TT-851 (Tourism Edition) -- Gaiatsu in the form of Airbnb

* * * * * * * * 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, May 29, 2016, Issue No. 851

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+++ Gaiatsu in the form of Airbnb

On Friday Airbnb co-founder Joe Gebbia held a press conference with
Muneaki Masuda, the President and founder of Culture Convenience Club
(CCC), the owner of the Tsutaya video rental chain. The event was
ostensibly to announce Tsutaya's agreement to market Airbnb's business
to its 40m+ members, most of whom are using the company's T-Point card.
Just why this would be helpful to Airbnb when the U.S. firm already
derives most of its customers from its own massive website might have
you scratching your head. But in fact it makes sense to both parties for
more strategic reasons.

On Airbnb's side they need the support of some heavy hitters to help tip
the Japanese government to pass legislation authorizing private room
rentals ("Minpaku"), a move which is currently subject to intense
lobbying by hoteliers and other resisters. The Abe administration is
rumored to be close to passing new and much realistic rules than the
ones kludged together 2014/2015, and may introduce them to the Diet as
soon as next month. To get over the goal line, no doubt Airbnb would
have preferred heavier establishment hitters such as Mitsui, Mitsubishi,
etc., but given that many of these companies are risk averse, and there
are just enough things wrong with Airbnb's business model that it is an
easy target for the media to bash, Gebbia is having to settle for CCC
instead.

Wrong" in Airbnb's world can mean everything from unruly and thieving
guests, to suicides and fires, to building managers and neighbors having
to deal with mountains of garbage (mostly wrapping materials) as
visiting guests go on shopping sprees.

On the CCC-Tsutaya side, you have the charismatic Masuda-shacho, who has
a history of successfully reinventing his businesses. Since he hasn't
gone international yet (with the exception of Taiwan), maybe he sees
this alliance as a step to some form of collaborative (services)
relationship in the private rentals space. He does in fact know a thing
or two about innovation in the real estate business, and one of
Tsutaya's core businesses is planning and occasionally running
restaurants, libraries, and other facilities.

But more likely the immediate benefit to Tsutaya is the company's
T-Point card business, which has fallen to 3rd place in the loyalty
points sector, behind Rakuten's SuperPoints card and
Mitsubishi-Recruit's Ponta card. If Tsutaya can figure out how to get
T-Points into the hands of inbound tourists, the 20m+ new users will
boost the company into the No. 2 position, and more importantly create a
new segment of free-spending users that its competitors don't have
access to.

I wrote about the battle of supremacy among the loyalty cards back in
TT-809, June 21, 2015.

http://bit.ly/1X4Jgr6

In looking at this deal in context with a lot of other changes going on
in and around the inbound tourism sector, it is easy to see how Airbnb
has become a "new economy" lightning rod and change agent in Japan
(which is why we keep writing about them).

[Continued below...]

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It is often said that Japanese respond best to change when it comes from
overseas, the so-called "gaiatsu" (foreign pressure) factor. What I'm
hearing from various businesspeople is that reformists in government are
jumping on the Olympics bandwagon and arguing that Japan needs to change
its tourist-related rules so that it can put on its best face on for
2020. As a result, regulatory change requests are coming thick and fast:
from HR companies wanting to get in to the guide and hospitality
personnel businesses, telecoms, banking, car rentals, private medical
treatment, and a bunch of other sectors besides.

But of course it is guest accommodation that is taking the
front-and-center position on the public stage. Whereas a year ago I
would have bet that Japan would restrict or outright ban private room
rentals, in fact it looks like the reformists have carried the day. I
guess that the government must have come to the realization that there
is no easy return to a manufacturing economy for Japan - especially
since the US won't allow a radically weaker yen at present - and so the
country must find new ways to make money. Tourism certainly fits the bill.

On top of this you have a business model run by a hugely valuable US
company which has completely outflanked local authorities, to the point
where even if their business model is fundamentally illegal, their
35,000 renters around the country would create a major PR stink if the
Abe administration tried to shut them down.

Now, sure, the incumbent hotelier groups have not been sitting on their
hands. Ever since the Cabinet Office announced in 2014 that it
recommended relaxing the rules on Minpaku, the incumbents have been
pushing to neuter any new easing by pushing for guidelines that no one
could actually sell to the market.

