TT-903 (Tourism Edition) -- Where Opportunities Lie for New Entrants to Inbound Market

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.
(http://www.terrielloyd.com)

Tourism Sector Edition Sunday, July 02, 2017, Issue No. 903

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+++ Where Opportunities Lie for New Entrants to Inbound Market

In preparation for a bridge funding we are doing for Japan Travel KK
(www.japantravel.com), we did a bunch of research about the current
state of the Inbound travel market, as it relates to service providers.
There isn't much solid information about who is doing what in the
sector, because Inbound is still "new" for many traditional travel
players. And for those that are trying to switch into Inbound, they are
facing huge challenges, as we outlined several weeks ago in TT-901
(http://bit.ly/2t5IRLf) when covering the fall in revenues at industry
behemoth, JTB.

What we do know is that out of roughly 1,183 travel agents who are
members of the Japan Association of Travel Agents (JATA), only 105
(8.87%) are registered for Inbound business. This is actually a slight
reduction over two years ago, and speaks to the often brutal competition
facing new entrants seeking to carve out their piece of the Inbound gold
rush. That competition is coming from two main sources: firstly, from
in-country travel agencies that sell massive numbers of group tours, and
packages to FIT travelers. Most notable in this space are the Chinese
operators who are well out in front in terms of organizational
sophistication and ability to gather customers. Secondly, and more
related to the Western markets, there are the leading online travel
agents (OTAs) who are "hoovering up" FIT travelers with volume purchases
and deep inventories of hotels and airline tickets.

Stimulated by the continuing explosive growth in the Inbound travel
market, it is no wonder that there is a plethora of new players coming
in to the market. Every week I hear about such companies, usually called
"japan-xxxx.com" with or without a hyphen. Just as regularly, I'm
approached by intending investors (of those new companies), asking
whether such firms have a chance, or whether they are already too late.

Although it would be easy to say they are "too late", in fact I believe
that there are still many opportunities in the Inbound travel market,
but just not in the areas that may be the most visible ones. What new
players need to remember is that Japan Inbound is now big enough and hot
enough that it is attracting the attention of many world class players,
who until two years ago barely cast a glance here. So as a new player,
it doesn't make sense to try to be an Inbound portal, because otherwise
you'll be killed by the big guys.

For example, trying to be a website selling hotel and airline bookings
is out. These spaces are now so thoroughly dominated by Airbnb, Expedia,
Booking.com, and others in the Priceline group (who also own
Booking.com), that even the Japanese majors such as JALAN and Rakuten
Travel have given up and instead make money selling their inventory on
to foreign OTAs.

Now let me qualify this point here by saying that even though we are a
small player, www.japantravel.com will shortly launch an e-commerce site
that will indeed sell hotels bookings and airline tickets. We're doing
it as part of a much broader strategy rather than expecting to get rich
from hotels or air tickets. Rather, the inventory will be there for user
one-stop convenience, so that they don't have a compelling reason to
leave our site once they've gone through all the trouble of finding it.

[Continued below...]

--------- Seed Round Investment with Japan Travel ---------

Readers will know that in late 2013 Japan Travel KK was established to
help develop the Inbound Travel market. Little did we know back then
that the market would swell from 13m visitors that year to around double
(26m estimated) this fiscal year. Japan Travel KK has been tracking the
market and has enjoyed 100% sales gains each year for the last 3 years,
with a repeat performance expected this year. The company is funded by
the founders and a few friends, and is now offering a late seed round
investment opportunity for up to 50 respondents. This will be a bridge
financing to get us through to a more fully priced Series A round next
year. We expect to go public sometime 2020~2022.

Anyone interested in learning more about investing in Japan Travel can
apply for an Investor Memo which outlines the opportunity and the
company's achievements to date. Making an inquiry is obligation-free,
but per Japanese law, responses will be limited to the first 50 people.

For more information: terrie.lloyd@japantravel.com
-----------------------------------------------------------

Activities (also known as Experiences or day tours) are also seen by
many as a promising new business space, but my personal opinion is that
this sector has already passed its prime. Now Airbnb and Expedia have
stepped in and are dramatically ramping up their teams in Japan, they
have sufficiently massive captive traffic flow to drive business volume
and drive down prices. This will be very impactful on players such as
Voyagin and Beauty of Japan (BOJ), both of whom have seen rising sales
as their reseller networks grow. Then there is the big kahuna in the
Japanese activities sector, Asoview, which is about to launch its API to
foreign distributors and thus multiply its reach by 100x. Yeah, so
trying to be a website selling activities for a profit is also pretty
much of a bust.

