OYO Rooms Business Model and SWOT Analysis – How Does OYO Make Money

Overview

OYO Rooms is the world’s biggest branded hotel network, with 450,000 listings in 5,000 locations in India, the United Arab Emirates, Malaysia, Nepal, Indonesia and China. The company began its operations using an aggregator model, but things have evolved ever since.

Previously, the company formed partnerships with hotels leased certain rooms and sold them under its name. Although the procedure remains the same, the company’s business model has evolved into a new structure.

However, the major focus remains on the quality of the service given. To preserve the brand image, they require partners to supply services that meet predefined requirements while also increasing their visibility among their user base.

Company Profile

Company NameOYO Hotels And Homes Private Limited
Websitehttps://www.oyorooms.com/
Founded2013
FoundersRitesh Agarwal
Key PeopleRitesh Agrawal – CEO, Abhinav Sinha – Chief Operating Officer, Anil Goel – Chief Technology Officer, Vivek Sinha – Vice President & Head Of Franchisee Business, Tejnoor Grover – Growth Marketing & Partnerships Manager, Praveen Rajput – Sales Head
HeadquarterGurgaon, Haryana, India.
Company Revenue₹ 6657 Crore (US$ 951 million) (2019)
Key CompetitorsTreebo, FabHotel, ZenRooms, MakeMyTrip

What is OYO? A Brief History

Since 2013, OYO has continued to develop rapidly. First, it began operations in India, and now, after eight years, it has expanded to 800 cities in over 80 nations worldwide. In 2018, the firm began international operations, beginning with Malaysia. Soon, it expanded into areas like the United Kingdom, Dubai, China, Singapore, Indonesia, etc.

The company was a 100% franchised and leased hotel chain in 2018. In the same year, it had a global total of 75 million stayed-room nights, nearly six times more than 2017, and generated revenue totaling $211 million.

The company revenue in 2019 was $951 million. This is 4.5 times higher than 2018 and has seen a 740 million dollar increase. The company has over one million rooms in more than 43,000 hotels. In addition, it offers both city dwellers and travelers worldwide access to over 130,000 homes on the platform.

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Now, the company has changed its name to ‘OYO Hotels & Homes.’

OYO obtained the $100 million funding from Didi Chuxing, the Chinese vehicle-hired company, in February 2019.

The founder Ritesh Agarwal signed a $2 billion deal to purchase back the shares from existing shareholders to increase his share up to 30%. Then, the company’s valuation reached $10 billion after signing this deal in July 2019. Series F funding was raised at $1.5 billion in October 2019 afterward. In 2021, Microsoft showed its interest in projecting into this platform before its IPO and signed a strategic deal in July 2021.

Currently, Didi Chuxing, SoftBank Group, Sequoia India, Greenoaks Capital, Lightspeed India, Airbnb, Hero Enterprise, and China Lodging Group.

How Does OYO Work and What Does it Offer?

So how exactly does OYO work?

OYO began as a hotel aggregation and booking platform, partnering with hotels to provide a few rooms in return for a monthly charge. The firm leases the hotel rooms and renovates them to a standard configuration, allowing bookings through its website or app.

However, in 2015, the firm began transitioning to a franchise model, in which it began selling partnerships to hotels rather than leasing rooms. Here are some of the features that the platform has introduced throughout time: Hotel room aggregation, Franchise model, Owned hotels and Co-living.

What does OYO offer to its consumers?

OYO provides a variety of choices to their platform’s consumers via their platform. For example:

  • OYO Townhouse: This one is positioned as a neighbourhood hotel in the midscale market to attract millennial travellers seeking superior economy stays.
  • OYO Home: This one is known as India’s first System of Home Management, which offers private homes maintained by OYO in a wide range of places.
  • OYO Vacation Homes: It is the world’s third-largest vacation house brand, and it is quite comparable to the top vacation rental management brands on the globe.

Other than that, they include Capital OYO, OYO LIFE, Silvery, Palette, and Collection O targeted to different groups of people for their desired accommodation.

