This is a rather personal episode. There is no guest this time. It’s just you and me.
Uber and, to a lesser extent, Airbnb are failing horribly in Japan. There have been quite a few articles that have tried to explain what this is, and most of those articles have focused on why the market conditions in Japan make it hard for those companies.
There is certainly some truth to those articles, but they miss a larger and much more important factor about why these companies are struggling in Japan and in Asia in general.
You see, Uber and Airbnb represent a new very kind of startup, one that could not have existed twenty years ago, and the reason has nothing to do with smartphones or cloud computing or anything related to technology at all.
In fact, the very thing that makes these companies powerful and transformative in the United States is what ensures they will never really succeed in Japan.
You may not agree with everything I have to say, but I think you’ll enjoy it.
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If you don’t feel like listening or reading the transcript, I’ve written an article based on this episode. It’s shorter and easier to read than the transcript.
Transcript from Japan
Disrupting Japan Episode 51.
Welcome to Disrupting Japan. Straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for listening.
Once again, I’ve got a special show for you today. There will be no guests, no wine, no playful banter with someone speaking English as a second language. Today it’s just you and me. For the next 20 minutes, I’ll be whispering in your ear about something I consider very important, but that not enough people are talking about.
You know, a lot has been written about why Uber is failing so disastrously in Asia in general and Japan in particular. Most authors cite the very different state of the taxi industry here, and there is certainly some truth to that. Taxis in Japan are clean, safe, affordable and easy to hail.
But that analysis misses a larger and more important truth. You see Uber, and AirBnb as well, represent a very new kind of startup. One whose defining characteristic – the very thing that makes them what they are – has little to do with technology and ensures that they will always struggle in Asia.
Don’t get me wrong, Japan and greater-Asia market entry is challenging for even the best companies. I’ve been involved with a number of market entries, and the process is sometimes very much like the chaos and uncertainly of running a startup.
You see, if you are ready to expand overseas, you have clearly nailed the product-market fit and figured out how to scale you sales process. However, until you start selling in a new market, you are never really sure what positioning will resonate or which strategies will be effective.
You might be up against entrenched competitors, you might lack the word-of-mouth reputation or partnership ecosystem that was critical to your success at home. The overwhelming pain you are solving for your existing clients might not even be viewed as a big deal in Japan, and on the other hand, a minor feature barely mentioned in your marketing collateral might be seen as a game-changer.
For example, I ran the market entry for a San Francisco company that built its reputation and market on helping developers deploy their product quickly and innovate more rapidly. And we had the hard data to back up those claims, but the Japanese prospects were not particularly impressed. However, when we started focusing on how the product also decreased downtime and greatly improved how reliable their software was perceived by their users, and we began to sell like crazy.
These challenges are common to all companies, not just startups. But Uber and Airbnb are different. They are special. Examining why they are struggling in Japan illustrates a very important difference about how disrupting takes place in America and in Japan.
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OK, other than insane valuations and phenomenal growth, what’s so special about Uber and Airbnb? Quite a lot really, but today I want to focus on a specific aspect of their business model.
Putting aside all the feel-good fluff of the absurdly named “sharing economy”. Both Uber and Airbnb’s business models revolve around a kind of legal arbitrage.
Don’t get me wrong, I think both Uber and Airbnb are great services and I’ve used both of them. However, the only reason they can offer their services at the prices they do. They only reason they have such a powerful price advantage at all is because they choose to ignore a great many laws and regulations.
Airbnb hosts routinely ignore zoning laws, hotel taxes, safety regulations and insurance requirements. Uber does not require its drivers to have taxi or chauffeur licenses, obtain commercial insurance, pass commercial safely inspections or abide by dozens of other laws and regulations.
Now, many of these laws and regulations might be outdated and unnecessary, or even harmful, to the economy as a whole. That’s not what I’m here to talk about today.
No, they key point is understanding (without any kind of moral judgment) that the bulk of their competitive advantage comes from the fact that their competition must spend a great deal of money to obey laws and regulations that Uber and Airbnb ignore. In fact, when you sign up for Uber and click on their EULA, you explicitly agree and accept that Uber drivers may not be in full compliance with local laws and regulations.
And this brings us to another, exceptionally clever, part of their model. The bulk of the rule breaking is not actually done by the companies themselves, but by the Uber drivers and the Airbnb hosts. These people are not employees, so Uber and Airbnb are not legally responsible for their actions. Legally speaking, Uber and Airbnb are just platforms and hosts and drivers are operating independently and on their own volition.
From a common sense point of view, that’s obviously nonsense, but this legal fiction provides both business models with an effective legal shield. The authorities can’t easily come after the companies because they are not directly in violation of the law, and targeting individual drivers or hosts for enforcement is disastrous politically. Early on, several cities did make a few high-profile arrests of Uber drivers, and the backlash was swift and severe. Uber was seen as an innovator and the government was seen as both anti-progress and anti-citizen by arresting regular middle-class citizens just trying to make ends meet.
