How it all started

In 2012, then 18-year-old Ritesh Agarwal, hailing from Odisha's Rayagada district, launched Oravel Stays,
a website designed to enable listing and booking of budget accommodation. After three months of
research and staying in over 100 bed and breakfast homes, guest houses, and small hotels, he pivoted
Oravel to OYO in 2013.
OYO partners with hotels to give similar guest experience across cities.[10] Shortly after launching Oravel Stays,
Ritesh Agarwal received a grant of $100,000 as part of the Thiel Fellowship from Peter Thiel.
In March 2015, OYO raised Series A round of funding $24 million from Lightspeed Venture Partners, Sequoia
Capital, Greenoaks Capital and DSG Consumer Partners. In August 2015, OYO raised another $100 million
from Softbank Group, a existing investor.]A year later, in August 2016, OYO raised $90 million from Softbank
Group, Innoven Capital and existing investors. In September 2017, OYO announced it had closed a $250
million series D round of funding led by Softbank Group, new investor Hero Enterprises led by Sunil Kant
Munjal, Sequoia Capital, Greenoaks Capital and Lightspeed Venture Partners. China Lodging made a
strategic investment of $10 million in OYO in September 2017.
In late 2017, OYO launched OYO Home, an Airbnb-like marketplace for short-term managed rentals. OYO
Home has presence in more than 10 leisure destinations of India including Goa, Shimla, Pondicherry, Udaipur,
Kerala etc. In April 2018, OYO launched its first international OYO Home in Dubai.
In September 2018, OYO raised $1 billion. The majority of the funding — $800 million, to be exact — was led
by Soft Bank’s Vision Fund with participation from Lightspeed, Sequoia and Greenoaks Capital. OYO said
there is also an additional $200 million that has been committed from as-yet-unnamed investors. The deal
values the five-year-old company at $5 billion. Oyo rooms came with new concept of data sharing of staying
customer with government authorities.
Recent issues

OYO rooms were in multiple Indian news in September 2018 after a sexual harassment claim was made
by US citizen Jordan Taylor. She had allegedly claimed that she was provided an unsafe accommodation
by OYO in Delhi where she was sexually harassed by OYO hotel staff.

OYO has been in news for using predatory pricing using its funding money to unfairly remove
competition. It was also reported that OYO was not following its own agreements and have threatened
the hotels to unilaterally change some of the clauses or suffer the consequences of non-payment.

Oyo Rooms had sent mass unsolicited job offer emails targeting senior- and mid-level employees of
competitor companies.

It was reported by Business Standard in 2017 that OYO rooms were making massive losses without
showing any significant revenues.

SWOT analysis of Oyo Rooms

Oyo Rooms is a network of budget hotels based out of India. Launched by Ritesh Agarwal the concept
was fairly new and thus was accepted well by urban India. What started off as a one room one city thing
in Gurgaon today has around 70,000 rooms across 8500 properties in 230 towns? The concept of Oyo
rooms was that of an aggregator which was essentially a listing of budget hotels and homestays which
users who wished to arrange accommodation could select and book.
The website was known as Oravel. Later this was upgraded to a set of rooms which provided budget
accommodation to people. Today Oyo has services in India, Malaysia, and Nepal and is slowly emerging
to be a solicited option for the budget stay by both families and single travelers. They also have tie-
ups with corporates and business houses for extended stay options.

Strengths in the SWOT analysis of Oyo Rooms :

Strengths are defined as what each business does best in its gamut of operationswhich can give it an
upper hand over its competitors. The following are the strengths of Oyo Rooms:

 Standardisation: The Oyo rooms are mostly owned by various providers but have just been
standardized under the Oyo franchise and thus people are guaranteed of standardized service in
all Oyo rooms wherever they may be located.

 Ever growing network: What started off as a one room one hotel thing in Gurgaon now has
around 8500 properties to its credit and an additional inventory of 4000 motels and homestays?
This is a clear strength.

 Spirit of Innovation: The root idea or need from which Oyo rooms were conceptualized is a
highly innovative one of a one-stop shop for a budget stay in India. The company continues to
maintain its strong spirit of innovation as is evident from the policy to standardize rooms
amongst many others.

 Subsidising Hotel Stays: Oyo subsidizes rooms to make them affordable for customers and
similar to Ola and Uber have emerged successfully in their line of business.

 Young and highly spirited leader: The founder of Oyo Ritesh Agarwal is a youngster who has
won a lot of accolades and besides entrepreneurship caters to a wide range of interests. This is
reflective of every strategy that Oyo adopts since there is a freshness to the approach taken
which is one strong reason for its instant success.

