Terrie's Take 886 (Tourism Edition) -- Japan's Online Travel Agency (OTA) Trends Over the Next 5-10 Years

Terrie's Take terrie at mailman.japaninc.com
Sun Mar 5 23:12:16 JST 2017

* * * * * * * * 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, Mar 05, 2017, Issue No. 886

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+++ Japan's Online Travel Agency (OTA) Trends Over the Next 5-10 Years

Normally I keep my predictions to the first "Take" of the year, but 
recently I have been involved in a number of proposals for large 
regional clients and thus I'm spending a lot more time thinking about 
strategy and industry trends. It is fair to say that in the Inbound 
Travel sector, one of Japan's three distinct travel domains, the trends 
are being set by foreign companies trying to bring global best practices 
to Japan. In the hotel sector this is most clearly demonstrated by 
Booking.com, which with almost 100 staff acquiring and onboarding local 
hotels is so far ahead of its Japanese hotels OTA competitors in terms 
of inventory, they may never catch up.

Indeed, not so long ago a senior manager at one major outbound OTA, 
which also happens to be one of Booking.com's largest Outbound Travel 
referral partners in Japan, told me that his company had already given 
up on the idea of trying to establish itself in the Inbound sector. 
Sure, they have a bilingual website, but in the face of such 
overwhelming competition no one uses it.

To make a proposal for my clients, I need to have some basis on which to 
project the business into the future - which means I have to make some 
sense out of the chaotic state of Inbound travel to Japan. I base most 
of my future assumptions on human behavioral models like Maslow's 
Hierarchy of Needs - which readers will know is one of my favorites 
(yes, with some adjustments). If you take the classic Maslow hierarchy, 
of Physiological Needs, Safety, Love/belonging, Esteem, and Self 
Actualization, and transpose it to a commercial model, you come out with 
layers emphasizing Money/Price (the base layer of the Needs pyramid), 
then Reliability/Convenience, Social/Peer Group, Brand/Status, and 
finally Custom Services at the top.

In my 30 years in the IT-computer-software industry, whenever there has 
been a major disruption in a commercial market, after the initial havoc 
has been wreaked on the prevailing business model and everyone is 
thinking straight again, Maslow's Needs come to the fore and allow 
competitors to catch up to the innovator. As those competitors 
re-marshal their forces, they tend to focus on cost competitiveness, 
then product differentiation based on safety/convenience, and so on up 
the ladder rungs of customer intellect.

A good example of this effect at work can be found in the smartphone 
market. Apple initially disrupted the market by turning cell phones into 
a personal entertainment device, and through its brilliant execution 
they earned 5 years or so of being a sole seller, and making tons of 
profit in the process. Customers were happy to pay top dollar because 
they were buying at the Social/Peer group and Brand/Status levels. 
However, now that just-as-good Android rivals have arrived, Apple's 
position is quickly eroding as its competitors focus on Money/Price and 
Reliability/Convenience. Unless Apple can come up with another hugely 
disruptive business model, it is likely that the smartphone market will 
enter a period of slow-climb differentiation following Maslow's principles.

I think that the travel sector, and particularly online travel, is 
headed in a similar direction.

[Continued below...]


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When Online Travel Agents (OTAs) first became popular a short 5 years 
ago, their big selling points were: convenience, breadth of selection 
within a narrow segment (for example, just hotels or just airfares), and 
most importantly fellow user recommendations. But as the bigger players 
(Expedia, Priceline/Booking.com, TripAdvisor, Airbnb, to name a few) 
have grown, gained economies of scale, and have honed their software, 
they are now slugging it out in a deeper differentiation battle.

Until now, the OTA wars have been about segment coverage, pricing, and 
most recently real-time systems and instant services. But as I mentioned 
in TT-885 several weeks ago, it's interesting to see that these same big 
players are starting to evolve a "Phase 2" of the OTA business, which is 
to become a global supermarket for everything to do with travel - 
something like Amazon.com. This kind of ambition requires extreme levels 
of investment in software, connectivity, and real time data systems, 
that is far beyond anything that Japanese firms are capable of investing 
in or building. OK, the two possible exceptions are Rakuten Travel and 
Recruit (Jalan), who rather than build could simply apply their billions 
to buy out major players abroad and thus leap-frog back into a viable 
presence in their own national market.