“That’s great!” I hear our American listeners cheering “Not playing by the rules is the heart of disruption!” Maybe so, but I’m going to ask you to put that opinion aside for a moment. And to suspend that belief for a little while. Because the unwillingness to question that belief is what is killing Uber in Japan.
Now, our non-American listeners will doubtless assume that a new company whose business requires breaking the law will either be shut down quickly or will have to operate out of the mainstream. But here is where this business model becomes very American. And this is the part that requires far more capital than building and marketing a technology platform.
Both Uber and AIrbmb spend a lot of money working to get the laws changed and legitimize their business. And don’t get me wrong, that’s is perfectly normal corporate behavior. Even for new companies. Tesla is now in a multi-state fight trying to overturn laws that require it sell through local dealers and Amazon fought tooth and nail the prevent sales taxes from being collected on out-of-state purchases. Companies around the world lobby to get unfavorable laws changed, the difference here, however, is that the laws in question are are those that determine the legality of Uber and Airbnb’s very business model.
Grace Hopper once said “It is easier to ask forgiveness than to get permission.” Words that any founder should live by and have been at the heart of Uber & Airbnb’s expansion plans.
Early on the city and local governments that regulate the taxi and hotel industries may not have been happy wth what these companies were doing, but it wasn’t a problem many people were demanding be addressed and besides, bureaucracy moves slowly. While the legislators and regulators were trying to schedule their next meetings, Uber and Airbnb raced ahead.
Today these companies have hired hundreds of lobbyists and have spent tens of millions of dollars pressure legislators into changing the laws, and they’ve also launched massive and effective publicity campaigns. Legislators that opposed Uber were portrayed as corrupt an in collusion with taxi companies, or wanting to protect their donations from special interests in order to take money out of the pockets of hard working home-owners who were just trying to make ends meet.
Airbnb in particular has been very effective at mobilizing and coordinating it’s hosts to put pressure on regulators. They make sure that hundreds of people showed up for hearings about the relevant laws.
The PR strategy has been effective in the US. The media largely framed this as a battle between innovative and visionary companies who want to create jobs vs backward or corrupt politicians who want to enrich their cronies by protecting the status quo. Hell, the widespread adoption of the term ”sharing economy” to describe these companies shows how incredibly effective these efforts have been.
Make no mistake, however, this is a battle. Both Uber and Airbnb are fighting dozens of court cases. Those regulators and bureaucrats may be slow, but they do get to you eventually. At this point however, the companies have seized the moral high ground and are fighting tenaciously for every inch of it. Regulators want to see host addresses? Sue us. Win in court? We’ll appeal. Win on appeal? We’ll send a partial list. You can’t prove it’s a partial list, so sue us again!
The US is certainly not unique in it’s separation of those charged with making the laws and those changed with enforcing them. However, the separation is extreme in America where it is perfectly normal to engage in a scored-earth campaign against those who enforce the law while simultaneously running a charm offensive to woo those who make the law.
And it’s undeniably working. Oh, there have been a few setbacks. Both Uber and Airbnb have lost a few battles with local regulators that have either increased their costs or caused them to temporarily pull out of a few markets. But they are making steady progress and it’s almost inevitable now that they will manage to exempt themselves from the relevant regulations and permanently legitimize their business. More important, both Uber and Airbnb are now both widely used and seen as a accepted part of the economy by most Americans. No local government is going to be able to shut them down.
And I doubt they are too worried about their minor setbacks, because they have an ace up their sleeve in America. You see the regulations they want changed are almost all local and city regulations. Local politicians are the ones with the ties to the taxi industries and benefit from hotel taxes. As Uber and Airbnb’s coffers and power grows they will increasingly be able to target national politicians.
Local regulators in the US never knew what hit them.
I want to state again that I’m not making any value judgments here. There are plenty of people on both side arguing whether this kind of strategy benefits for society in the long run. That question does not interest me today.
My point is that if you want to understand why Uber and Airbnb are failing in Japan you need to put aside the hype of visionary founders chasing their passion and look at what their business model and their go-to-market playbook actually involves.
It’s been phenomenally successful in the US, but it has failed miserably in Japan and most of Asia for three key reasons.
Number one. Most of the world trusts government more than they trust private industry
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My libertarian friends in San Francisco find this baffling. In fact, many have called it brainwashing or propaganda when I explained it to them. But it’s not. In fact, America’s is unique in the developed for their visceral disgust for and distrust of government. In fact, it’s relatively recent in America, going back only a few decades.
Don’t get me wrong. It’s not that people is Asia actually trust the government. Over a beer or two Japanese, Taiwanese, Indians and even Singaporeans will tell you how how politicians are crooked and enriching themselves at the expense of the citizens.
Mistrust of the government is pretty much universal, and that’s a good thing. Everyone complains that companies with ties to politicians are unfairly awarded contracts. Almost everyone agrees, in the abstract, that regulations are too complex and and that taxes are too high. No one really trusts their government. Outside of the US, however, people trust private industry even less.