Weaknesses in the SWOT analysis of Oyo Rooms :

Weaknesses are used to refer to areas where the business or the brand needs
improvement. Some of the key weaknesses of Oyo rooms are:

 A strategy of co-branding: Oyo does not own any of the rooms that it lets
out. But it is more like a hotel aggregation platform where the buyer and
seller are allowed to transact with each other through a common window
provided by Oyo. Thus they just cobrand with various budget hotels but do
not own the rooms.

 Poor service quality: Though Oyo has tried to standardize amenities for
each room based on the prices they charge, they have not been able to do
 the same with services. This has made the service quality and reliability
highly questionable.

 Tight margins: Hotels that are on a tie-up with Oyo can also loop in other
agents for which Oyo cannot do anything much to circumvent. In this
context, the model thrives solely on how well the margins they provide for
their hotels are which can be risky in the long run.

Opportunities in the SWOT analysis of Oyo Rooms :

Opportunities refer to those avenues in the environment that surrounds the

business on which it can capitalize to increase its returns. Some of the
opportunities include:

 Growing demand for aggregators: As the world reels from the aftermath
fo repeated recessionary trends, pay cuts, and job losses, most higher end
hotels are struggling to balance supply and demand. This increases the
scope for aggregators like Oyo since most hotels would prefer to take
external support for sourcing new business.

 Focus on budget accommodation: Earlier the trend was more biased

towards luxury and boutique hotels but not anymore. People are trying to
minimise spending and focus on saving and thus budget hotels that can
provide decent boarding and lodging facilities are on a high demand today.

 A surge in the number of business travelers in emerging

economies: The number of people who travel on business from both
genders has grown profusely in emerging economies. This has resulted in
a demand for budget stays.

Threats in the SWOT analysis of Oyo Rooms :

Threats are those factors in the environment which can be detrimental to the
growth of the business. Some of the threats include:

 Competition: With lowered barriers to entry, every new entrepreneur is

looking at aggregating services. There are a lot of online portals like ibibo,
trivago, makemytrip etc which offer a varied gamut of services similar to
Oyo.

 Growing concerns about safety: Today there is negative imagery of

unsafe stays and the number of cases of harassment is on an increase.
 Though Oyo does not guarantee safety at any point in time for its hotels
they have a moral commitment to ensure that no such untoward incidents
happen.

Challenges in Room Aggregation

Business in India
Indian hotel industry is expected to be around $ 230 billion by the end of 2015.
The segment is getting much traction because currently only 12% of the hotel
bookings are done through Internet and thus there is a huge scope. Secondly,
with the coming up of the room aggregator’s, hotels have started witnessing
sharp fall in walk-ins and most of the travellers including budget travellers have
shifted towards the Internet booking, reports ET. The two facts combined shows
there is a huge gap, which is quickly filling up. As this sector is in its nascent
stages and growing fast, in this article, we will discuss the challenges in room
aggregation business in India.

Oyo could be crowned with the credit of finding the gap and introducing the
concept of room aggregation business model, many established players have
also thrown their hat in the ring, realizing the potential of the business model.
MakeMyTrip launched it’s Value+ and Goibibo launched GoStays in the same
segment after delisting Oyo and Zo rooms from its portal. So now there exist two
types of competitors competing within and with each other-

 The Online Budget Room Aggregator (OBA) and

 Online Travel Agencies.(OTA)

In OBA category there are about 16 online budget aggregators have been
launched in 2014-15, while 7 got funded- Zo rooms, Wudstay, Treebo, Fabhotels
etc., OTA category include established players like MakeMyTrip, Yatra, Goibibo,
ClearTrip among others. Thus in total around 30 players competing in this sector.

Apart from the above-mentioned categories, Roomstonite, which is an Online

Budget Room aggregator follows a slightly different model, they are the “last
minute hotel booking site” thereby helping the hotels plan their capacity and at
the same time providing customers the best deal. They have 2,500 hotels across
275 cities.

Business Model of Room Aggregators

What they do

These aggregators provide budget hotel rooms to the customers. They promise
standardized services like free wi-fi, breakfast, comfy bed, 24×7 customer service
etc. On the other side they furnish hotel’s property and brand it on their website
and app under its own name.