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OYO Business Model

OYO Room’ s business model is comparable to the typical aggregator business model (Uber), but it also retained the essence of the franchising business model. The business used to lease a portion of the hotel’s inventory in advance, then organize the hotel rooms under the OYO Rooms brand.

As agreed in a contract between the platform and these hotels, the hotel partners provided the same service to their customers as the platform. Then, bookings proceed via the OYO Rooms mobile app and website.

The company’s present operational model is similar to what it was previously. It is merely that the corporation no longer leases hotel rooms and instead asks its hotel partners to run them like franchises. As a result, they have a strong brand and can boast a revenue growth of 100% for their hotel partners.

OYO Unique Selling Propositions

Previously, the business leased hotels at a certain fee and then sold them to consumers at a mark-up rate. This has been converted to a revenue model based on commissions fee. OYO rooms take a 22% fee from its hotel partners. This commission, however, varies depending on the services supplied by the business.

How Does OYO Make Money?

The primary source of revenue for OYO Rooms is the 22% commission it receives from its hotel partners. Other incomes that OYO makes include:

  • Reservation Fee for Rooms: The platform receives a reservation fee from users. In addition, it takes a fixed percentage as a commission to help them make good money.
  • Membership Fees: OYO Wizard subscribers pay a fixed price for premium services, serving as revenue streams for the company.
  • Advertising: The company charges an advertising fee for posting ads for various firms and services on its marketplace.
  • Sponsors and Partnerships: The entity charges a set fee for marketing its sponsors and partners, which plays an important role in generating income.
  • Advisory Services: The company offers different services to clients, such as business consulting, data analysis, and hotels. In exchange, they pay a service fee to OYO Rooms.

OYO SWOT Analysis

Strengths

  • Consistent standardization: Although many providers own OYO rooms, they have been standardized under the brand franchise. This means that people can expect consistent service on every platform regardless of their location.
  • Endlessly growing network: What began in Gurgaon as a small hotel with one room was now a large property portfolio with around 8,500 properties. It also has an additional 4,000 motels or homestays.
  • Unstoppable innovation: The original idea behind the startup is to provide a single source for budget accommodation in India. It continues to innovate, as evident in the company’s policy of standardizing rooms.
  • OYO subsidizes hotel accommodations: The company subsidizes rooms to make them accessible to customers. Like Ola and Uber, these rooms have been a success in their respective lines of business.
  • Young and powerful leader: The company’s  founder, Ritesh Agarwal, is a young man who has received much praise and indulgence from the public.
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Weakness

  • A co-branding strategy: OYO does not own any of the rooms it rents out. However, it functions more like a hotel aggregation platform, allowing buyers and sellers to interact with one another through a single OYO-provided window. As a result, they co-brand with some low-cost hotels but do not own the rooms.
  • Substandard service: The platform attempted to standardize amenities for each room based on the pricing charged, but they did not succeed with quality services. As a result, the service’s quality and dependability have been called into doubt.
  • Tight margins: Hotels with the platform partnership can also use other agencies, which OYO cannot do anything about. In this scenario, the strategy relies only on the profitability of the margins provided to their hotels, which might be problematic in the long run.

Threats

  • High competition: With decreasing entry barriers, every new entrepreneur is considering aggregating services. Many internet portals, such as trivago, ibibo and MakeMyTrip obtain similar services to OYO.
  • Safety concerns: There are a lot of bad pictures these days regarding hazardous stays; meanwhile the number of complaints of harassment is on the rise. Though the platform cannot guarantee the safety of its hotels at any given time, it has a moral obligation to ensure that no such tragedies occur.

Opportunities

  • Aggregators’ growing demand: As higher-end hotels are failing to make supply and demand equilibrium, this has made them to find aggregators like OYO, to give external assistance to optimize its business earning.
  • Low-cost accomodation: Previously, the tendency was more oriented toward luxury hotels and boutiques, but that is no longer the case. People attempt to cut costs and save money. Thus, budget hotels that can provide adequate accommodation services are in high demand nowadays.
  • The surge of business travellers in emerging markets: The number of business travellers of both genders has increased dramatically. As a result, inexpensive stays are in high demand.