What Airbnb’s Japan Problem Can Teach Your Startup

This is a rather personal episode. We have no guests this time.

It’s just you and me.

From the outside, it looks like Airbnb is crushing it in Japan. Listings and rentals are both increasing at an unbelievable rate, and Japan is loosening her room-sharing (or minpaku) laws. The future looks bright for Airbnb here, but behind the scenes a resistance is secretly growing. You see, Airbnb has a real problem in Japan. At first glance many of the issues look familiar. They seem to be the same kinds of challenges Airbnb is facing all over the world, but things are different in Japan, and today we're going to take a look at how important these differences can be. It's worth noting that so far, Airbnb has not taken steps to address their Japan problem, or even publicly acknowledged that it exists. But it's a situation they will be forced to deal with over the next 18 months, and it's something that we can learn a lot from.

[shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript from Japan Disrupting Japan Episode 63 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 beer, 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. Airbnb has a serious problem in Japan. They may or may not have recognized it yet, but there has been something massing behind the scenes, getting stronger and stronger. And it’s something that will become very visible over the next 18 months. Now, to the casual observer, and lets face it, most journalists and bloggers are casual observers. To the causal observer, it seems ridiculous to even claim that Airbnb has a problem in Japan. In fact, if you rely on what’s written in the English-language press, any rational person would conclude that Airbnb is crushing it in Japan. Let's look at the facts. Japan is Airbnb’s second largest and their fastest growing market. In fact, listings are up over 500% from last year. Furthermore, Airbnb are way out in front of their local competition. They have far more listings, and using publicly available data, it looks like Airbnb’s Japan site is getting more than 15x more traffic as the most popular local competitor. In fact, I’ve had several different investors speculate that the Japanese companies providing cleaning services to Airbnb hosts are probably making more money than the Japanese companies competing with Airbnb. And yet, Airbnb is dancing through a minefield in Japan. Whether they are doing it blindfolded or with their eyes wide open, well that’s anyone’s guess. But if you read Japanese and you care about such things you can see that there are powerful forces lining up against Airbnb in Japan, and next year we are going to see the start of a real public backlash. Now, I know what you are saying. This is nothing unique to Japan. Airbnb is fighting this backlash all over the world. I mean New York and Berlin just passed strong anti-Airbnb legislation, and Airbnb’s lawyers are suing and pushing back hard. San Francisco recently added new restrictions to Airbnb rentals and Airbnb is suing the city, of course. [pro_ad_display_adzone id="1404" info_text="Sponsored by" font_color="grey" ] Airbnb is used to handing that kind of backlash and legal challenges. They are good at it. It’s in their DNA. No, what is happening in Japan is different. It’s quieter. More secret, and in some ways far more dangerous than the challenges they’ve faced in other markets. But i’m getting a bit ahead of my story. We will get to all of that. First let me set the stage and explain what is actually playing out on the ground here in Japan. So lets walk though what is happening around Airbnb in Japan and the drama that will be unfolding — whether they want it to or not — over the next 18 months. We’ll talk about what Airbnb has going for them in Japan, then we’ll take a look at the strange coalition of powers that are quietly aligning against them, and then finally, we’ll take a look at what Airbnb can do to counteract it and examine the three most likely ways this story will play out over the next few years. OK. To be sure, Airbnb actually has a lot of things going right for them here in Japan. Most important of all, Japan needs Airbnb — or something very much like them — to handle the inbound tourist traffic that will be coming to Japan over the next few years. Last year, a record 19.7 million foreign visitors came to Japan. That’s up 47 percent from the previous year, and quite frankly Tokyo’s existing hotel infrastructure simply can’t handle the load. Both occupancy rates and the cost of a stay are both extremely high right now. [pro_ad_display_adzone id="1653" info_text="Sponsored by" font_color="grey” ] But that’s not all, the Japan National Tourism Organization (or JNTO) has announced their goal is to double that number