Americans seems uniquely credulous when companies claim that they are the real champions of the consumer and that regulations exist primarily to benefit politicians and their cronies. Many take Uber’s and Airbnb’s claims of standing up to stifling government regulations at face value. In the rest of the world, however, when Uber drives into town claiming to be the white night that will fight the government regulators in order to provide more jobs and lower cost services. People simply don’t believe them.
Nor should they. It’s a laughable position to take.
The US playbook assumes that consumers will come down on the side of the disruptor, but that doesn’t automatically happen in Japan.
When companies claim that labor protections, environmental laws, tax laws, insurance regulations, and licensing requirements all need to be changed in order for them to do business, those companies are viewed with extreme suspicion – particularly foreign companies. Such claims are not met with cheers, but with they question “What makes you such a special snowflake?” Just declaring that regulations are bad for innovation in general or your business in particular is not enough.
It seems that both Uber and Airbnb both grossly over-estimated the amount of grass roots support and goodwill they would receive when they entered the Japanese market. Since that time, both have regrouped and are taking a more patient and conciliatory approach to winning the hearts and minds of Japan’s consumers.
They are both taking the time to educate consumers and regulators about which regulations should be changed and how such changes would benefit society as a whole. And both companies have even done what would be unthinkable in the US. They have signaled their willingness to change their very business model as needed to conform to the respective laws and regulations.
However, it might already be too late for them because of:
Number two. It’s not OK to break the law in Japan. — or in most of Asia for that matter.
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Alright, more accurately stated, I should say it’s not OK to break the law by yourself in Japan. Anyone who has been to a Japanese movie theater or has seen a baked sweet-potato vendor driving around Tokyo with an open fire in the back of a pickup truck understands that a lot of fire regulations are, shall we say, optional. It’s breaking the law by yourself that’s the problem.
But I hear you say “What are you talking about Tim? It’s not OK to break the law in the America” Except, it really is. Sure America will fine or jail individuals who break the law, but corporate non-compliance is different. In fact, there is a common school of thought in the West that if it is cheaper to violate a regulation than it is to obey it, it is not only OK to break that law, but that the CEO has an actual obligation to his shareholders to break that law. Fines are simply a cost of doing business. No corporate exec is going to get fired for saving his company millions of dollars and paying a few thousand in fines.
Things don’t work that way in Japan. People don’t make a strong distinction between the actions you take as a CEO and the actions you take as an individual. You are either an honest, trustworthy person or your not.
This is not to say that all actors are squeakily clean in Japan. Far from it, there are no shortage of bribery, kick-back and collusion scandals, well-connected companies get away with all kinds of things, and powerful local businesses will sometimes violate regulations for generations. In fact regulations in Japan are so numerous and so unclear, it’s probably impossible to operate a business here without being in violation of something.
You see, Japanese regulations, both laws themselves and the standards by which they are enforced, are maddeningly vague. The way the game is usually played in Japan is to work things out with the relevant regulators before you begin operations, and the regulators can be surprisingly flexible in helping you craft a plan that will comply with how they interpret the law.
Sometimes you are not even aware you are even in violation of the law until the authorities show up to either discuss it with you (in which case there is still hope) or to simply tell you to stop.
Now, once they tell you to stop, however, your only real option is to apologize for causing the inconvenience and then change your behavior. The vagueness of the law gives everyone involved a certain amount of plausible deniability, and the ability to reasonably declare that they are doing everything possible to comply with the law.
If you stop right away, the regulators save face, you can claim that you never intended to do anything wrong, and a lot will be forgiven. Amazingly these seems to work even with egregious violations. In many ways, you get one free pass in Japan.
Using the US playbook here backfires horribly. Taking on the regulators, filing a lawsuit to get an injunction against their ruling, refusing to turn over documents, gearing up a PR campaign to convince the public that the laws are bad and should not be enforced, not only won’t work, but will most likely end the career of any CEO that tried it.
There is genuine shame and stigma attached to knowingly and publicly violating the law or to having your operations suspended. CEOs in charge of such operations are viewed as untrustworthy and there is a genuine loss of social standing and prestige. The fact that he was making money for his company doesn’t really matter.
The Japanese may view the regulators as annoying, but they are not considered the enemy. Loudly declaring your intention to defy them earns you nothing but contempt in Japan. To be fair, Airbnb has tried much more lightly here, and have been trying to build a working relationship with the government authorities, but Uber has tried a toned-down version of the American playbook and has been shut down several times.
Even though both Airbnb and Uber are starting to play the game the right way here. It’s probably too late because ….
Reason Number Three: The playbook is no longer secret.
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Uber and AirBnb got to scale in the US because they flew under the radar. By the time local regulators understood just how disruptive these companies would be (in both the best and worst sense of the word) … well they had become too big for them to easily regulate. Local regulators were not fitting a small, scrappy startup, but a widely popular and massively-funded lobbying machine. And the local governments are losing.
Japanese lawmakers, and those elsewhere in the world, now knows how this plays out and they are acting more quickly. Actually, I think that window has closed in the US as well.
