From Kashmir to Kanyakumari, travel anywhere in India and one ubiquitous sign stares out at you from billboards, hoardings on the road and nondescript buildings. You could see the same sign in Japan, China, the Philippines, the UAE and a host of other countries: the jaunty red logo of OYO. For a hotel brand set up only in 2013, OYO has achieved spectacular, unimaginable scale.
In 2018, it had 4,50,000 rooms globally and a presence in 500 cities and its target of 1 million rooms appeared to be quite achievable. Its valuation was far more than India’s largest hotel company, the over 100-year-old Taj. And imagine, OYO’s founder Ritesh Agarwal was just eighteen years old when he dreamt up this company in 2012.
A year later, at nineteen, he registered Oravel Stays Private Limited. It’s a company that has defied all odds, all expectations and all naysayers. There were plenty of people deriding the company right from the beginning. When OYO first came up, legacy hoteliers looked down their noses at the company, saying it was no competition. But when its valuation began to rise and its pricing strategy began to hurt them, legacy hoteliers banded together to criticize the young start-up’s practices. They whined about OYO’s business model at every forum and demanded regulations against it. Undaunted, Agarwal carried on, tweaking the model here, acquiring a tech company there, and adding innovations bit by bit. By 2016, hoteliers were beginning to admit that OYO was competition.
In August 2016, at the 115th annual general meeting of Indian Hotels Corporation Limited, the Tata Group’s then chairman Cyrus Mistry admitted to shareholders that they needed to keep an eye on Ritesh Agarwal’s OYO. This spoke volumes about the disruption the young upstart has caused. If further proof were needed, it comes from the fact that OYO’s model spawned at least thirty copycats. When OYO started, it aggregated budget hotel rooms run by independent owners. There were many problems with this model because instead of getting the entire hotel, it would get some rooms, which it branded. The rest of the hotel remained unprepossessing. Also, there was a price disparity between the room sold on OYO and that the budget hotel owner was trying to sell on his own. OYO would be selling at discounts, while the hotel owner would sell at his own rate and nobody would take it. So, their occupancies suffered. Not surprisingly, everyone complained bitterly about OYO’s model.
It was a bit akin to when Uber and Ola took off in India, the old black-and-yellow taxi drivers went ballistic. In OYO’s case similarly, established hoteliers were annoyed. Unlike the chains who were only looking at converting well-known standalone properties, OYO did not bother with frills or management fees, only going in for standarization and convenience and choosing the franchise route and offering lower rates. The industry had no choice but to start discounting.
As one irate hotelier lashed out, ‘We were being hit by a technology platform consolidating mom-and-pop establishments that are poor on compliance and selling them like a hotel chain.’ For someone so young, Agarwal handled the criticism maturely. He admits that negative reviews on platforms like TripAdvisor hurt him but he got down to the job of addressing these by auditing guest experiences. He got a team of auditors to go around with a 150-point checklist to review a hotel that had been remodelled as an OYO. He also rapidly changed the aggregating rooms model to own inventories through a franchised route. At every forum he began disowning the aggregator term. ‘It’s the media that has branded OYO as an aggregator—I would call OYO a branded-hotel franchise model,’ he said. But unfortunately, the tag stuck. If you break it down, OYO’s model is surprisingly simple.
On the one hand, there are millions of mom-and-pop show kind of hotels all over the country of inconsistent standard and quality. On the other hand, for the common consumer there was a lack of affordable, quality, branded-hotel room supply. OYO looked at the problem from both sides and solved it by putting technology, reach and branding into the hands of tiny nondescript hotels who could now offer rooms in great locations at discounted rates. Basically, OYO went after the millions of small hotels near railway stations, bus stations etc., and renovated and branded them. Distribution using technology innovatively also helps these hotels. Early on, Agarwal recognized the strength of a mobile platform.
The OYO app is perhaps one of the most downloaded app in India. Ninety-five per cent of its bookings come through direct channels so it is one of the few players that has broken the OTA clout and saves enormously on distribution costs. This allows it to invest more in marketing. Although Agarwal had no experience in hoteliering, he solved two important problems, that of lack of availability faced by consumers with regard to good and affordable rooms and the challenge of discoverability faced by hotel operators bringing innovation into a sector that was steeped in traditional thinking. Very soon, he became a poster boy for India’s startup story, attracting funding easily.
Venture capitalists and private equity funds—which had hitherto never looked at the hotel sector—began investing in droves into OYO, thereby infusing the industry with much-needed capital to grow. Even if traditional hoteliers had no faith in OYO’s model or its way of doing business, Softbank, Lightspeed Ventures, Sequoia Capital, Hero Enterprises, China Lodging, DSG Consumer Partners, and several others invested in the OYO story in a big way. In 2019, even Airbnb took a stake in OYO. If OYO opened the keys to new room supply, it also unlocked new consumers. Taking a leaf out of cab aggregator Ola’s on-demand model which made cabs accessible and affordable and thus got thousands of new users into the taxi pool, OYO expanded the customer base of branded hotels by making them available, predictable and affordable.