An eighteen-year-old ambitious boy, a unique idea, and a lot of dedication, this is how one of the successful Indian start-ups began its journey. Ritesh Agarwal combined technology with hospitality when he first launched Oravel Stays, an online portal for guest houses and vacation rentals. Mr. Agarwal was awarded the Thiel fellowship for the travel site Oravel.com. As a part of this fellowship, he interacted with stalwarts such as Peter Thiel, Elon Musk, and Mark Zuckerberg. Think big, and don’t be afraid to innovate were his crucial learnings, which he absorbed as a young entrepreneur. In 2013, while still in California, he helped manage a property for a hotelier he had worked with previously in India. The hotel was reflagged as OYO- On Your Own. Since then, the journey has moved ahead. OYO now has ~1.2 million rooms across 800+ cities in 15+ countries.
Business Model
OYO is one of the fastest-growing hospitality chains of leased and franchised hotels, homes, and living spaces globally. It started as a hotel aggregator business model but later on changed it to a franchise model. It partners with the hotels to book a part of hotel inventory and operate them as a franchise and sell the rooms at competitive prices. It does not own any property.
OYO focuses more on user experience and customer reviews and makes property part of its standardized budget hotel chain. There are specific requirements hotels need to fulfill to become part of the OYO franchise.
It generates revenues for asset owners and helps them with infrastructure upgrades, payment protocols, customer relationship management, regulatory compliance assistance, etc. It is the first hospitality company in the world to invest in technology to offer an excellent customer experience. OYO uses technology to its advantage and onboards the assets in 3-14 days, a stark contrast from the industry average of 90 days.
Customer Segments
OYO customer segments include adventure travelers, leisure travelers, family travelers, and business travelers. It offers different value propositions for different customer segments.
- OYO Townhouse is targeted at midscale customers and is promoted as a neighborhood hotel.
- OYO Homes are private homes for people who are on holiday.
- OYO Vacation Homes offer vacation home rental services for people on vacations, and it consists of brands such as Belvilla and DanCenter.
- OYO Silver Keys provides apartments for corporate clients and executive travelers who are on business trips.
- OYO Capital O offers hotel booking services and its other brand
- Collection O offers to book and renting services to business travelers.
- OYO Life targets young professionals who require fully managed homes at affordable prices.
- YO! Help offers support during check-ins, check-outs, and payments.
- OYO B Direct are business stays that provide GST ready invoices to customers.
- OYO Studio Stays are a platform for people who want to book rooms for internships, jobs, or corporate stays.
In this way, OYO targets different customer segments as per their needs and purposes.
Revenue Model
OYO has different revenue streams from which it generates money. It charges around 22% commission from hotel owners every month. OYO also gets a commission (10%-20%) on room reservation fee whenever a customer books the hotel with them. It earns money through advertising when different companies place their advertisements on its website and app. It charges some amount from its sponsors and key partners by promoting their brand name by advertising on its app. OYO provides business consulting and data analysis services. It can provide these services as it has a database of locations, hotels, users, and event organizations.
OYO Wizard is a subscription-based premium membership plan where customers can avail of exclusive discounts, deals, and cashback offers
Market Share
OYO holds nearly 60%-70% market share in India. Its revenue grew by 4.5 times in FY2019 to USD 951 million. OYO’s competitors include Yatra, Treebo, Make My Trip, Fabhotels, and Trivago. It also has investors such as Airbnb, Softbank group, Sequoia India, Hero enterprise, etc. OYO attained unicorn status in September 2018 with a $1 billion fundraising.
Inorganic growth
OYO made strategic acquisitions and partnerships over the years. It acquired Qilk Pass and utilized its team to set up data science at OYO. In 2018 it acquired Weedingz.in, making entry into the wedding industry. In 2019 Airbnb and OYO announced a strategic partnership with Airbnb investing in OYO. OYO acquired Innov8 to foray into the co-working business, following a multi-brand model with three co-working brands- Innov8, Powerstation, and Workflo for Upper-midscale, midscale, and economy co-working clients.
To boost its tech infrastructure for managing hotels and assets, it acquired IOT based internet company AblePlus. In May 2019, OYO acquired the Leisure group to mark its entry into the European market. These acquisitions are part of an inorganic growth plan, in line with its ambition to create beautiful and quality living spaces. As per OYO’s claims, it is the second-largest hotel group in China, the country which it considers it’s a second home. The company focuses on China’s Tier 2 towns and has a 97% franchisee renewal rate.
COVID-19 impacts
Lockdowns have forced people to stay indoors, which badly hurt the hospitality sector’s business as a whole. As per a Mckinsey report, the recovery to the pre-COVID level could take until 2023 in the U.S. COVID led to the closure of business operations for OYO. It also halted its business plans for the short to medium term. Many employees were furloughed during the crisis. OYO plans to reduce every controllable cost possible. In April 2020, the revenues for the firm fell by 50%-60%. It is facing an unprecedented crisis which threatens to wipe out a large part of its business.
OYO is doing everything it can to gain customer confidence. Recently, it launched Sanitise before your eyes campaign, showing how OYO staff will sanitize all high-risk surfaces before the customer. The company has roped in Mr. Sonu Sood for this ad campaign. It is using technology for cost reduction purposes. The number of calls answered in call centers by bots has risen to 85% from 15%. It is also using data science to find new business areas for the firm.
The way ahead
OYO’s top priorities for 2020 are sustainable growth, operational and customer excellence, and culture and governance. Still, the pandemic has severely bruised the OYO business, and it is forced to freeze operations. Despite this crisis, Agarwal’s video message to the employees of OYO that it would come out resilient and robust is indeed motivating. The company has many expansion plans lined up across the globe during the pre-COVID era. The firm will be looking out for investors, especially Softbank, to bail it out of this crisis. OYO’s business model is promising, and if it could weather this storm, it would again emerge as one of the best firms in the hospitality sector.
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