OYO rooms: You stay in hotel “On Your Own” terms
OYO rooms: pioneering comfort stay at an affordable price
Online travel market in India is estimated to be around $20 billion by 2020. [1] With plethora of Online Travel Agencies (OTA) starting up in India, the competition is becoming fiercer by the day. Amidst such a competitive environment, OYO rooms redefined the hospitality sector by providing comfortable stay at a price much cheaper than conventional players. However, with the arrival of big players like airbnb in India, OYO have its task cut out. [2] Would OYO rooms continue innovating to stay relevant that they had a great start?
Business Model –
Unlike other players in the online travel industry, OYO rooms, started in 2013, works as a business aggregator. It takes part of their partner hotel rooms for lease and controls them entirely to provide standardized customer experience to its users. The rooms are branded under the common banner of OYO rooms. They create value by providing budget accommodation for a superior service for the customer. Also, they operate in more than 200 Indian cities thereby extending its services in most parts of the country. Customers can book for the rooms using “OYO rooms” application and through its website.
OYO Rooms capture value by charging the customers different set of prices called ‘take up rate.’ Their expenses include paying leasing amount for the partner hotels, and the amount they spend on the leased rooms to standardize the service. OYO rooms pioneered in bringing even zero to 2 star hotels and guest houses to customers reach through their site and apps as they standardize their service.
Scaling up –
OYO room has managed to successfully raise funds to the tune of $400 million in the latest rounds thereby increasing its valuation to more than $1 billion. [3] And they are expanding their business model to include townhouse properties. Also, they launched their new service called OYO bazaar which provided hotel supplies for daily running of the hotel. Recognizing the competition from airbnb which is set to launch in India soon, they diversified their services and acquired other smaller players in the market. [4][5] Online hotel industry is prone to multi-homing and high networking effect. Ritesh Agarwal, founder of OYO rooms says, “There have been 30 copycat models of OYO rooms so far.” [6] OYO Rooms consolidated the market share by providing cheaper prices, and by expanding their services to multiple cities thereby roping in more hotels.
Future –
Though Airbnb, a much more bigger player, is getting ready to launch in India, OYO is looking outwards with its first overseas launch in Malasyia. Further, they have planned to introduce 200-250 townhouse properties by the end of the year. Presently, OYO Room consumes heavy loss, and with limited funds, it has to face the dilemma of increasing the prices of its hotels to stay in the market in the coming years. With more competition, the success of OYO rooms in the future depends upon how flexible it becomes in raising money for its expansion.
References –
[1] http://economictimes.indiatimes.com/small-biz/money/oyo-rooms-in-talks-to-raise-funds-from-softbank-may-enter-unicorn-club/articleshow/57363348.cms
[2] https://techcrunch.com/2016/04/18/airbnb-focuses-on-indias-growing-travel-market/
[6] http://techcircle.vccircle.com/2015/08/21/our-model-has-created-30-copycats-oyos-ritesh-agarwal/
Thanks for a great article. Interesting business model with aggregating rooms from hotels branding them as OYO. There are tour agencies that I’m familiar with following similar models in Europe, but I’d never consider them as competitors to AirBnb as they provide vacation packages with exclusive benefits and act more like a reseller. It sounds to me that investors have a right to worry as current model seems to depend on offering cheaper prices and might ask OYO to produce a profitable and sustainable model. I think, OYO must have aggregated enough data to identify the market segments that are most profitable and I would probably focus on those segments to create a differentiation rather than expanding. What do you think?
I agree. They are yet to solve problems for premium customers. They are venturing into that zone. Also, for now, unmarried couples cannot book OYO rooms because of cultural sensitivity. They are piloting few hotels to relax that regulations. It would be interesting to see how their complimentary business on Townships pan out. Since the profit margins are higher in such ventures, they are betting heavily to make it a success.