For example, In 2014 a San Francisco company called MonkeyParking launched an app that allowed drivers to auction off the parking spot they were currently occupying to drivers looking for parking. If you don’t see why this is a horrifically bad idea, you’ve probably never had to park in San Francisco. If you have and you still think it’s a good idea,,,, well, talk to me in the comments section and we can debate it there.
In any event, within a few weeks of MonkeyParking’s release, the city of San Francisco had sent them a cease and desist letter treating to fine then $2,500 per transaction, petitioned Apple to remove the app from the app store, and introduced legislation specifically banning that business model. Less than a month later the company was forced out of San Francisco, and several other cities preemptively passed legislation banning their operation.
Even US regulators have their guard up at this point.
Actually, the lobbying has started to have an effect in Japan. It’s taken a few years, but room sharing and ride sharing are increasingly seen as not only legitimate, but beneficial. National and local governments in Japan and thought Asia are drafting new laws and changing regulations to accommodate them.
Unfortunately, it’s too late for Uber, Asian companies are going to dominate the ride sharing market here, but I Airbnb still has a solid chance.
This being Japan, many aspects of these new regulations are not very clear, and we are entering a phase where companies need to work with the regulators to make it all work. Unlike the US, this does not mean lobbying lawmakers and fighting the actual regulators in court. It means, well actually working with the regulators and helping them sort all this out.
Large established companies naturally have an advantage here, and that does slow the pace of change, but recently regulators have been more and more willing to work with startups or groups of startups. However, they are very reluctant to work with companies who are proven they are willing to break the law, and most other companies and consumers will have the same reluctance.
Knowingly violating the law severely damages your brand in Japan.
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To wrap up, I’m not arguing about which system is better. I’m not saying that America should be more like Japan or that Japan should be more like America. The point is that companies coming into Japan — particularly a company planning on Disrupting Japan need to understand these differences and come up with a different strategy for the Japanese market.
And make no mistake. Japan is not a closed market. Western companies can come in and utterly disrupt the way things work. Microsoft, Salesforce, Facebook, AWS, and many other firms came in and transformed their markets.
But all of them were smart enough to leave the US playbook at home. We Americans love the rule-breakers. It’s so engrained in our culture that most Americans will tell you with a strait face that no progress is possible at all with breaking the rules. When progress is made without breaking the rules, we’ll retroactively redefine some convention or common practice as a rule and then credit our visionary entrepreneur with bravely breaking it.
Japan, however, has a much clearer understanding of what a rule is. Defying convention is viewed as risky, sometimes selfish, but — and this gives me hope for the future of Japan — it is increasingly admired. More and more, defying convention to pursue one’s dreams is seen as a positive thing. Startups who defy convention to introduce new ways of doing things are welcomed.
Breaking a law, however, is something very different. It’s not admired, even when the law is a stupid and antiquated one. Companies who break the law or openly violate regulations are not viewed as engines of innovation or the champions of the middle-class workers, but rather as selfish entities run by people who clearly can’t be trusted.
A lot of Japanese regulation is maddeningly vague, and the Japanese bureaucracy has far too much influence both over how the law is written and how it is interpreted. There is no doubt that this leads to a lot of corrupt deals that cost the taxpayers billions of dollars a year and also significantly slows down the pace of innovation here.
But … that’s not your fight. Nor is it mine.
If you really want to disrupt japan, your success with depend only partially on your product, the local competition and the economics of the market as a whole. Once you have all of that working in your favor, your success will depend you crafting a strategy that focuses on pushing your competition out of the market, not on trying to play citizens and the governments against each other.
If you’ve got an insight about Uber Airbnb or the so called sharing economy in general, let’s continue this conversation. Come by disruptingjapan.com/show051 and let’s talk about it.
But most of all, thanks for listening, and thank you for letting people interested in Japanese startups know about the show.
I’m Tim Romero and thanks for listing to Disrupting Japan.
I agree in part with your column. The part about how UBER and Airbnb skirt and ignore both US regulations and taxes imposed by their competitors is why they have a big price advantage.. Eventually this will catch up with them, and already is in some cities. This will be a real challenge for them as it has for Tesla.
In Japan their failure so far is far more complex, and has more to do with the massive over-supply of service industries and retail. This is not limited to two industries and is why many global companies can’t make it work in Japan. The over supply of all service and retail results in pricing which is so low nobody can make any money. Consumers are just as sophisticated there as anywhere.Taxi companies live on govt subsidy either indirectly or directly. At the end of the day, UBER will not compete on price unless they obey the laws and participate in the subsidies. Look no further than how Costco made it work in Japan. Good discussion regardless.
Don,
Thanks for listening. Market demand certainly play a part. But in this case I think it is a secondary one – at least when dealing with the success of a particular company rather than a particular business model. For example, taxis are cheap and plentiful in Japan’s big cities, but not in the suburbs where you still have to call (or use an app) to get a taxi. The cost of living and cost of maintaining a car is cheaper as well, but Uber has utterly failed in the suburbs as well. I haven’t run the numbers, so you might be right that it’s simple market conditions that explains it, but I think if that was the case, they would have seen some traction even if they had to run at a loss for a while.
