TT-892 (Tourism Edition) -- Technology Birth Pains: New Definition of the travel API = "A Path to Irritation"

Japan Travel
* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie
Lloyd, a long-term technology and media entrepreneur living in Japan.

Tourism Sector Edition Sunday, Apr 16, 2017, Issue No. 892

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+++ Technology Birth Pains: New Definition of the travel API = "A Path
to Irritation"

Almost a year ago in Terrie's Take 852 (June 05, 2016), we predicted
that Japan would see a marked increase in the business of Application
Programming Interfaces (APIs). For the non-programmers among us, an API
allows one company's system to talk in real time to another company's
system, to do useful things such as checking inventory, making orders,
paying funds, canceling orders, and getting transaction and activity
data - all (or mostly) without human intervention. For example, an
online store selling big-brand apparel and keeping its costs down by
allowing shopping functions but not having to have people to check if
the products are in stock first.

APIs are used extensively overseas however they haven't caught on in
Japan yet for a number of reasons. My take is that for big companies
it's mostly because of an aversion to sharing internal company data and
an obsession with control over each business relationship. For smaller
companies, it's the challenge of implementing the technology and a lack
of standardized platforms to host and pick up the APIs (meaning that you
have to write to a different API in a different way for every single
company you connect to).

APIs are indeed hard work. The supplier offering an API needs to think
deeply about their business and at which points in their existing
systems they are willing to inject outside requests for action. Given
that Japanese companies being so enamored with the idea that their
business process is special, many firms wanting to offer an API would
have to rewrite their operations software to make it happen. A difficult
and expensive decision.

Even if the supplier does have a standardized business operations
platform, like those from Oracle, IBM, and others, they still need to
set up the internal workflow needed to offer the API publicly, contract
with the connecting party, give the contracting party a test space, and
support them during the onboarding process. Then, on the side of
the connecting party, there is the need to write software that can use
the supplier's API. As a guideline, even when there is an
industry-standard API specification, such as Open Travel Alliance XML
standard for the travel industry, it still can take the supplier 1-2
man-years to create a usable API, and the connecting side as long as 3-4
man-months to integrate properly.

So getting connected is a painful process, but what you can do after you
have the API connection up and running is nothing short of magical.

[Continued below...]

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So why will travel be big for APIs here? Mostly because collaborative
sharing and co-selling of data via real-time APIs is already well
entrenched overseas. And because the inbound travel sector for Japan is
pretty much controlled by foreigners (we've heard that as much as 70% of
tourist expenditure is with foreign airlines, hotels, etc.), firms such
as Delta, American, China Airlines, Hilton, Hyatt, Airbnb, Ctrip,
Expedia, and are the main sources of traffic and business
for Japanese suppliers. All of these global best-of-class operators have
invested huge sums in technology and APIs and when they insist on
real-time no-human automation, the local Japanese suppliers (and
competitors) have no option but to join the API revolution.

Or so you'd think.

In fact, the move to APIs is still very patchy, with even major Japanese
hotel operators and other suppliers still trying to decide what to do
about APIs and taking 1-2 years to actually produce one. To give you
some idea, here are some of the challenges we've had as early adopters
in the move to APIs (our travel agency management software requires API
supplier data to work properly).

1. A large travel agency with tours and hotels inventory that was trying
to compete with and yet for several years refused to supply
an API to its resellers. As a result Online Travel Agencies (OTAs)
dealing with it were either forced to let their customers link back to
the supplier (never to return to the OTA's site and thus something OTAs
hate), and of course not allowing the OTA to creatively reuse the data
to improve the customer experience. After two years of losing business
and market share leadership to, the Japanese supplier
finally relented and started offering API connectivity at the end of
last year.

2. A large activities company that was struggling to keep up with its
own growth, and which decided it was easier to hire 100 backoffice staff
to manually acquire and confirm data than it was to create a reseller
API (and for that matter a supplier API for their multitude of small
partners around the country). In delaying their API implementation for
two years, something that they knew they had to do, two local
competitors were able to jump in and these firms have now become market
leaders in the inbound travel space. The company finally released an API
for OTAs early this year.

3. An air travel supplier that charges thousands of dollars to give
access to its API even though the standard globally is to not charge
directly (to reduce the barrier to entry) and instead charge a
commission on each transaction. They can do this because they got
started early and are years ahead of any competitors - meaning there is
no incentive for them to make their service more reasonably priced (or
free). That said, their monopoly will only last as long as local
competitors take to acquire similar relationships with local airlines,
or until a deep-pocketed foreign firm comes along and just bulldozes its
way into the sector. By "Bulldozing" I mean hiring dozens of people to
call local hotels (or airlines in this example) repeatedly until they
acquiesce, and this is exactly what did. It has been highly
successful for them.

So what are the economics of an API. Let me give you an example of what
happens without an API:

On average a travel agent take 2-12 hours to call multiple suppliers by
phone, then quote, adjust, and requote the 3-4 times that a standard
customer needs and expects. Leads usually come in from the agent's
website and about 10% of those leads actually convert into business.
Commission on a piece of business is about 10%.

* One consultant - 160 hours a month
* One website - 100 leads a week (300-400/month)
* Average sale closing time - 6 hours
* Average spend per person for a 7-day tour - JPY350,000 (they buy
airfares elsewhere)

So per consultant:
* 160 hours/6 hours = 26 leads, closing 3 as actual business
* JPY350,000/10% commission x 3 deals = JPY105,000/month
(And the company will need 3-4 consultants to process all leads)

As you can see that even working furiously into the late evenings, an
average consultant would only make about JPY250,000/month for the
company. Not enough to cover their personnel cost, rent, systems,
overheads, and ads for the website.

Now, if you introduce APIs that eliminate most (if not all) the supplier
calls, and you are able to do real-time updates of standardized trip
templates, then you can reduce the average sale closing time down to 1-2
hours (a 300% improvement), depending on how much talk time you want
with the client. This increases income by 3x and increases the average
consultant contribution for the company to JPY1.2MM - a much better result.

OK, I hear some of you thinking, "But what if you were a fully-automated
OTA, then you might not have any consultant time in the transaction at
all!" True, but realistically speaking, local fully-automated sites
would find it almost impossible to compete with the Booking.coms and
Expedias of the world because they don't have the brand power nor the
supplier reach. So, custom service assisted by APIs is a more viable way
forward for local players.

As you can see, simple economics is what drives APIs.

...The information janitors/

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