Instead, my advice to new players is to look for a niche (either a
cultural niche or a territory one) and become a specialist supplier
rather than just a reseller. Although of course you should always have a
professional-level product/service website. I see many examples of
suppliers who are doing something that most anyone could do, but because
of excellence in their presentations and at least temporary uniqueness,
they have been able to capture the imaginations of travelers around the
world. Companies like Walk Japan (https://walkjapan.com/) which uses a
combination of high-grade photos, stimulating prose, and well-executed
tours to capture decent market share for Westerners wanting to walk the
Nakasendo and feel they are back in feudal Japan. When I think about how
many other great walks/hikes there are in Japan, you only need a couple
of routes and your small start-up could be on the way to its first
million dollars in annual revenue.

The good news as a supplier is that those giant foreign OTA firms are
looking for unique and outstanding tours and activities. This is because
such suppliers provide the visual temptation needed to attract visitors
to the OTA's site. Once on the site, the OTAs work their automated
backend magic (AI chatbots, recommendations, AI-enhanced search, etc.)
to convert the visitor to a paying customer.

Or, instead of an activity, maybe your intended start-up would rather
invest in tourism infrastructure, such as real estate - but on a
micro-scale. As the Repeater trend grows, travelers become bored with
the Tokyo-Kyoto-Osaka triangle and want to venture out into the
countryside. The problem is that the further they explore, the more
difficult it becomes to find appropriate places to stay. This is why,
when Minpaku (think Airbnb) becomes legal to do, next year, there will
be a boom in small companies and partnerships ("kumiai") buying small
lots out in the countryside. You don't need much to set up. I have heard
of properties going in Minakami and Yuzawa for less than JPY10m for
house and land.

Or, what about setting up a small informal motor camp for listing on
Airbnb? In which case you may only be looking at the cost of land -
always cheap in the Japanese countryside.

Smartphone apps are another promising area. The biggest challenge in
making a useful app is that most of the data required to provide
functionality is still locked up by a few established publishers, who
for some reason feel it is their mission in life to not collaborate and
let someone else gain advantage from their hard work. I have never
really understood this side of Japanese commerce, where company owners
can't think that sharing a much larger pie can be more advantageous than
retaining 100% of a small pie.

Still, despite this parochial attitude, I can confidently say that
today's protected data will soon become tomorrow's commodity data, be it
maps, events information, or even where to hire goods. The reason for
this is that either those over-protective publishers will do a
subscription deal with someone huge, like Google, Apple, or Microsoft,
or some other fully-funded foreign firm will come in and challenge the
status quo.

As an example of the subscription model, prior to Google, very few small
Japanese web companies could afford to buy licenses from the Big 3
publishers, thus preventing those web firms from providing customers
with digital maps. Further, the big three of the map data business in
Japan (all three were suppliers of car navigation systems here) are
notoriously stingy about opening up their databases to SMEs.

However, one fine day, Google did a deal with Zenrin, the biggest map
publishing firms, and now thousands of small companies can go to Google
instead of Zenrin for licensing mapping data and functionality. This
means standardized interfaces, reasonable pricing, and most importantly
of all, easy and quick access to experiment. I predict that we are going
to see a lot more opportunities for smart phone apps coming up in the
next 3-5 years, based on the direct or indirect opening up of corporate
Japan's databases.

...The information janitors/
-----------------------------------------------------------

----------- ICA Event - Thursday 27th July ----------------

Speaker: John Kirch - Regional Director North Asia of Darktrace
Title: "Leveraging Artificial Intelligence to detect New, Emerging Cyber
Threats in Realtime"

Details: Complete event details at http://www.icajapan.jp/

Date: Thursday 27th July, 2017
Time: 6:30pm Doors open
Cost: 1,000 yen (members), 2,000 yen (non-members) Open to all. No sign
ups at the door.
RSVP: By 5pm on Monday 24th July 2017, venue: Room F, 9F, Sumitomo
Fudosan Roppongi Grand Tower, 3-2-1 Roppongi, Minato-ku, Tokyo, 106-0032
-----------------------------------------------------------

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+++ ABOUT US

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