Also there is a huge shortage of hotel rooms in Japan, and while Airbnb has become relatively popular among overseas tourists, I they are starting to lose out to domestic copy-cats who have been willing to work with the regulators. Again though, I think Airbnb still has a chance because they changed their approach much more quickly than Uber.
Thanks for you thoughtful comments.
Tim
“Taxi companies live on govt subsidy either indirectly or directly.”
How so? And what about other business? Are they not “awarded” the same subsidy you say cabs “live on?”
Tim, as a long time experienced businessperson working with Japan, I would opine that yours is a very good analysis but your main key points almost get lost in the peripheral comments (that seem to be repetitive) about the “need to focus on the real issues” and “how Asia is different” which would humbly suggest you to make more concise and articulate. Cheers!
Hi Ali,
Thanks for listening/reading. What you are seeing is the difference between effective spoken word content and effective written word content. When we speak, especially casually, we use a lot of repetitive phrases and a lot of fluff. It can make it tedious to read a transcript. The flip-side is that even a good information-dense article can be very hard to listen to.
I’ll be publishing an article version of this next week. It has the same information, but is 40% shorter.
Tim
Tim
Tim,
I read the transcript. Interesting analysis. I didn’t realise both were wriggling so much Asia-wide. I use both and live in Asia so I’m surprised but not doubtful. Just a couple of points:
1. The concept and public image of “breaking the law” is certainly an issue in Japan although I don’t think it’s a pan-Asian issue. Certainly the Chinese, Thai, Malaysians are industrious entrepreneurial people who frequently charge in before getting a government blessing or permission. Not pirates, just fast moving business people.
2. Japan is an EXTREMELY conservative society. In every sense of that term. A huge reason Uber and AirBnB are not as huge in Japan may be because it’s just new and different. Full stop. Targeting Japanese trendsetters who travel a lot would be smart marketing moves for both. They could have 30 second videos of Japanese stars riding a luxury Uber Black in Bangkok or London, staying in a massive luxury villa in Phuket for a golf trip. Uses outside of Japan by Japanese trendsetters will eventually catch-on. Just takes time in such a conservative society. I have been told by friends in the hospitality industry that most travel bookings for vacations in Japan are still done through travel agents and not online. Just one example of how innovation and efficiency are not addressing all of the needs of the Japanese consumer. They also want familiarity and comfort. Predictable routine gives them both.
3. The US has always had a distrust and resentment of government. It’s not new. The country was founded on this principal. I recommend a book called “the Summer of 1789” about the constitutional convention. In fact, the whole thing almost fell apart because of this deep seated mistrust and resentment of government.
4. Interesting how properly licensed taxis lead the way in digital booking/ride hailing in Singapore, mainland China, etc. (E.g., grab and didi). However, in Japan the taxi drivers still struggle with GPS. Even though they know where you are going and how to get there or you direct them to your destination using a better, alternative route, every taxi driver will start every trip by entering the address in a GPs and following it precisely, regardless of what the driver knows or what the passenger knows. And we all know that GPS routing isn’t always spot on. It’s an industry that hasn’t gotten comfortable with technology and doesn’t know how to deploy it.
Europeans were early adopters of both AirBnB and Uber. Both services are massive in Europe.
Just cultural issues sometimes make some societies slower adopters or not at all interested. For these services and their progeny, I think Japan is just very conservative,needs to be shown the way and given some more time.
Will,
Thanks for listening/reading. You make some very good points.
1) I agree. In fact, after I recorded I realized that I was generalizing too much. I think it’s very true for Japan, Taiwan, Singapore and Korea; but as you point out not so much for Malaysia, China and some other countries. I’m turning this into an article to be published next week, and I think I will just focus on Japan.
2) I disagree. People said the same thing about Yahoo auctions, Facebook, Salesforce and e-commerce in general. Japanese are conservative, but plenty of new products and technologies that involve big changes become successful quickly here. I don’t think this aspect is a major factor.
3) Have not read that book, but it probably addresses a slightly different point the I was trying to make. Look at how America viewed government from the 30’s to the 50s. In the 60’s there was a movement against authority in general. The Regan era really began the current movement of government bad, but companies good. Gross simplification, but that was the contrast I was going for.
4) In fact MK taxi and a few others have had cab-hailing apps for several years now, and a consortium of eight of the smaller ones just announced they will launch a new app that covers all of them in a Uber-like way. The taxi divers here who rely on their GPS to get to hotel, station or landmark tend to be the new ones. The old-timers seem to pride themselves on knowing where everything is and the best way to get there — even when they are horribly wrong.
I do think both models will be common in Japan eventually, but Uber and (probably) Airbnb won’t be the market leaders.
Tim
Well said and very informative. Thank for sharing your views on this complicated issue.
Hi Mark,
Thanks for listening and thank you for the kind words.