Aggregator Founded Cities Hotels Funded Funded by

SoftBank, Sequoia
$ 125
Oyo 2013 149 4000+ Capital,
million
LightspeedVenture
$ 47 Tiger Global and
Zo 2014 54 800+
million Orios Venture
4,00 0+ 30,000+ $ 20
StayZilla 2010 IAN, Matrix, Nexus
locations properties million
$ 6
million
Treebo 2015 8 24 Matrix Partners

$ 5
Fab Hotels 2015 29 200+ Accel Partners
million
$ 3
Wudstay 2015 2 40 Mangrove Capital
million

Online Travel Aggregation

Founded Cities Hotels Funding
Agency Model
IPO/Stock
Value +
MakeMyTrip 2000 35 1,000 (went public
(2015)
in 2010)
TG Rooms Funding
Yatra 2006 and Stays 60 1,000 received-
(2015) $105 million
Subsidiary
GoStays
Goibibo 2009 99 1,384 of Ibibo
(2015)
Group
How They Do

Aggregators enter into a contract with the hotel management. All the points
relating to the number of rooms, particularly which rooms of the hotel, price of the
room, basic amenities etc are negotiated in the contract. These companies pre-
purchases the property for a specific period and the onus of management of the
property (so that a specific standard of quality is ensured to the customer),
remains with the aggregator.

After purchasing these properties the aggregators market these properties under
their own brand at a discounted price. On an average these companies
purchases hotel rooms for a negotiated price from the hotel and re-sell at a
discounted price of as low as 799 sometimes (most often 1000-1200) to attract
the customer base and as high as 4000 depending on the type of hotel and its
location. The hotel owner has got an assured amount of payment for his rooms
which otherwise would have been occupied only around 50%. That seems a win-
win situation for hotel owners and customers. Customers get a cheaper
accommodation with all amenities and the hotel gets an assured income/ higher
occupancy rate, online marketing (though indirect), property maintenance etc. but
what about the aggregators?

As reported by ET, Oyo has two business models, the one above and the second
one, wherein the company does not purchase the property, but simply market it
on their website, and if the sale is made the revenue is shared.

On the other hand, OTAs does not brand the hotel with their own name rather
they brand the hotel itself on their website so that the customer knows where he
is going. This gives OTAs one extra point when hotels decide their online
marketing platform. For each room Goibibo sells, it charges a commission of
30%. On the price war, OTAs are selling rooms as low as 499 (Yatra) as
compared to OBA’s 799.

Challenges in Room Aggregation Business in India

 High Cash Burn Rate

This business involves a very high cash burn rate. Since companies are in their
expansion mode they are offering a lucrative discount to acquire the customers.
Yes they are doing it with investor’s money and are not profitable yet. Oyo
Rooms chief growth officer Kavikrut said, “We have been growing at 100 percent
growth rate MoM and with this pace, we are likely to be profitable in three years.”

 Competition
It is true that leaders define the path. Leaders with big pockets are able to afford
heavy discount like Oyo. Oyo rooms in talks to buy Zo rooms- one more
consolidation in high cash burning industry like Rooms Aggregators. Leaders
with big pocket like Oyo and now MakeMyTrip and Goibibo too, are able to afford
heavy discount. This becomes a two side sword for the new and smaller players,
who are neither able to build more inventory nor can they offer huge discount due
to lack of funding. Thus, it becomes highly difficult for small players to compete
with Oyo and other established brands. We can hope for more consolidations in
the coming time as funding dries up.

OBAs are not only competing with each other but also with OTAs who

 cater to the entire spectrum of travel from tickets to hotel.

 They already have a huge customer base, thus cross-selling budget hotels
is very easy to them
 Since they are 6-8 year-old companies, customers trust them more
 As some of them do not brand the hotel under their name, rather brand the
hotels on their website thus increases the chances of hotels opting for
them over OBA
 They are already profitable companies and can use their positive cash
flows to give head-on competition to the OBA.

 Standardization

is a major issue. In the race of growth, quality of services and its conformance is
often compromised. This is the biggest pain point of the customers. As OBAs do
not brand the property, the customer does not know to which hotel he is going
and on reaching the destination if one receives sub standard or below expected
service it could result in loosing the customer forever.

Since these companies are dealing with non-branded hotels, the level of
professionalism is low and thus becomes a challenge for the aggregators to
delight their customers at every point of contact.

 The unregulated market

Since this is a new business model and an unregulated one, many a times hotel
owners dishonor the contract by switching between the brands.

 Tracing location:

As most of the aggregators do not promote the hotel brand on their website,
sometimes it becomes highly difficult for customers to locate the rooms. On
booking a room through Oyo, location is received through a message and on
reaching the destination billboards directs the customer to the hotel. Although
this might seem to be a small problem but the process might result in a
nightmare experience for a customer who may not want to return back to the site
again. To overcome this issue, MakeMyTrip’s Value+ promotes the hotel brand
on its site.

Although we have discussed the problems and challenges in room aggregation

model there are many positive factors that support the business and makes it a
potential venture.

New companies are backed by wealthy investors, thus enabling them to capture
the market fast, after all, it is all about scale- ‘the more, the merrier’. Extensive
use of technology and their focus on niche market segment stands them out from
the competition.