to 40 million by the 2020 Olympics and then to triple that number to 60 million by 2030. The JNTO even went as far as announcing that revising the minpaku laws, those that regulate renting private accommodations, is a major part of their initiates. Of course the JNTO is not actually in charge of minpaku regulations. That would be the Ministry of Health, Labour, and Welfare, which overseas the whole hospitality sector. So don’t expect the changes to come quickly or smoothly, but in fact, we have already seen some loosing of the minpaku laws in parts of Tokyo, and overall, this is a very positive sign for Airbnb and from room-sharing in Japan in general. Another thing Airbnb has going for it in Japan, and this is possibly even more important in the long run, is that the team in Japan is handling the market here with a much softer touch than they used in other markets or that was used by fellow sharing-economy unicorn Uber, here in Japan. If you missed our podcast a few months ago on the Real Reason Uber is Failing in Japan, you’ll want to go back and listen to it. It’s a pretty good one, and it will give you a lot of background info for what we are talking about right now. So Airbnb has has not filed lawsuits in Japan and they have been saying that they really do want to obey all applicable laws and work with, rather than fight, the Japanese regulators. The Airbnb team in Japan has also reached out and set up projects with local governments. Earlier this year, for example, they ran a joint tourism promotion with the city of Kamaishi in Iwate Prefecture. Airbnb & seems to be far more aware of the importance of winning the hearts and minds than many foreign companies coming into the market. Now, that’s all good news for Airbnb in Japan, and much of that information —you can find in the English language press. But now, let’s take a hard look at some of the pressures building up against Airbnb in Japan, and why we are going to start to see a backlash against them in the next 12 months. Listeners who follow Airbnb closely might recognize some of these as problems Airbnb has faced, and largely beaten, elsewhere in the world, but there is a dangerous undercurrent that is unique to Japan — and we will get to that. First, estimates are that about 90% of the Airbnb listings in Japan today are illegal. By illegal, I don’t mean in violation of the tenant’s contract not to sublease the apartment. I mean that about 90% of these listing are in violation of Japanese statute. For comparison, New York authorities claim that about 50% of the Airbnb listings there are illegal. Airbnb’s response to this in Japan, is much the same as it is everywhere else in the world. Airbnb insists that they are just a technology platform, and that they require all hosts to abide by all local laws. They insist that they are Shocked! Shocked! to find illegal rentals going on in here. They then vow to do everything that the local law absolutely forces them to in order to help resolve the matter. [Checkle] Now, it’s obvious that no one believes that. It is defensible in court, and such fictions do well in highly litigious societies like the US, where the question of whether Airbnb is legal is the most important one to answer. In Japan, however, the law is a much fuzzier thing, and intent often counts just as much as the actual actions. and that can be good or bad depending own who you are. Over the past year in Japan, neighborhood associations and landlords have been increasingly vocal in their opposition to Airbnb. Well, no kidding, I hear you say. Building managers and neighbors all over the world vocally oppose Airbnb. Local regulators around the globe are passing regulations designed to change Airbnb’s behavior. So what? Airbnb eats these people for lunch. This is nothing for Airbnb to worry about. That’s absolutely true. And it’s certainly possible that Airbnb will be able to stonewall until Japan comes around to their way of thinking. Possible, but not likely. On the surface, it seems like there is nothing unusual going on in Japan, but digging below reveals three trends that indicate that a large, visible, Airbnb backlash is coming. First, building management companies are being very aggressive about evicting tenants for being Airbnb hosts. In my apartment building alone I know of five such evictions. These people were all evicted within six weeks of hosting, and lost their security deposits. I’ve heard that other managers have been demanding to see rental contracts and even confiscating keys from from Airbnb renters, telling them they are trespassing, threatening to call the police, and then telling them they need to find somewhere else to stay. I don’t have any real stats on this. Its all anecdotal evidence. If you are from New York or Paris,