Tim
Hi,I am airbnb host renting three room at Tokyo and I found your article very interesting and analyze situation very well.
We,airbnb host in Japan,are in sensitive situation because mass media and hotel industries has done a lot of damage to home sharing business with their smear campaign.Bad image made by them is,both host and guest are looked as troublemaker to neighbors which cause a lot of noise and mess up with wrong garbage handling.A few case of trouble has been framed up as it looks like it happen everywhere room is rented by airbnb.
One of biggest mistake airbnb did is,they did not spend good money on PR and advertising to improve their public image past a year.There is airbnb’s Japan branch,their job is for supporting host and advertising,but I have to say they failed to do what need to be done as to aibnb’s public image.
They could have hired known celebrities,business person and actors and let them be host/guest and experience their service through TV show,which is very working strategy I believe.
Only public ad I have seen is some PR movie on youtube and collaboration event with TSUTAYA(CCC,major media retail shop chain in Japan).
Now it is battle between real estate industries and hotel industries,and there are very little room for airbnb to intervene from what I see.Position of our government,Abe cabinet,want to support and legalize sharing economy including airbnb with less regulation but politician under hotel industry’s payroll trying to prevent it from happening.As contrary real estate industry are trying to push it back and I think there is good chance new law in favor to us might be legislated by them.
Hi Yohtaro.
Thanks for listening and thanks for you comments.
I agree that Airbnb could, and should, have done a lot more with PR to get Japan to be more accepting of the service.
However, even if they did that, I think the effect would be temporary. For example, many hosts are renting out their apartments in violation of their leases, and Airbnb works very hard to ensure that landlords and owners can’t find out if their apartments are being rented. This kind of behavior can’t be overcome by PR. It causes too much conflict in a country that values harmony. In my building, for example, three people that I know of have been evicted for renting out their apartments. They were given only a month to leave, and they are taking keys away from Airbnb guests when they discover them.
This kind of strong, fast action is very unusual in Japan, so I assume that the owners must be very upset and frustrated with Airbnb.
The hotel industry does have a lot of control in Japan, and they will fight room sharing, but the government is already moving to (slowly) legalize it. I think room sharing will eventually become common here in Japan, but it will look very different than the way Airbnb operate in America.
Tim
Regarding violation of renting contract between tenants and landlord,I think legalizing home sharing business may solve it in time.As you pointed out,there are many got upset to know their property used for airbnb and see it as troublemaker,but more and more landlord and real estate investors see it as promising opportunity to earn higher profit than regular rent.Which means,I expect rent property for airbnb ready might be available soon after legalized.
I know some real estate company preparing business plan so that they can move quickly when bill legalize airbnb passed,and I think it might happen somewhere around next year.
>It causes too much conflict in a country that values harmony.
You really know well about Japan,harmony,”wa”和
I am one wishing Japan accept to be changed when world do,otherwise it brought disadvantages to Japan at scene of economy competition with other asian country.
I think you are right, but time will tell. I think we will see the general business model accepted, but it will be Japanese companies rather than Airbnb who are successful.
Nokisaki may be one of those companies. They focus on B2B, matching vacant urban spaces (ranging from a breezeway or parking space to a window counter) to small businesses that can use that kind of flexibility.
Nokisaki Parking, their second business, matches residential parking spaces to visitors planning a trip to a nearby attraction. This was recognized with an eco-friendly award for reducing vehicle emissions (of customers who would otherwise be circling parking lots). Akiko Nishiura, their founder, was recently profiled in NHK’s Rising.
theyAs they grow, it will be interesting to see how they handle those same challenges. Maybe Airbnb and Uber will pave the way for the sharing economy. Or perhaps Nokisaki will get a pass by virtue of being smaller, domestic, and/or primarily B2B. Though they are still a small company, they’ve been around since 2009.
Sohtaro, as a consumer, I agree with you. I hope Japan adopts and regulates the sharing economy. Staying in someone’s home in a foreign place, whether with a friend or an Airbnb host, provides a perspective a tourist just can’t get through a hotel. However, this episode forced me to look at how the sharing economy depends on externalities which usually get paid by society. As an American –and like Tim accurately points out– I tend to have a blind spot for the sometimes hidden costs of innovation.
Hi Pek,
Thanks for listening. I agree. Those who want to emulate Uber and Airbnb could learn a lot from Nokisaki. Room sharing will eventually become accepted in Japan, but right now Airbnb is causing tremendous friction between renters and owners, and Airbnb refuses to disclose the addresses of hosts. They are building up too much ill-will. Local competitors will win out in the end.
Tim
I could write an essay on my thoughts on sharing apps but I’ll sum it up with: transparency, timeliness and clarity = good… income uncertainty, micro-economic abuse of supply and demand relationships, monopolisation of services = terrible (more terrible than the good bits are good).
Although I’ve often been frustrated by Japanese bureaucracy at times, halting companies like AirBnB and Uber in the tracks is where it shows its worth. To me it demonstrates that society comes first in Japan and Business’ role is to serve society rather than itself.