It's what comes next, after breadth-of-services and low prices, that 
will be most interesting. If I look at the e-commerce sector in general, 
it's pretty clear that Artificial Intelligence (AI) is driving the 
online discovery and purchasing experience and AI is just around the 
corner for travel as well - although travel has infinitely more 
variables and so is a lot more complex. I imagine that AI will be used 
to provide customers with both recommendations for tours and actual tour 

On the tours side, your itinerary will be built in real-time by machine 
and which take into account hundreds of variables and preferences 
including inferences drawn from your past online activities. On the tour 
buddies side, the system will recommend and match you up with traveling 
partners, just like a dating site, and places to stay that are 
appropriate for your age and interests. In other words, the AI 
experience will be something like an advanced Airbnb for the tours 
(versus accommodation) industry.

But the real kicker is still a ways out yet. For all this software 
wizardry, if you look at human behavior, then Maslow's triangle of needs 
predicates that the top of the triangle won't be some automated function 
(well, at least not until AI is as good as human thinking, and that's 
not for a long while yet), but rather high-grade human-built content and 
experiences that engage with our deepest urges for traveling - like a 
drug for an emotional need.

Let's remember that the travel industry is similar to the movie 
industry, in that its purpose is to supply a distraction of the 
intellect through inspiration, dreams, thrills, curiosity, altruism, and 
learning. Therefore, the quality of a customer's engagement experience 
will determine their satisfaction and repeat use - and thus the level of 
commercial success. I think that just like the movie industry, the 
Japanese tourism industry will learn to graduate from just distribution 
and simple transactions, to creating the actual Hollywood-grade content 
that locks in their customers. In the world of online movies, Netflix 
and most recently Amazon have realized this and now build and sell their 
own content.

Therefore, at the top of Maslow's hierarchy of Needs in Travel, on top 
of all that technology, I believe there will be a group of talented 
individuals and investors creating unique and memorable holiday and 
escape experiences that mere software functionality can't capture or 
deliver. In a Japanese context I expect that entire destinations will be 
transformed into immersive tourism experiences. Ski villages, historical 
reenactment experiences, robotic experiences, food-cooking experiences, 
religious experiences. They will be created like mini-Disneylands around 
the country - or little WestWorlds without the messy robot problems.

This won't happen overnight, but already you can see examples of 
"altered states" locations in Japan - such as the Niseko ski resort, 
which has done amazingly well considering it is an artificially 
implanted (i.e., mostly non-Japanese) construct. This is not intended as 
a criticism btw. And for that matter, let's not forget the original 
grand daddy of full-immersion holidays - Disneyworld. We don't have one 
in Japan yet, but I'd not be surprised if a massive Disneyworld was on 
the drawing board at Oriental Land right now. Kumamoto or Okinawa would 
be a great locations to put it.

So in a nutshell, what are the trends for Japanese Inbound Tourism for 
the next 5-10 years? In order of progression I believe them to be:
* Now - Basic web/mobile web content development and marketing.
* 2018-2021 - Real-time high-convenience IT systems to allow bored 
foreign travel shoppers book and pay for a tour immediately. If you're 
in IT, this will be a big new opportunity.
* Early-2020's - AI-assisted planning and/or curation of travel 
experiences to best match the customer.
* Mid-2020's - Fully immersive experiences complete with actors and 
absolute attention to detail.

If this trend to immersive experiences sounds familiar, that's because 
we went through a similar cycle with Japanese domestic tourism and 
entertainment back in the bubble years of the 1980's. Indeed, this is 
when Huis Ten Bosch in Nagasaki, and all those converted or abandoned 
countryside entertainment facilities came from... and so the wheel turns.

...The information janitors/

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Title: "Doing Hard Labor in Japan"

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

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