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Tech Insights From Travel’s Fastest-Growing Region

Who’s catching who?

 

“After decades leading innovation the West has been overtaken by the Asian powerhouse nations in some of the most strategically crucial areas of technological advancement.” – Bobby Healy, CTO, CarTrawler

 

Taken at face value, statistics about online travel growth in Asia depict a territory still working towards parity with the US and Europe. Airline online penetration across APAC is at 43%, compared to 50% in Europe and 58% in the US – and it is not expected to hit 50% until 2020[1].

The vast majority of travel transactions are made offline, whether through a traditional agent or ‘online-to-offline’ – researching online, then booking in person or over the phone.

 

But focus too closely on the travel sector and you can miss the bigger picture: a region where technology is often ahead of the US and Europe in both ecommerce and communications, and where businesses are honing new ways of capitalizing on mobile experiences, payment technologies and data that other territories have yet to explore.

We spoke to industry figures with a perspective on both Asia and the West to get their perspective on the tech advances you should be tracking.

 

Mobile for everything

 

While the picture across Asia varies widely, the region’s average mobile penetration doubled between 2012 and 2017, reaching just under half the population by the end of 2016. And four out of the five most penetrated markets in the world are here: Taiwan, Japan, Singapore and Hong Kong[2].

 

Nor is it just penetration that is more advanced. Infrastructure and browsing speeds often are too. Kei Shibata, CEO and co-founder of Tokyo-based Venture Republic – the company behind Travel.jp and Hotels.jp – singles out South Korea, where the company has a significant investment in the mobile-focused hotel metasearch Allstay[3]. “South Korea is amazing,” he says. “Their infrastructure is the best in the world. 3G and 4G penetration, speed, coverage – everything is top-notch. During the peak travel season we see traffic from mobile devices jump up to above 80%.”

 

Over in China, mobile devices overwhelmingly dominate internet use. Mobile first overtook desktop back in 2012[4], and by 2016 some 95.1% of internet users were accessing the internet on mobile[5]. The US lags behind even in projected figures – it is expected to hit 86.5% in 2021[6].

 

For Sherri Wu, a former Alibaba and Alitrip executive who is now chief strategy officer at China-focused ecommerce tech provider VoyageOne, China’s leapfrog behavior has led to a far greater focus on mobile experience and performance. “I think in the US we’ll say, ‘Hey, we’re going to do mobile first’ – but that’s just because we’re trying to emphasize mobile. Still things are developed in desktop. In China all these large companies actually develop mobile first, then think about desktop. So usually that version is lagging behind mobile. It’s a very different way of thinking.”

 

Aileen McCormack, Chief Commercial Officer at CarTrawler believes that Western countries have to step up if they want to remain competitive in this space “the West has found itself in the back seat in terms of mobile first technology,” she said, “as the balance of power between desktop and mobile device switches, all technology companies will have to look East for guidance if focuses aren’t redefined now, in preparation for the inevitable.”

 

“Conversational commerce is a topical subject in boardrooms throughout the world as the West looks towards China and the monumental success of WeChat,” Aileen continued. “The behemoth app has prompted the biggest names in the tech space to re-evaluate how they monetise and what systems are required to remain relevant.”

 

As mobile touchpoints become the norm, devices have become an ever-present conduit for communicating, buying and selling. Andrew Ng, a Stanford-based AI and machine learning specialist formerly employed as Baidu’s chief scientist, has called smartphones “a remote control for the physical environment”, pointing to the proliferation of app marketplaces for day-to-day services such as car washing, laundry and beauty treatments[7].

 

These developments are underpinned by frictionless payments through the likes of Alipay, WeChat Pay, QQ Pay and Baidu Wallet. While they are integrated into China’s big three online ecosystems, they also extend into the real world, where ubiquitous QR codes allow shoppers to make mobile payments in restaurants, at vending machines, and even to buskers[8].

 

DerbySoft CEO and co-founder Ted Zhang believes these payment technologies will affect travel habits in a big way: “When I book a hotel room or air travel on Ctrip, I always use WeChat Pay to pay for my booking,” he says. “And also, in terms of domestic travel in China, [mobile payment] is no problem at all. I’m travelling around China now and I have 1,000 RMB in my pocket. That’s 100-something dollars. Everywhere I pay by my phone.”

 

For Skyscanner CEO Gareth Williams, this kind of app-driven economy will be increasingly challenging for airlines committed to direct distribution, particularly as sophisticated voice interfaces – a major area of investment for Baidu[9] – enter the mainstream.

 

“Airlines have traditionally wanted to have all of their traffic come to airline.com,” he says. “But that’s also a way to make the most profitable advertising platforms in the world even more so. Apps change things, as businesses cannot simply spend more on adverts. Voice interfaces will change things even more.”

