Sify Technologies’ second attempt to brand its internet café business and lure franchisees to stay within the fold may be fraught with hurdles, given the host of negative factors it faces.
Decreasing revenue from the internet business, declining customer base, competition from state-run Bharat Sanchar Nigam and Reliance Communications, and growing discontent among its franchisees may just be the beginning of troubles for the company in its attempt to maintain interest among customers, ahead of a brand recast, expected to be underway soon.
Higher rentals on commercial spaces and a rise in other operational costs is forcing the country’s oldest internet service provider to remodel and rebrand its internet café business led. Sify’s network of internet cafés, branded ‘iWay’, will be rechristened as ePort soon.
Sify is attempting to shift from the concept of cyber cafes to e-stores. “The new model will address the need for multiple online services,” Sify’s chief communications officer David Appasamy said.
“It will not just be a name change, but a complete re-branding initiative. More services will be available at internet cafés, which have for the last eight years been primarily a place for net surfing,’’ he said.
The company, however, did not provide details of the cost of this rebranding exercise.
This change has been driven by the fall in the profitability of the iWay cafes due to higher rentals. At least 1,000 of the 3,900-odd outlets will be reviewed for continuation. Some of these may have to be shifted to more profitable locations, while some could even be closed, Appasamy said.
As of June 2008, Sify has reported that only 2,029 of its 3,917 cafes are operational. For the quarter ended June 2007, the company reported that 2,525 of its 3,713 cafes as operational, indicating a steady decline in the number of operational cafés.
Sify hopes the additional services and rebranding could improve the viability of café’s. As part of this exercise, Sify has also tied up with ICICI Bank to provide credit cards for the café owners.
Once the new ePort outlets go on stream, users can conduct e-business and pay cash to the café owners.
“Today, for example, you need your own credit card to book tickets at our outlets. But with the new outlets, the café owner can pay and accept cash from customers,” he said.
While some said that the fall in the prices of broadband connections, thanks to the entry of state owned-BSNL is the reason for lower returns on their investment, a few franchisees blamed Sify for the lack of support.
“They are not showing as much concern for non-performers as they are for outlets that generate big business. While chasing collective targets, Sify’s managers fail to see why some are not doing well and take remedial action,” said a Sify iWay franchisee, who owns four outlets with 50 computers.
Sify has other reasons to freshen up its cafés. Larger outlets and more business opportunities are presented by other players such as Reliance World.
Being a telecom service provider, Reliance Communications is able to make better use of its outlets where it not only provides broadband services but uses them for billing and collection, sales of telecom hardware and services, and serves coffee through an exclusive arrangement with Java Green.
Since 2004, 240-odd Reliance World outlets have been established in some 105 cities. Anuj Bakshi, spokesperson for Reliance Communications, said it would be difficult to quantify their network expansion plans. “Every quarter, we find the market is exceeding our expectations,” Bakshi said.
Contrast this with Sify’s outlets, where the offerings are restricted to browsing. A Sify franchisee, who once owned two outlets, sold one of them and added Arun Icecreams as part of the other café’s offerings, to make some profit.
Sify’s café business, which used to contribute nearly 50 per cent of its total revenue, has steadily fallen. For the quarter ended June 30, 2008, revenue from the consumer division was only 25 per cent of its total revenue, as against 32 per cent in the comparable quarter last year.
For the full year ended March 2008, the division contributed only 46 per cent of its total revenues.
The number of active subscribers too have fallen dramatically over the last one year. From 1.1 million active subscribers in the first quarter of last year, it has fallen to 679,000 in the recent quarter ending June 2008.
“An active customer is one who access out internet café’s a minimum number of times in a month. The actual user base however could be much higher, who we do not count as active subscribers,” Appasamy said.
The enthusiasm with that Sify has embarked upon the rejuvenation process is not completely shared by the café owners. Some of the café owners in Chennai said Sify is still not addressing their primary concerns – which is the viability of the café itself.
Signs of discontent is also reflected in a handful of café owners, who have formed a group called Franchisees Welfare Association.
Of the 2,000-odd café owners in the country only 15 are members of this newly-formed body, but those active in this group claim it could grow into a bigger number giving them a collective platform to discuss their issues with Sify.
6 months ago