Low start-up costs, increasing computer literacy give rise to outfits like Gamma
Ten years ago it was the most notorious pub in Kyiv’s Chokolivka district. Three years back it was an abandoned construction site. Today it is a small but successful computer club called Gamma.
The metamorphosis of Gamma from a run-down hovel into a beacon of technology is far from a unique phenomenon in Kyiv. As the capital’s craze for computer games has taken off and as interest in the Internet has picked up, computer clubs and Internet cafes have been sprouting up all over the place.
Gamma is one of about 300 computer and Internet clubs registered in the capital. Almost all have started up in the last couple years.
“Within the last few months, we’ve begun providing lines for four new Internet cafes,” said Oleksy Borsuk of Relcom service provider. “If small clubs with five to 10 computers are opening in Teremki and Darnytsya, such clubs must be profitable.”
According to Gamma Executive Director Serhy Nosach, such clubs are indeed profitable, as demand is consistent and start-up costs are low. The main expenses are rent, hardware and the cost of a dedicated Internet cable. Nosach said the break-even period for a successful computer club is between one and two years.
But Borsuk is careful to add that while computer clubs are easy to launch, entrepreneurs can’t expect major profits from this type of business.
“Super profits come only from the oil and arms trade,” said Relcom’s Borsuk. “But if a club has more than 10 computers and they’re being used regularly, it’s already profitable.”
Gamma’s profits are certainly not going to make any oil and gas executives envious. But they are healthy by the standards of Ukrainian small businesses.
“When we make less than Hr 600 a day, we consider it a bad day,” Nosach said. But he added, “I know many clubs that make much less.”
For now, Gamma and most computer clubs, like the quintessential neighborhood gastronom, survive by drawing clients from the immediate vicinity.
Advertising is superfluous. Such clubs draw clients through word of mouth. It also helps to be strategically located. Gamma is located within a block of two secondary schools, with two others just a little bit further up the road.
“In this type of business, your success mostly depends on your location,” Nosach confirmed. “If your club is near five high schools and there are no other computer clubs around, or if it’s in the center and you charge Hr 10 an hour for the Internet – either way it’s going to work.”
But what really fuels the success of computer clubs like Gamma is the expansion of computer literacy in Kyiv and the increase in the popularity of the Internet. As the computer revolution belatedly hits Kyiv, Nosach is entertaining dreams of starting up a computer-club franchise. He even dares to make a comparison to the world’s most successful franchise.
“If McDonald’s had only one or two restaurants, it wouldn’t survive,” he said. “Here it’s the same – economies of scale.”
Nosach has made a point of studying the Kyiv computer club market, and believes that owning a network of clubs could bring in significantly more money.
But so far, the computer club market hasn’t attracted big capital, and independent operators have been reluctant to merge. Nosach said that perhaps as time passes and owners get to know each other and the market better, they’ll find a way to cooperate. In fact, a network of three computer clubs called Pautina, or Spider Web, recently opened in Kyiv.
In order for Gamma to get to that point, Nosach does whatever he can to increase revenue flow.
Most clients use Gamma for pleasure rather than business. While 85 percent of the club’s revenue comes from computer-game users, according to Nosach, Gamma has several clients who run their own businesses but don’t own their own computers.
These clients often simply send their secretaries over to use one of Gamma’s 25 machines when they need computer work done. A local technical high school also rents out computers at Gamma and holds morning classes for its students at the club.
Nosach said Gamma also has one “mature” client who has spent more than Hr 400 playing computer games so far – driving over to the club after work. He has no use for a computer of his own but just wants to play games – something Nosach said he can understand.
“It’s like with automobiles – when people need a car but can’t afford to buy one, they take taxis,” he said. “If you don’t need a computer and a modem all the time, it’s cheaper to go to a computer club.”
