NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Editor’s Note: This post was originally published on NextBillion Brasil and can be found here.

Brazil boasts over 100,000 publicly sponsored Internet access centers, otherwise known as LAN (Local Area Network) Houses. This phenomenon dates to the end of the 1990s in affluent neighborhoods of São Paulo, and today extends from the suburbs of large urban centers into isolated regions with basic infrastructural deficiencies. These centers correspond to 45% of Internet access in Brazil, and connect 30 million Brazilians, mainly in low-income communities.

The business model first emerged on the other side of the world, specifically in South Korea, currently one of the most connected countries in the world. In Korea, LAN Houses are known as PC Bangs, and belong to government investment programs. In 1995, the government launched a plan to connect the population, similar to the National Plan for Broadband (Plano Nacional de Banda Larga), currently underway in Brazil. Amidst the crisis of the Asian Tigers in 1997, South Korea supported the deployment of those ventures as a way to provide the masses with high-speed Internet.

Today, Brazil has generated a digital entertainment industry with LAN Houses as meeting points and gaming centers, with innovations by professionalizing electronic sports for gamers. In contrast to South Korea, have been few and focused investments in Internet connectivity from the Brazilian government and the telecoms industry. Thus, LAN Houses are playing a major role in digital inclusiveness in Brazil.

LAN Houses have great potential, for example: the city of Paraupebas, in the state of Pará, known for the world’s largest iron ore mine, is growing 20% yearly. Residential Internet is still a distant reality, with 85% of the population using LAN Houses to go online. The city of Xexéu, in the border between Pernambuco and Alagoas, used to be a village in the fugitive slave route towards Quilombo dos Palmares. Today, it has 15,000 inhabitants and no banking agencies. However, it has more than ten Internet access centers.

Southern and Southeast regions of Brazil are the most developed, and include a good portion of the more than 2,000 movie theaters and 2,500 bookstores in the country. For the lower-middle and lower classes (classes ’D’ and ’E’), the base of the pyramid, LAN Houses double as cinemas, points of culture and locations to consume news media.

According to the Institute of Applied Economic Research (Instituto de Pesquisa Econômica Aplicada, IPEA), Brazil has over 19 million micro entrepreneurs, of which 60% have chosen this path voluntarily, as opposed to choosing it out of necessity. In general, LAN Houses are outfits created and managed by community leaders and micro entrepreneurs, and become reference points in the communities in which they operate, offering a high-value, high-impact public service.

A snapshot of the industry in the country highlights some challenges. The high rate of informality precludes many of these micro entrepreneurs from expansion and developing business opportunities. The lack of education exhibited by many micro entrepreneurs translates into inefficient management strategies, which increases the risk of financial sustainability for those outfits with limited services portfolios.

An initiative of the Committee for the Democratization of Computer Science (Comitê para Democratização da Informática, CDI), a pioneering social organization for digital inclusiveness in Latin America, relies on LAN Houses as operating channels. Created a year and a half ago, CDI Lan already has over 4,800 affiliates based on a code of conduct. Its vision is to transform the players in the industry into distribution centers for products and services to the base of the pyramid, with an emphasis on education and microfinance.

LAN Houses must be an extension of schools and may become a critical form of education. Besides being a meeting and study point, they are a center for accessing content that, otherwise, would be limited to more affluent classes.Through distance education, Brazil has a chance to make access to high-quality content widely available, and to allow, besides the transformation of those regions currently lacking investment in elementary and medium education, access to the same tools available to higher-level schools.

Despite having one of the most sophisticated banking systems in the world, Brazil still has millions of citizens excluded, with ramshackle services in thousands of municipalities. Considering the penetration and the orientation of LAN Houses, these venues may become social technology for financial inclusion and, as banking correspondents, support community operations, thus contributing to the grant of microcredits, paycheck loans for National Social Security Institute (Instituto Nacional do Seguro Social, INSS) retirees and pensioners, opening and movement of checking accounts, etc.

Another valuable initiative for this channel originates from the Brazilian Support Service for Micro and Small Enterprises (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas, SEBRAE). In order to decentralize its services, the organization intends to turn 400 LAN Houses into SEBRAE access points. The micro entrepreneur must, thus, participate in a social game – Desafio (Challenge) LAN SEBRAE -, as well as in training and formalization activities. Once certified, a LAN House is able to make its space available for SEBRAE online services for the community, consequently becoming a multiplying and transforming agent.

It is therefore possible to understand future of the sector in a broader way, since current understanding is limited to internet access, and therefore under-explored. The channel already has a unique intimacy with people at the base of the pyramid and, besides having scope for optimization of use, it is geared to become a distribution center for social products and services due to its capillarity. It can also be an ally to social media tools, becoming a high-impact, high-scale medium for mobilization.