Tuesday, October 20, 2015

Why The Next Big Travel Tech Startup Will Come From Asia

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PHOTO: Singapore's favorable climate for tech investment even drew the attention of Facebook co-founder Eduardo Saverin. (Photo courtesy of Thinkstock)

You’d expect that new travel tech startups would want to be based in the U.S. in general and in the San Jose/Silicon Valley area in particular. That might sometimes be the case, but interest in the travel and travel tech industries is growing at a rapid pace on the other side of the Pacific.

Between 2005 and 2009, North American companies captured more than 60 percent of investment money available to startups in the travel industry. Asia managed to get about 20 percent of the investment capital during that same period.

The most recent count, in 2014, turned this dynamic upside down. APAC startups captured 55 percent of all available travel industry funding and U.S. firm
s only managed to get 27 percent. 

What is behind this change?
The Far East is still a bit of a Wild West as far as both its travel and tech startup scenes. The market is still developing, and there is still space for new companies to make their mark. The travel and tech industries are more established in the U.S., so it would take a really special startup to successfully compete with the established players. 
Investors see a better risk-reward ratio in Asia, and perhaps they see a chance to back companies that can eventually become the major established names in the regional travel industry.

Interestingly, some of the firms that are gaining investors in Asia are doing things that never really took off in the American market: peer-to-peer marketplaces and trip planning services/apps.

A better climate for investing
Others may tell you that the environment is simply better for startups and investors in places like Singapore and Hong Kong. Tax laws are more favorable and incentives for investing are more generous in these cities. A couple of years ago, Facebook co-founder Eduardo Saverin famously renounced his U.S. citizenship so that he could move to Singapore and take advantage of the favorable startup investment climate.

The online travel booking industry is growing at an almost unbelievable rate in the Asia Pacific region. In 2013, region-wide bookings topped $30 billion. By 2016, that number is expected to almost double to $59 billion. In 2017, the total value of online booking in East Asia is projected to be $71.7 billion.

Online travel agencies are scrambling to be in position so that they can get their share of this surge. These projections are probably the biggest reason that Asian startups are able to find funding so easily. They are not necessarily competing in an online travel marketplace, they are creating the marketplace as the go. There is still time to be among the first wave of mobile booking tools and to provide database and security services to online travel agencies. 

Singapore seems to be on track to be the world’s next tech hub, while Hong Kong remains a gateway to the lucrative Chinese travel market. Other startup centers will certainly emerge in the coming years (Africa? Eastern Europe?). But for now, all eyes, and all investment dollars, seem to be focused on the Asia Pacific region.

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