Terrie's Take 842 (Toursim Edition) -- Why Expedia is Not Doing Well (Yet) in the Japan Inbound Market

Terrie's Take terrie at mailman.japaninc.com
Mon Mar 14 00:07:19 JST 2016

* * * * * * * * 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, March 13, 2016, Issue No. 842

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+++ Why Expedia is Not Doing Well (Yet) in the Japan Inbound Market

The inbound travel boom for Japan is now in its third year. I'm often 
asked when it started and I think it's fair to say that although 
policies were put in place in late 2012, as the then-new PM, Abe, was 
taking charge, the first time we all woke up to the fact that something 
special was happening was a year later, when Tokyo won the right to host 
the 2020 Olympics. The policies Abe implemented that worked were the 
weakening of the yen, the relaxation of visas, better policing measures 
to reduce over-stayers, and well, of course, a commitment to do whatever 
it took to win the 2020 Olympics hosting rights.

So the inbound boom is still relatively new. In fact, if you think about 
it, most larger Japanese companies are only just moving on the 
opportunity now, having appointed an Inbound Business Manager in FY2014 
or FY2015. So the full force of corporate investment into the sector is 
just starting to emerge and this means that for the next 3-4 years we 
should see a swift rise in competition for a slice of the inbound 
tourism business.

While the Japanese have taken a bit of time to absorb the importance of 
the inbound boom, some foreign firms were very quick to jump on the 
trend. These include a number of Online Travel Agents (OTAs), 
Destination Management Companies (DMCs), airlines, hotel investment 
companies, and retailers. Think of companies like Booking.com, 
Destination Asia, Jetstar/HK Express, Fortress, and Laox. Yes, Laox is 
Chinese owned and has a fluent Japanese-speaking Chinese boss.

Hmm, Booking.com? What about the world's biggest OTA, Expedia? I left 
them out as an early mover because like some other more mature US 
technology/media firms here, the local operation of Expedia is very 
Japanese. Until recently this didn't matter and the Japanese team did a 
pretty good job getting the site famous and well-trafficked here. 
However, like other "Japanified" foreign-firm branches, they have lost 
their ability to recognize and respond to external trends.

[Continued below...]

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As evidence of this, I was on Google recently and for the fun of it I 
typed in the search term "Expedia japan customer service" in English 
(not Japanese). If I'd been an Expedia foreign customer in Japan looking 
for assistance, I may have been surprised by the top result that comes 
back - a page with the message, "We're sorry! The page did not load 
completely. Please refresh your browser." This from the online leader in 
travel, that should have every internet "i" dotted and every technology 
"t" crossed.

Since by then I was on the Expedia Japan support page anyway, just for 
the hell of it, I then typed in another request asking for, well, 
"Support in Japan". What came back was, "We're sorry! The page did not 
load completely. Please refresh your browser." I then tried this page on 
other browsers, and sure enough the same problem came back on all three 
brands, not just the Google Chrome that I typically use.

Now, in all fairness, this does appear to be an old support page, and 
the new one is indeed accessible from the top of their own website. 
Further, if you search in Japanese, everything works properly. But, 
still, this HTML form, which BTW also does not resize either, should at 
very least redirect to the correct page. To me, it is symptomatic of at 
least two basic problems with the Japan office of this iconic US brand:

* The Expedia Japan team is too Japanese to quality control its website 
the way a non-Japanese would use it
* Expedia Japan is not being used enough by foreign travelers for anyone 
to have complained loudly enough yet

I was told several weeks ago by an industry expert that Expedia is now 
realizing it needs to get serious about the inbound market (about 18 
months too late) and that the company is in the process of significantly 
increasing the number of "sales" people that it is hiring. Better late 
than never I suppose.

[Continued below...]

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The company that is really making the most of the recent inbound boom is 
Expedia's main competitor globally, Priceline subsidiary Booking.com. As 
early as five years ago, Booking.com made the decision to focus on Japan 
as an inbound market, and started applying itself to the difficult job 
of acquiring local hotels. As some readers may know, foreign OTAs 
aggregating their own inventory, such as Expedia and Booking.com, charge 
a much higher commission to hotels than do their Japanese competitors. 
Although the actual numbers are a closely guarded secret, I have been 
told by various hotel managers that they are paying 15%-25% to foreign 
OTAs, compared with just 5%-12% for Japanese ones. Although in the last 
couple of months I have also heard that foreign OTAs are now starting to 
reduce their rates as volumes increase.

For the Japanese domestic market, versus the inbound one, low rates, an 
early start, and deep-pocketed parents have been the main reason why 
Recruit's Jalan, Rakuten, DeNA, and others have historically been able 
to largely lock the foreign OTAs out. But for inbound business, none of 
these companies has the marketing or language capability to compete with 
the foreigners, and so coupled with their reluctance to invest in 
acquiring foreigner-friendly hotel inventory when they can't sell the 
rooms anyway has meant they have largely stayed out of the game.

To give you some idea of just dire things are for the Japanese players, 
industry leader Jalan has about 22,000 or so hotels in its Japanese-user 
database, but less than 2,000 in its English-language one - just 20% of 
what Booking.com has. The situation is the same for Rakuten and others, 
so I wouldn't be surprised to see either/both Recruit and Rakuten 
becoming more aggressive in acquiring hotels while at the same time 
buying out foreign-based Japan-focused OTAs so as to kick-start traffic 
into their portals. M&A targets could include some of the recently 
arrived Asian DMCs now operating here.

Compared to the Japanese sites, the clear leader in terms of inventory 
and bookings is Booking.com. I don't know the exact numbers but I was 
told a year ago that the company was already up to 10,000+ hotels, so we 
can guess that with their dozens of acquisition sales and account 
management staff based here in Tokyo, that the number is probably more 
like 12,000 hotels now. That's a pretty decent database.

In comparison, like the Japanese OTAs, Expedia is far behind in the 
inbound sector -- with, my best guess -- less than 5,000 hotels. 
Recently they have started advertising for more hotel acquisition and 
relationship sales staff, but even though they may finally be feeling 
some sense of urgency about the inbound market (it is after all the only 
growth market for travel for Japan), the 6 jobs related to inbound that 
the company is currently advertising is still woefully inadequate 
compared to Booking.com's dozens of people. On this point alone, not 
including the Japanification of Expedia's local team, we would place 
bets on Booking.com winning most of the market for the next few years. 
As a hotel, that point would not be lost on us when deciding who to 
connect with.

And where are the Japanese big traditional travel companies? According 
to figures available from the JTB subsidiary Japan Tourism Marketing, 
the top 6 players, JTB, KNT, NTA, Hankyu, HIS, and Tobu-Top Tours 
collectively enjoyed an increase of 45% year-on-year from 2014 to 2015 
for their inbound business. The only problem is that the fall in their 
much bigger outbound business was even greater (JTB excepted).

Their big challenges are the same as for Rakuten and Jalan: no 
international marketing capability to speak of (although JTB gets a free 
ride on the Japanese government's massive international budget), and 
poor international sales (exception again is JTB). Then on top of that, 
they all suffer from inadequate systems (JTB uses three separate systems 
to book an inbound tour), lack of staff attuned to the needs of inbound 
foreigners, and a very low awareness the OTA affiliate sales business 
model that makes Booking.com and Expedia (outside Japan) so successful. 
Japanican (JTB) for example, offers just 2% commission to its OTA 
resellers. Compare that to Booking.com's 5%-10%, and it pretty much 
guarantees that very few companies will seriously promote their hotels 
and tours with JTB.

...The information janitors/


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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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