 

‘One to ten thousand’: Super-powering chat

 

“People who divide their time between China and the West complain that leaving WeChat behind is akin to stepping back in time.” – The Economist, August 2016[10]

As a WhatsApp or Facebook Messenger user in the West, it is hard to grasp how all-encompassing chat has become in some Asian markets. China’s WeChat offers the most prominent example, and for Ted Zhang, it’s a classic example of how Chinese innovation often super-charges a simple idea rather than ideating from scratch.

“The Chinese have a strong capability [for getting] from one to ten thousand. Maybe not from zero to one, but one to ten thousand. So WeChat – maybe at the beginning they copied some ideas. But they had the capability to turn it into a super-app. I use WeChat to pay almost all my bills, to book my taxis, to do pretty much everything online.”

“Super-app” is no exaggeration. At time of writing WeChat has 938 million monthly active users[11], and owns about 30% of all mobile app time in the China market, totalling some 900 million hours of use per day[12].

 

Naturally, it’s a space that brands are keen to play in. Branded accounts have been available since 2012, and in early 2017 WeChat debuted ‘mini-programmes’[13]. These stripped-back apps live within the WeChat ecosystem, allowing brands to push beyond basic branded accounts and bots without developing a standalone app.

 

Ctrip and Qunar already have mini-programmes, and have been active on WeChat for some time, with Qunar seeing some early success from targeted WeChat-only promotions[14]. But Sherri Wu stresses that promotion is only one part of the picture.

 

“It’s a great communication [tool]. For instance if I book a trip using Ctrip’s app, they’ll give me a reminder and also ask me what else they can help me with. That’s something we don’t see very often in the US. In Asia this has become a great way to engage your customer and cross-sell. I land in Tokyo and [get notifications] telling me, ‘Hey, there are great restaurants around, shopping, discounts’.”

 

Over in Japan and South Korea, chat apps aren’t quite as all-encompassing. “Japan is different [from China],” says Kei Shibata. “The largest chat app is Line, and in South Korea it’s KakaoTalk. WeChat is more comprehensive. I would position Line and Kakao as somewhere in between WhatsApp and WeChat.”

 

For Shibata’s own business, Line’s power comes from news aggregation. This is a competitive space in Japan, with Line News up against ambitious entrants such as SmartNews, NewsPicks, Gunosy and Antenna[15].

 

“We’re an official content provider on Line,” says Shibata. “We distribute travel articles every day. We syndicate a network of travel bloggers and influencers, and Line is one of our biggest distribution channels.”

 

It becomes a way of addressing a perennial issue for travel brands: their inability to connect with users on a consistent, day-to-day basis. “That’s the beauty of the model,” says Shibata. “Expedia, Booking.com, they wish they could communicate with users every day. We’ve been able to succeed in this almost because of mobile initiatives [such as Line News].”

 

Big, bigger, biggest: How BAT are harnessing data

 

“If data are the new oil, Jack Ma, former English teacher turned China’s richest man, is the new John Rockefeller.” – Financial Times, June 2017[16]

China’s big three – Baidu, Alibaba and Tencent, or BAT – have vast stores of data, with Alibaba alone pulling information from 423 million active buyers. As Ted Zhang points out, that kind of volume is a significant advantage in the race to develop AI systems.

 

“I think the success of AI isn’t really about technology, it’s really because of data,” he says. “You have to have enough data to train your system. My major was in neural networks, and basically if you want AI to really work, you need big data.”

 

And their data isn’t just deep. It’s wide too. Alibaba’s customer records span multiple purchase categories and service sectors, from travel to retail to finance. It is now bidding to bring around 1 million small independent shops into its data network via the Alibaba Distribution Platform (ADP), a retail management system[17].

 

“In travel, that’s Alitrip’s advantage versus everyone else,” says Sherri Wu. “They have the majority of the consumer data. Alibaba is a closed ecosystem in that sense. In the Alitrip platform, on the surface it has been changed, because the way you talk to a GDS, the way you book a hotel is different to how you sell a piece of clothing. But underlying that, the whole Alibaba system is one system.”

 

The idea is to mine that in-house data to identify travel intent – something that vertical businesses can only do by buying in browsing and search insights. “For instance you have a person who has bought luggage, bought a backpack, bought hiking shoes. You say ‘Hey, I think the person might be looking for a trip’. Then we try to not just personalize the page, but also send them a text message through the Alibaba system.”

 

Even with those advantages, personalization is just a small part of the picture. China’s giants have bigger ambitions for data, and are using it to drive whole new services and large-scale operational efficiencies. Ant Financial, Alibaba’s finance affiliate, has developed an AI system that can assess insurance claims based on automated analysis of a photo[18]. And its Sesame Credit tool uses consumers’ data to assess their creditworthiness, allowing those with a superior score to access products and services – including hotel bookings – without a deposit[19].

 

AI is also being deployed in customer services, helping brands to deal with high-volume enquiries from a famously demanding market. Even complex industries such as finance are using bots on popular chat platforms – China Merchant Bank’s WeChat bot handles 1.5 to 2 million customer conversations per day[20], and Ant Financial’s has surpassed human agents in terms of customer satisfaction[21].

