Japan's Cybercafés Go Upmarket

Customers love the amenities, but the cost of providing DVDs, massage chairs, and refreshments hurts profits for mom-and-pop outfits

by Ian Rowley and Hiroko Tashiro

These ought to be difficult days for operators of Internet cafés in Japan. After all, why would Japanese go to a cybercafé when the widespread availability of broadband means most homes can have reliable, high-speed connections to the Net? With download speeds typically 10 times faster than in the U.S., Japanese surfers enjoy the fastest broadband connections in the world. And the Japanese increasingly don't need computers to go online. The first country in the world to offer 3G services back in 2001, Japan is today a leader in mobile Internet use.

Yet in Japan, of all places, new Net cafés are springing up with remarkable regularity. According to the Japan Complex Café Assn., an industry group, the number of Net cafés operated by its members is projected to reach 4,100 by 2010, up 50% from five year earlier. Revenue is also rising fast. The JCCA says member revenues will increase 50%, to $2.6 billion, by 2010. Throw in hundreds of mom-and-pop operators and the numbers would be even bigger. "This market will double in 10 years," says Seiichiro Samejima, an analyst at Ichiyoshi Securities in Tokyo.

Given Japan's standing as a broadband trailblazer, why are more people logging on at the country's cybercafés? History plays a part. Many Internet cafés started life as manga cafés—places where comic book fans could pay by the hour to read and relax over a drink. Over the last decade, the line between Web cafés and their manga counterparts has blurred, helping swell the number of customers.

A Massage With Your E-mail

But much of the credit for the surprising surge lies with some innovative thinking by café operators. Fully aware that few customers nowadays need go to Internet cafés to perform basic tasks such as checking e-mail or searching the Web, operators have been relentless in turning their cafés into one-stop entertainment and relaxation shops.

These days that rarely means just a bunch of computers with Internet connections. On the contrary, almost anything goes, from massages to DVD rentals, from piping hot showers to snacks to manga libraries. "Before, a small space with a computer was good enough, but now our customers and their needs have changed," says Momoko Sugiura, a member of the investor relations team at Valic, a Yokohama-based operator of a hundred Net cafés under the Kaikatsu Club brand. (Kaikatsu means "lively" in Japanese).

The raft of pampering and entertainments at Tokyo-based Aprecio's cafés shows just how diverse these emporiums have become. Its branches supplement rows of PCs with massage chairs, shower rooms, and even bathing in germanium, a mineral that is believed to stimulate blood circulation. There are also 30,000-strong manga comic libraries, racks of magazines, and newly released DVDs to watch on the PCs or even in a small number of theater rooms complete with large flat-screen TVs.

A Godsend for Housewives and Seniors

When desired, privacy can be ensured with PCs housed in a private booth complete with a safe and intercom. And for hard-core gamers, there are extra-powerful computers that can take popular online games to a higher level. (Notably, some video game companies, including U.S. giant Electronic Arts (ERTS), have launched special versions of online games for Net cafés).

Women and older customers are also boosting business for cybercafés. Today, 73% of Net café customers are male, but the demographics are changing as the types of services on offer widen.

Inside Valic's Kaikatsu Clubs, décor and menus are all designed with a wider range of customers in firmly in mind.