I personally believe that, just like industries off-loaded secondary costs on to the environment until society caught on, sharing apps are similarly extracting value from society itself and reaping the rewards. There is a huge amount of value in living in a place where the majority of residents are financially secure with stable lives. This doesn’t seem to be recognised by supporters of Uber, Deliveroo, Zero hour contracts however. I’m a little tired of VCs robotically drolling on about “optimisation plays” – simply a case of understanding the cost of everything and the value of nothing.
Great podcast Tim, thanks!
Hi Rob,
Thanks for listening, and thank you for your kind words. I think you’ve hit the nail on the head. Japan looks at the benefit to society, and corporations are just one part of society. Many companies focus on externalizing their costs, and those companies tend to work better in the US than they do in Asia or Europe.
Tim
Tim,
What does the photo have to do with the story? Have Uber cars been set fire to in Japan?
Mike
Hi Mike,
The photo is just an attention-getter, and the Uber logo was photoshopped o. No Uber cars have been burned in Japan that I know of.
Tim
Hello Tim, I found this article well written! Being a Japanese insider and having worked in Europe foe 20+ years, I appreciate your insights.
Hi Yoshiko,
Thanks for reading. I’m glad you found value in the article.
Tim
I read the transcript with interest, but I find it inaccurate in many small details, such as:
“Taxis in Japan are clean, safe, affordable and easy to hail.” – Taxis in Japan are easily in the top 10 most expensive in the world and definitely most expensive in Asia.
While in general I think that there is a few good points, misinformation like this devaluates it.
Thanks for listening.
That’s an interesting point. I don’t have actual data on it, so I was relaying on my own impressions. Most of my fairly short cab rides in Tokyo cost less than US$10 getting across town might cost me $20. It seems cheaper than what I pay visiting San Francisco or New York, but no real data.
Tim
I must say, from my personal perspective, taxis in Tokyo are everything you mentioned they are, apart from affordable. I live here and travel around Asia a lot and I find Tokyo taxis the most expensive in the region. Now, I’ve used Uber in LA and Beijing and found it great. I must admit the only reason I used them is that they are cheaper than local taxis. The reason I never used Uber in Tokyo is that it’s just the same price as local taxis. I’m being offered the same product, that’s less convenient due to low number of Ubers vs taxis, and it’s the same price. Very Japanese in the standard pricing but what’s in it for me to use Uber here? As for Air BNB, I’ve never really used that anywhere as of yet but I have started to check it out when I’m visiting somewhere and comparing it to hotel costs.
Hi Alan,
Thanks for listening.
Another poster also mentioned that Tokyo taxis were not cheap. I googled and found this ranking. Tokyo comes in as #35. Less expensive than most Western cities, but more expensive than most Asian ones.
I’ve never used Uber in Japan, but use it a lot in the US. I favor Lyft when I can because the prices are about the same, and the drivers tell me they make more money from Lyft.
Tim
This is a stupid article! The ONE AND ONLY reason why Uber fails in Japan is very easy, they don’t have a value proposition! Uber is less convenient and no cheaper than regular Tokyo taxes which are ubiquitous (look it up!), everything else this guy writes is unnecessary horse shit.
I like this discussion, Tim. You brought up a lot of interesting points.
While I can’t really disagree with your three points on why AirBnB and UBER are failing , in the case of Uber, is there a more simpler reason for their failures?
Your average joe who own cars in Japan probably don’t need the income to drive other people around when Japanese taxis are so abundant and have similar competitive rates I imagine. I can’t see any UBER driver being able to compete with taxis when you consider insurance, fuel, parking (at least in Tokyo), etc. Hence, the value proposition argument mentioned above does seem valid.
Whatever the real reasons, the taxi industry’s days are numbered if they don’t ally with car manufacturers and start creating self driving taxis within the next decade. Once Uber, Tesla or Google develop their pipeline, it’s game over and I am one person who wants to see this happen in the name of innovation and progress.
I’m still waiting for Tsutaya and Geo to close it’s retail stores. Have they heard of Blockbuster Video? I can’t believe people are still okay with late fees and returning movies.
Hi David,
Thanks for listening.
I agree that Japan is a naturally tough market for Uber. But Uber fares could be much lower than taxis’ if they could ignore the laws as they do in the US. Also wile taxis are easy to hail in the big cities, the suburbs are a different story. Penny of taxi’s around the stations, but hard to find them anywhere else. Also Uber has tried other services like Uber pool which is far cheaper than any taxi here and have been shut down by the government.
While Japan is a naturally tough market for Uber, I think their “fight the regulators” model has been a bigger problem for them here.
Tim
Tim
Yes, Japan- maybe, but everywhere else in Asia, Uber/lyft or some type of locaized ride sharing company and airbnb/homestay is mainstream.
The only reason i can think what its not taking off in japan, is simply because japan does not receive enough western/western-like tourist. Most that do visit japan for leisure are on tours from either china or South Korea.