As readers will recall, Minpaku is restricted to just three "special
zones", of which only Osaka and Ota-ku in Tokyo did anything about it,
by passing new ordinances. One of the most restrictive elements of the
2015 Minpaku rules is that the minimum guest stay must be 6 days. I did
a quick check of local private rentals sites, such as www.stayjapan.com
by Hyakusen Renma (Airbnb's largest local competitor) and found that
even though they list properties that satisfy the minimum 6-days
requirement, they are also offering a 50% money-back campaign to entice
customers in. Now, given that this special money-back campaign only
applies to the first 30 customers and yet the campaign is still running
after a month, I'm guessing that Hyakusen Renma is having trouble trying
to fill even 30 orders a month.

In comparison, Silicon Valley-based Airbnb is offering 350+ 1-night
rental locations in roughly the same area. So that's anywhere up to
about 9,000 orders a month in the Ota-ku area alone...! Quite a massive
difference.

So here you have a classic situation of an overseas company operating
outside the jurisdiction of the Japanese lawmakers, running rings around
local players hobbled by rules that are being flouted by thousands of
ordinary people every day. Normally when a new fad that needs to be
controlled hits Japan, the authorities will set an example by making
some high-profile arrests and putting fear into the population. Indeed,
this time around as well, they have arrested a number of officials of
companies who let their Airbnb rental businesses get too big. But the
problem is that users of the rogue service are NOT Japanese. The foreign
hordes are barely aware of the illegality of the service and are
certainly not being put off by arrests. Rather, by virtue of Japan's
rising cachet as a tourist destination the demand for private room
rentals continues to climb.

When I first heard last year that the Abe government was going to
substantially deregulate private rentals, I was personally doubtful it
would happen - a foreign interloper upsetting the natural order should
have been too much for bureaucrats to tolerate. But as it turns out,
some investors had better information than I and in December last year
Hyakusen Renma, a company related to real estate media giant Able,
raised a few million dollars from one of Japan's biggest bedrock firms,
the Keio Railway Company. Later in April this year (2016), Hyakusen
Renma received even more money, including JPY300m from the government's
own Cool Japan Fund...

Yep, when the government itself invests in Airbnb's biggest local
competitor, it's pretty obvious that the writing is on the wall.

Now that private rentals are likely to become legal, I am expecting the
floodgates to open for a range of other services that can in some way
(however obscure) be tied to the inbound travel boom. Most immediate is
the rumor of major legislative changes in the guide/interpreter business
in Japan, which I have written about before. This sector is protected by
a small group of beneficiaries who want to keep a post-WWII regulation
outlawing any service that includes speaking English (or other
languages) to foreign tourists to help them get around. The current
situation is that the guide business is overpriced, over-specialized,
unfriendly, and fundamentally inaccessible to the tens of thousands of
foreign tourists who don't speak Japanese but who would like help to
better understand the country if they could get it affordably.

Whenever you get a bad law and yet there is huge demand, you will always
have a few players who decide it is worth the risk to operate in the
grey zone. In the guides sector, you can find firms offering "meet
locals" business models which are popular abroad but technically illegal
here as soon as the local company or the guide accepts money from the
tourist. The biggest operators of these services are headquartered
overseas, just like Airbnb, and can't be touched. However, there are
also some risk-tolerant local guys trying to service the space.
Typically they obfuscate the business model so that they can't be
charged by the police. None of these local guys have been successful so
far and the large potential players (mostly local HR dispatch firms) are
still watching the action from the sidelines.

Playing the gaiatsu card to get deregulation pushed through Kasumigaseki
looks like it is going to become increasingly common over the next 2-3
years (at least until the Olympics are over). I heard from a technology
company recently that after dealing with their industry authority for
years over some inconsistencies in the law, they were able to
re-position their argument as something that would benefit inbound
tourists, and suddenly they got attention and traction from lawmakers.

So while Airbnb brings little direct benefit to most local travel
companies (including mine, www.japantravel.com), I'm nonetheless
cheering them on from the sidelines, because their size, momentum, and
impunity to the Japanese authorities means that for once badly needed
change is headed our way.

...The information janitors/

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