia took a #250,000 stake. ‘They’ve got deep pockets; they can help us grow,’ says Ms Pascoe. Next spring, she and Gene Teare may take Cyberia down the route travelled by its marketing partner Easynet, which was floated on the London Stock Exchange in March 1996. The idea of ceasing to be an outsider and becoming an accepted part of the business world appeals to Ms Pascoe – ‘We’d become part of the social fabric if we floated’ – and flotation would of course put the company on a more secure financial footing. But Easynet’s experience has shown Cyberia how flotation can fundamentally change the character of an innovative business.
‘Floating was a good thing for Easynet; it’s become a much cleaner, more focused company. It was underfunded, and the flotation brought in over #2m. But a private company can duck and dive and experiment. If you’re a quoted company, you have to become like a military operation. You become ruthlessly orientated towards maintaining your share price. It’s not so good for fun and experimentation; you can’t just play around any more.’ In the wild fluctuations of Easynet’s share price, Ms Pascoe also reads the City’s chronic problem – lamented by almost every hi-tech startup – in getting to grips with hi-tech companies. ‘Easynet’s shares went from #1 at the flotation up to #1.30 then down to 70p. Yet it’s a very strong company with a low cost base. The Stock Exchange ought to be happy they have a working business, but City people understand potatoes, not cybercafs.’
Entrepreneur-friendly UK?
Ms Pascoe does, however, find the UK entrepreneur-friendly compared with the rest of Europe, where Cyberia has struggled with red tape in setting up its outlets in the Pompidou Centre, Paris, and more recently in Rotterdam.’Working in Europe is such a hassle that sometimes I’m tempted just to go to Asia,’ she says. ‘Asia is a great area for us, because the population is very computer-literate, connectivity is very good, but home computer ownership is low. ‘Cyberia is actively looking for partners in complementary business areas to help it expand in the UK and overseas. In September 1995, now a well-established business, Cyberia once more tried to make a deal with Apple. ‘Russell Brady, their marketing manager, just said Apple doesn’t believe in cybercafs. So I had to laugh when in November Apple announced it had decided to open some,’ Ms Pascoe recalls. A potentially more fruitful partnership is with Virgin Retail Europe, which provided the site for Cyberia’s recently-opened Rotterdam outlet, and which has offered Cyberia the option on other sites around Europe.’Our relationship with Virgin is symbiotic; we see the whole integrated area of entertainment, retail and cybercafs as a good deal for us. It provides us with a context, because cybercafs are still very much an open concept, and everyone interprets it in a different way,’ says Ms Pascoe, who predicts that ‘cybercafs will ultimately become a distribution point for music.’ More to the point, perhaps, its connection with Virgin could give Cyberia the credibility with the City that has so far eluded it. In return, Ms Pascoe believes, Cyberia could give Virgin the technical expertise it needs to make its own Internet plans take off. ‘We like Virgin because they’re informal, and they offer good service and value for money, which are all things we try to do. We’ve learned so much from working with them, about logistics and project management. But Virgin isn’t a technical company; they find it hard to keep up with the technology. VirginNet hasn’t yet happened, and I’m not sure it will. They need to subcontract that to a software company, and that’s our background.’ Companies that are early into a new market often end up merely paving the way for those that come later. Cyberia, however, is showing every intention of staying around while latecomers fall by the wayside, with a neat combinination of visionary idealism and hard-headed pragmatism. As Ms Pascoe points out, despite the mystique surrounding the cybercaf concept, ‘this is not some sort of magic business. It already employs around 20,000 people around the world. And at the end of the day, it has to be an industry; like trading tomatoes, or anything else, it’s got to work.’
Candice Goodwin is a freelance journalist.
THE RISE OF THE CYBERCAF
Two years ago, no-one had heard of cybercafs; today, there are more than 55 of them in the UK alone, and many others round the world from Reykjavik to Buenos Aires, Kuala Lumpur to Milan. New ventures are being announced all the time; in November, for example, an Internet Caf was opened at Gatwick Airport by Airnet, which intends it to be the first in a national chain. The basic cybercaf formula combines food and drink – which can range from basic coffee, tea and cakes up to restaurant and bar facilities – with access to Internet-connected computer equipment, rented out at prices that range from #1.50 up to about #3.50 for half an hour. The formula appeals to two basic groups of customers: experienced Net surfers who happen to be away from their home or work machine, and Internet novices who want to experiment with what the Net has to offer in friendly surroundings, with the security of having expert advice and help on hand. In addition, the cafs generally also offer access to more powerful hardware and communications facilities than most home users would have access to. Many cafs connect to the Internet using 64K leased data lines, twice as fast as the fastest home modem connection, and cafs such as Cyberia have a 2Mb connection – 60 times faster than a domestic modem line (though several PCs would be sharing that connection).The combination of computer connectivity and refreshments has quickly become the springboard for a wide variety of business ventures. While the original Cyberia is increasingly focusing on corporate training, the approach of Leicester’s Cyber Caf reflects the more specialised interests and ethics of its owners. It is run by the urban environmental charity Environ, which is interested in the Internet’s environmental benefits, and combines Net access with an organic vegetarian restaurant. CB1 in Cambridge is a cybercaf plus second-hand bookshop. There is also a trend for cybercafs to establish links with the entertainment business. The Hub InterC@f in Bath is connected with The Hub nightclub, and features music on the Internet and digital audio production facilities, while Manchester’s Wet ‘cyber-bar’ advertises its close proximity to the city’s ultra-fashionable Hacienda club. Cyberia’s franchise system is just one approach to setting up a cybercaf business. Many cafs are individual business ventures. But there are signs that the major players are starting to move into the market.Theme pub giant Allied Domecq Leisure set up a cyberpub in Nottingham in May 1995, aiming at students and visiting business people wanting Internet access. The Cyberpub generated turnover of around #400,000 in its first year, and was a finalist in The Publican’s awards for Marketing Pub of the Year. Allied Domecq is actively considering setting up more cyberpub outlets; one of its leased pubs, the Sputnik in Birmingham, is also a cyberpub. But the cybercaf concept isn’t an automatic formula for success. There have already been a number of casualties, among them Hulls Net 21, opened in December 1995 with plans for a further five outlets, but which has already vanished without trace.
Accountancy
31 January 1997
Autor: Candice Goodwin