 

Divided loyalties: Japan’s points sector

 

For Shibata, one of Japan’s advances over the West is in loyalty schemes, which are present across the retail spectrum from large-scale ecommerce to real-world convenience stores.

 

“Rakuten is the king of ecommerce here,” he says. “Everything [Rakuten does] is built around this loyalty points programme. Their finance business is really robust; they issued a credit card and then the consumers are incentivized to accumulate points in every different vertical. I haven’t really seen any comparable examples overseas.”

 

At the other end of the scale, points schemes such as Ponta and the Culture Convenience Club’s T-Point capture real-world shoppers using Japan’s ubiquitous convenience stores.

 

Shibata explains: “Convenience stores are a big culture here. They’ve formed alliances with different companies in different verticals – it’s an ecosystem driven by consolidated loyalty points programmes. It’s a huge thing. At the [2017] Skift Forum, people talked about loyalty points programs – my take is that the West is still behind in this game.”

 

Both domestic and global travel brands are actively engaging in the space. Japan Airlines is involved in Ponta, as are the travel agency H.I.S., the hotel booking site Jalan, and Hotel.jp, run by Shibata’s Venture Republic. Meanwhile, Airbnb has partnered with T-Point on several occasions as it bids for a slice of the Japanese market.[22]

 

“Japan Airlines and All Nippon are always paying huge attention to what’s going on in loyalty points programmes outside of the airline business,” says Shibata. “Some have started [allowing users to] convert other points to frequent flyer points. I think the power shift is pretty amazing. Overseas, especially in the US and Europe, when it comes to loyalty points the first thing you think of is airlines. Here there are bigger points programmes around.”

 

CarTrawler CTO Bobby Healy believes that the West have been slow to react, but that is changing “The West is lagging behind Asia in terms of mobile first solutions and loyalty schemes, however we’re not totally out of the game,” he claimed. “Loyalty points are a big part of CarTrawler’s new Taxi app where customers can use our partner’s loyalty points to pay for cabs and transfers. Point schemes have always had an important role in the travel tech sector and this is something we as a company are ready to harness and utilise.”

 

A glimpse of the near future

 

“I worked in Silicon Valley for more than 10 years, and I feel like the people in the field in China now are just like the people there. They’re hungry! Everybody’s thinking, ‘How can we create something different?’ And everybody wants to be a boss! That’s where innovation comes from. Hunger.” – Ted Zhang, CEO, DerbySoft

 

Mobile, chat and big data are all familiar enough. But Asia’s mobile-dominated, fast-growing markets offer a glimpse of what they look like with the brakes taken off: mobile devices become “remote controls” for the world; chat becomes a near-universal interface; new payment methods revolutionize shopping habits and enable new digital marketplaces; and vast, varied stores of data help businesses spot new opportunities and develop new products. How the region’s travel markets mature against this landscape looks likely to be one of the most surprising and illuminating stories of the next decade. Everyone with a stake in digital commerce should be watching.

 

 

[1] U.S. Online Travel Overview Fifteenth Edition: Phocuswright, January 2016

[2] The Mobile Economy – Asia Pacific 2017: GMSA, 2017

[3] Armed With First Funding, Allstay Sets Sights On Dominating South Korea’s Travel Meta-Search Space: Web in Travel, July 2015

[4] China’s Mobile Internet Users Surpass Desktop Users: Tech In Asia, August 2012

[5] More than 95% of Internet Users in China Use Mobile Devices to Go Online: eMarketer, February 2017

[6] US Digital Users: The eMarketer Forecast for 2017: eMarketer, February 2017

[7] Introduction to O2O: Andrew Ng, September 2015

[8] In Urban China, Cash Is Rapidly Becoming Obsolete: The New York Times, July 2017

[9] 10 Breakthrough Technologies: Conversational Interfaces: MIT Technology Review, March 2016

[10] WeChat’s World: The Economist, August 2016

[11] WeChat MAU grew by 23% to 938M: China Internet Watch, May 2017

[12] Internet Trends 2017: Kleiner Perkins Caufield Byers, May 2017

[13] China’s Tencent Takes On The App Store With Launch Of ‘Mini Programs’ For Wechat: TechCrunch, January 2017

[14] 10 Case Studies for WeChat Marketing: China Internet Watch, January 2014

[15] Japanese News Apps Prepare to Take on the World: Campaign Asia, August 2016

[16] Alibaba Taps User Data To Drive Growth Spurt: Financial Times, June 2017

[17] Alibaba Wants to Bring Big Data to 1 Million Mom-and-Pop Stores: Caixin, August 2017

[19] Tencent Credit Check Takes Mobile Payments Battle To Alibaba: Financial Times, August 2017

[20] How Artificial Intelligence is Transforming Enterprise Customer Service: Forbes, February 2017

[21] Meet the Chinese Finance Giant That’s Secretly an AI Company: MIT Technology Review, June 2017

[22] Why a Major Japanese Retailer Wants to Promote Airbnb: Campaign Asia, May 2016

 


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