Terrie's Take 894 (Tourism Edition) - Free Smart Phones for Hotel Guests - Will it Work?

Terrie's Take terrie at mailman.japaninc.com
Mon May 1 08:55:11 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 30, 2017, Issue No. 894

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+++ Free Smart Phones for Hotel Guests - Will it Work?

On September 28th, 2016, a short news report on Techcrunch.com covered a 
Hong Kong based company that might change the face of tourist engagement 
around the world, including here in Japan. The company, Tink Labs, had 
just raised US$125m to implement an ambitious plan to put a free smart 
phone into every room of every participating hotel chain in all major 
tourist destinations in Europe, North America, and Asia - numbering 
around one million devices. The company plans to use the phones as a new 
form of free media to reach and influence its target users, who are 
well-to-do tourists.

The financing came from some knowledgeable and well-placed sources, 
including Sinovation Ventures, headed by an ex-Google China president; 
Cai Wenshenga, a well-known angel investor who also owns the highly 
popular Meitu image enhancement app; and FIH Mobile, a subsidiary of 
Taiwan consumer electronics giant Foxconn. What's interesting also is 
the company originally tried to set up in the rental mobile phone 
business but found there was no money in it, so they then segued into 
mobile media instead. Why this gives them a half-billion dollar 
valuation we're not sure, but certainly it fits the "think big" mold.

Giving things/media away for free in order to get people to use it and 
be influenced by it is of course not a new idea. Free papers such as 
Metropolis here in Tokyo have used this strategy for decades and to good 
effect, and there are already local Japanese firms supplying free 
in-room iPads and other communications devices. But what is new is that 
you can take a Handy (Tink's name for the service) smart phone and walk 
around the city with it, taking photos, using a free daily internet and 
call service allowance, and enjoying it relatively unencumbered.

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Tink will be working with major hotel chains, including Starwood, Accor, 
Shangri-la, and Melia - meaning that the guest demographic should be 
very enticing to intending advertisers. The business model, according to 
the CEO and founder Terrence Kwok, is that Tink will charge a 
subscription fee to the hotel chain, then offer information and deals 
through the phone - which allows them to create a secondary advertising 
business similar to a free paper. It seems that Mr. Kwok has some early 
test results showing that about 30% of guests are likely to use the 
phones and that the result is a 3% or greater increase in 
per-person-spend with the hotel.

The key to all of this working of course is whether Tink can make the 
numbers work. As the previous publisher of Metropolis, I know that we 
used to use the rule-of-thumb that each copy of the magazine, after the 
initial costs of creating the content, was about 300 yen per copy. This 
is basically the incremental costs such as cost of paper and printing 
and the greatest cost of all - physical distribution.

Also, it is said that in Japan a magazine is not regarded as a serious 
publication unless it has at least 100,000 readers, meaning that no 
English-language publication sold (or given away) in Japan ever met that 
metric. Although Metropolis with its 100K copies per month back when I 
ran it, was a close result. With 100K readers, a newspaper qualifies to 
be large enough to receive advertising placed by advertising agencies. 
So we presume that the same metric will be required of Handy.

There are of course a different set of metrics at work for digital media 
in the Japan market. You can buy media based on impressions (essentially 
the number of people viewing your ad), the number of click-throughs, and 
even the number of actual leads generated by the ad. All of these come 
at different prices, with maybe 1-10 yen per impression on highly 
qualified users such as Handy will have, through to just 0.1 yen for 
general web traffic impressions. This means Handy will need about 
100,000 users looking at one ad each to make JPY1m from that advertiser. 
So this will be a challenge for them.

The cost of running devices is also not cheap. Last year, I did a 
business development exercise to investigate the possibility of creating 
on online media platform from freemium SIMs (ID modules you insert in 
your smart phone, which would be free for a short time then upsold) 
handed out to tourists. What I found out is that after the phone company 
guarantee deposits, physical handling and distribution, and technical 
support, it was going to be difficult to prepare a SIM for much less 
than JPY1,500 per month. So I put the project on hold for a time.

My mind boggles to think of adding the cost of the phone as well, 
especially since the phone can be damaged or go missing in so many ways.

Doing the math, Tink's phones probably cost about US$150 to make (after 
all, Foxconn is a major investor and also a leading maker of mobile 
phones), the SIM card with an unlimited data plan would cost around 
JPY2,000 deposit and JPY500-JPY600/month for data, then of course you 
need a customer support call center, packaging and distribution, etc. 
Accounting for damaged and lost phones, probably phones would need to be 
amortized in 18 months, and so the cost of each phone is likely to be 
around JPY3,100/month - about double the cost of the SIM business I was 
thinking of. The itemized costs over each phone's 18-month lifetime 
would be:
- Phone: JPY17,000 one-time
- SIM: JPY2,000 one-time
- Data: JPY500 monthly = JPY9,000
- Support: JPY1,000 monthly = JPY18,000
- Packaging: JPY500 monthly = JPY9,000
- Distribution: JPY1,000 one-time
= JPY56,000/18 => JPY3,100/month

So, by assuming a Starwood style hotel might have 400 rooms, each guest 
staying an average of 3 nights, and the hotel having an occupancy rate 
of about 80%, and finally (according to Terrence Kwok) about 30% of 
guests actually pick up and then start using the system. Therefore, in a 
year we could expect one Handy phone hotel site to have usage of 39,000 
possible times a year. If you multiplied this by 10 hotels in a chain, 
that's 390,000 usages. Considering an average user will look at about 20 
ads over the 3-day period, that's about 7.8m qualified views. So that 
one hotel chain might generate about JPY7.8m in ad revenue. Maybe.

To be honest, it's hard to see how this would be a viable business, 
although it's a great idea and if it works, it will revolutionize the 
in-situ tourism media industry. Maybe the fee being charged to the 
hotels is going to be high enough to cover costs? As a long-time media 
person, it will be interesting for me to see how this works once Handy 
gets started here in Japan. For sure, one thing they need to do quickly 
is to improve the quality of user experiences (as of last year, Tink 
already had 100,000 phones in various hotel chains) on sites like 
TripAdvisor. So far the phones are seldom mentioned but when they are, 
people are talking about the limitations of usage. People are quick to 
discount the fact it's free and instead naturally focus on the 
experience they have with their own paid phones they use back home. 
That's a perception that needs to be remedied before the full roll-out 

...The information janitors/

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

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