Hi Mudasir,
Thanks for listening. Foreign visitors are certainly behind the popularity of Airbnb here, but if a service like this relies on foreign visitors, then they are not really succeeding in the market. The Japanese domestic travel market is huge, and they are not making a dent.
Tim
Tim,
This is an excellent article. You make valid points points clearly and cogently. As a long-term resident of Japan (over 30 years), I always read analyses of the Japanese situation with trepidation. I am sure you are aware of foreigners who have an epiphany about one aspect of Japan and try to explain everything with their uni-faceted awareness.
I would, however, like to add one more point. In addition to their respect for the law (for the social order, actually). the Japanese tend not to trust strangers. When I first arrived, it was nearly impossible to sell used goods. Nobody wanted somebody else’s trash, no matter how inexpensive and no matter how much better it might be than what they had. One does not walk into most social situations without an introduction. Many times such introductions are necessary even for apartment rentals and jobs. Japanese universities even take a significant number of students based on recommendations from high schools, by-passing the infamous entrance exams.
In Japan, trust matters, and usually requires an introduction. And if there is a problem, you don’t go to the police. You go to the person who introduced you.
All in all an excellent article. Thank you for the perspective.
Ralph
Hi Ralph,
Thanks for listening, and thanks for your kind words.
You make a good point about Japanese mistrust of outsiders (not just foreigners) being a factor. I think it made the effects of Uber and Airbnb’s mistakes much worse. Plenty of foreign companies (and people for that matter) end up doing very well in Japan, but as you mentioned, it requires taking the time to build relationships and build trust.
I’m glad you liked the show.
Tim
Tim
Wow! This really blew up, didn’t it? I’m glad to see that – in my opinion, your work on this concept (it’s way more than a blog to me) deserves X times the usual attention, where X is at least a two-digit number :))) Congratulations!
I think the points you raised up are a hard truth given the specifics of the region. I also have a lot of libertarian friends, but truth is, while this outlook has gained followers in the West (especially the US), Japan for example couldn’t be further from that. We’re talking about the country who has been electing the same party (with only one exception) for decades!
Compared with you, I’m a freshly arrived person here, but I have some 2 yen coins to humbly spare on the topic:
1) AirBnB also largely has to do with the specifics of the Japanese home sizes/layout. I know for sure that my transitioning from the layout and sizes of my traditional European living spaces to what you can have here on a regular salary (or scholarship in my case) was a bit shocking.
This mostly affects the AirBnB model where a host will roam the confines of their own house and still manage to accommodate 1/2 people. My European friends do that a lot (because they have the space).
However, from the viewpoint of many Japanese, if you inhabit an average smallish home here, you don’t really have the space for you + another visitor. The mistrust you discussed above also plays some role, as AirBnB (like Couchsurfing) tends to invite a foreign element into your own, very sacred personal space.
2) I feel Japan has a very specific advertisement model that maybe can be a huge miss for many services/companies transitioning here. You already mentioned that in your text — and a person who is an AirBnB host added onto that. I can’t agree more!
A few days ago I joked with a friend who’s been living here that market disruption here might need to think about joining forces with the traditional idol culture. Looking at some traditional advertisements here, I sometimes have the feeling that it’s not the product that’s being sold that matters. It’s the face attached to a popular man/woman. They only need to flash their small, get recognized by the masses, and they will rush out to the store.
This was, by the way, another huge shock to me when I arrived here. In my country, advertisements focus on benefits and list them properly. Here it seems the visual/aesthetic element draws way more attention. (Could be wrong).
But it really all boils down to what you mentioned: inherent mistrust and desire to conform to governmental standards/law/order/rules. And the fact that both these companies are well-known enough for the Japanese government to be able to present them as huge trespassers to the citizen-customers here.
I’d say between those two, AirBnB has a bit of a shinier future here. However, it will still pale in comparison with what it’s doing in the West. And it will always remain limited to a very small percentage of the general population.
Cheers for another great episode yet again, this time a personal monologue of yours — but darn if it didn’t stir up some awesome discussions!
1 yen coins*, excuse me 🙂
Alexander,
Thank you for your very well reasoned comment. I’ll reply in turn
1) You make a good point about the market here, and that might be why so many of the listings seems to be apartments. And in the mainstream news, it is portrayed with a kind of “the Gaijin are Coming!!!” feel. Part of the problem is that a huge percentage of the listings are illegal and/or made by renters without the owners permission. I think that issue is going to blow up this year.
2) You are dead on when selling to the consumer segment. Japanese are hopeless trend followers. Hiring a well-known tarento to travel around Japan staying in Airbnb’s would have helped them a lot in the early days.
I predict a strong backlash agist Airbnb this year. They will be in the news a lot.
Thanks for your kind words. And thanks for listening.
Tim
Tim,
Very nice analysis. I agree with you, and it is unfortunate that what is basically unethical behavior is acceptable/rewarded in the US.
PS. Long time no see – glad that you are still doing well.
Hi Eric,
Thanks for listening, and yes it’s been waaay to long!
Tim