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

Terrie's Take terrie at mailman.japaninc.com
Mon Apr 17 09:09:00 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, Apr 17, 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 while 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 Booking.com 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 Booking.com 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 Booking.com, 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 Booking.com 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 week
* One website - 100 leads a week
* 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/week
(And the company will need 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 JPY420,000/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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Title: "India as an Innovation Center: Is there a case?"

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

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