The McDonald’s of Net Access

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 UN 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
on-line with his girlfriend in London. Two young Indians laugh as they check
e-mail from home. And two US 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 US, 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 have.
Microsoft 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 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. A
customer in Amsterdam 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 on-line. 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 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 in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc