TOKYO -- The travel industry isn't what it used to be. Budget airlines and websites like Expedia and Booking.com are disrupting old-fashioned agencies. Airbnb and other home-sharing services are giving hotels a run for their money. But these companies are only beginning to answer globe-trotters' most important question: what to do once they've reached their destination.
Taiwanese startup KKday is looking to beat the big players at this new game. Its app connects tourists with thousands of locally-run activities, whether it's skiing lessons in South Korea or swimming with whale sharks in the Philippines.
Free spirit types who hate to plan weeks or months in advance can often book the excursions through KKday's app the night before.
Tsui Cheyin, a 32-year-old from Taiwan, chose one of KKday's tours for his recent solo trip to Japan, which included sightseeing in Tokyo and nearby Nikko, famous for its lavishly decorated shrine. "I always check KKday after arriving at my destination to discover local tips, but this can sometimes be at the last minute," Tsui said.
KKday founder and CEO Chen Ming, 45, created the company in late 2014 to cater to busy millennials like Tsui. "The internet boom brought opportunities for individual travelers to design their own itineraries," Chen told the Nikkei Asian Review. Yet, he argued, "there was no platform for things to do at your destination, although people were seeking authentic experiences."
"We want to solve any pain points for travelers," added Chen, now an 18-year veteran of the travel industry.
Chen has focused on Asia, where the rise of smartphones has fueled a surge in independent travel. South Korea and Hong Kong have become priority markets for the company, which has 11 overseas offices, including Japan, Vietnam, Singapore and China.
KKday, like many young startups, is loss-making - although it says it has begun to turn a profit in Taiwan and Hong Kong. It refuses to disclose revenues. Nor will it reveal its user count. But this is estimated by industry experts at over 1.5 million. The company, which has more than 400 employees, links those visitors with nearly 20,000 experiences in over 80 countries and 500 cities.
As travelers have gravitated to the app, so too have some high-profile investors.
KKday is still majority-owned by its management, but it raised $10.5 million from Japanese travel agency H.I.S. and others in February 2018. In November, it bagged an undisclosed amount from Line Ventures, the investment arm of Japanese messaging app Line, and China's Alibaba Entrepreneurs Fund. The startup also opened an online store within Alibaba Group Holding's travel service Fliggy, in hopes of gaining a foothold in mainland China.
The backers are counting on KKday to capitalize on a growing segment of the travel market.
Air tickets and accommodation still make up the bulk of industry revenues, at nearly 75%, according to travel research company Phocuswright. The tours and activities market accounts for just 10%. Even so, the value of the activities segment is expected to reach $183 billion by 2020, up nearly 50% from 2015.
KKday has competition in the form of Hong Kong-based Klook, which was also founded in 2014 and now leads the activity-booking market. Chen aims to make KKday "Asia's No. 1 travel company" and believes he can do it by compiling valuable data from local, small-scale tour operators and activity providers who are just beginning to go digital.
By nature, the activities market is quite different from the flight and hotel reservations business. Excursions are generally operated by a vast number of small businesses, more than half of which earn less than $250,000 in annual revenue. Moreover, 40% of these smaller operators only accept offline bookings, and 80% of global tours and activities are booked offline. This makes it impossible to accommodate travelers who want to book at the last minute, as the reservations can take days to be confirmed.
KKday, on the other hand, fully embraces a "data-driven approach," according to Chen. The company allows tour and activity operators to use its proprietary supply chain management system to handle instant bookings. The startup collects information through the system for each activity, including customer volume, retention rate and the ratio of users who recommend a certain activity.
KKday then chooses popular activities to sell as its "own" tours: The startup pays to charter buses and provides other necessities for a number of months, ensuring fixed revenues for the tour operators. It also discusses with operators ways to tweak and improve the activities.
Some tours can be booked until midnight of the night before, since they are guaranteed to be offered regardless of the number of participants. "This is rare," said one of KKday's rivals, as tour operators usually stop taking reservations several days in advance, giving them time to decide whether it is worth running the activity at all.
The company says nearly 20% of products listed on its platform are KKday-purchased and organized activities in popular destinations such as Taipei, Seoul and Tokyo. This relatively small collection of activities, however, draws 40% of the app's total users in such cities. The company intends to increase the proportion of these attractive products to 40%.
"Suppliers can rely on our ability to attract Asia-wide customers and receive stable revenues, instead of selling their products to various travel agencies and risk not filling slots," Chen said. "Collaboration with suppliers based on data and figures is the key for our success."
PC-Taku, a tour operator targeting Chinese visitors to Japan, has been using KKday's system for three years. "Only KKday lets us receive the inquiries from customers who have not booked yet," said director Cui Wenjing, who also uses the systems of other online travel agents.
Chen was an electronic engineering student at Taiwan's National Chiao Tung University who, like many, dreamed of making a fortune in the dot-com bubble. He co-founded ezTravel, an online booking platform for packaged tours, flights and hotels, in 2000. "I already loved traveling back then," he said. "But I thought it would be much easier if we could change traditional ways of booking, which relied on phones and faxes."
The business kicked off smoothly, Chen recalled. But after the IT bubble burst, he suddenly had trouble raising money and retaining employees. In 2003, he helped set up an additional venture called Star Travel, only to see the deadly outbreak of severe acute respiratory syndrome, better known as SARS, send a chill through the Asian industry.
"I always believed that a crisis can bring chances," Chen said. He took the opportunity to build connections with leading airlines and hotels that were once out of reach for a startup but had become desperate to find business partners. Chen also sought to introduce online payments using credit cards, at the time when offline transactions were still the norm. This preparation allowed him to quickly scale up his business as soon as Taiwan was removed from the World Health Organization's list of "infected areas."
A majority stake in ezTravel was later sold to Chinese online travel company Ctrip for an undisclosed price, while Star Travel and Ezfly -- an online flight booking service in Taiwan where Chen become general manager in 2009 -- both went public.
"These multiyear relationships with industry players are certainly helping me to spot business opportunities more accurately than new startups," Chen said. KKday quickly expanded its suppliers in Japan, for example, through the network of its Japanese investor H.I.S.
The biggest threat appears to be Klook. The company, which like KKday is exclusively focused on activities, raised a total of $300 million by last August. That propelled its valuation to unicorn status -- above $1 billion. It is mainly backed by Chinese investors.
Klook employs nearly 600, offers more than 50,000 activities, and plans to add more excursions in the U.S. and Europe. Another rival on KKday's radar is German startup GetYourGuide, which is also on its way to joining the unicorn club.
"Although Klook is much bigger in terms of transaction value, its ticket-based business model is very different from KKday," argued Masato Endo, investment director at Line Ventures, KKday's strategic partner. Klook seeks to acquire market share by selling discount tickets for popular theme parks, sometimes "incurring a deficit," Endo added.
Chen also emphasized the difference between KKday and its primary rival. Although his company does sell tickets for Disney Resorts or Universal Studios, the Taiwanese startup "prioritizes selling original tours." The founder insisted KKday doesn't "burn money," implying his company looks closely at the profitability of each product.
Yet, multiple industry players say KKday has also displayed its share of steeply discounted tickets, intentionally or not. The online travel market is still something of a Wild West: Although the operators of attractions like Disneyland insist tickets must be sold at face value, the prices are often trimmed as they pass through several middlemen before reaching consumers.
"Many suppliers have now started to pay attention to how their products are circulated, but regulations are still far from putting them under control," an industry insider said, asking not to be named.
"The travel activities industry is an emerging market," the insider stressed, explaining that companies are still weighing how much it should cost to acquire each customer. He voiced skepticism about KKday's strategy. "Now should be the time to expand its customer base as much as possible instead of being selective about content."
Meanwhile, more established players are also waking up to the activities opportunity. Expedia is reportedly aiming to sell $2 billion worth of activities a year, a five-fold increase from 2017. Booking.com and TripAdvisor, the parent company of U.S.-based Viator, both acquired tour and activity startups in 2018, while Airbnb is expanding its experience offerings worldwide.
KKday is pushing to expand in Japan, Southeast Asia and China. "The Japanese market is attracting Asian tourists, but bringing Japanese customers abroad is our next step," Chen said.
As for China, Chen conceded there is a long way to go, but he noted a change in customer priorities. After a boat accident in Thailand's Phuket last August, "Chinese tourists have become more conscious of safety and quality, not only price," he said. KKday's insurance and safety support may give it an edge, he suggested.
Reeling in more travelers is only half the battle, in Chen's view. He knows KKday needs to persuade tour operators who are still wary of going digital -- say, by helping them adjust prices as an activity date approaches. "Our business only works when we listen to the needs of suppliers," he said.
Some operators may be uncomfortable sharing customer data with KKday, in light of the backlash against Google and other tech giants that gobble up information from their partners. This does not seem to bother Cui from PC-Taku, however. Laughing and brushing the question aside, Cui said, "We have complete trust in KKday, so we have nothing to worry about."