Oyo's business model is looking a lot like WeWork's

https://asia.nikkei.com/Opinion/Oyo-s-business-model-is-looking-a-lot-like-WeWork-s

by nocoder • 7 years ago

123 59 7 years ago

asia.nikkei.com

beilabs• 7 years ago

Oyo ventured into Nepal quite recently. From my viewpoint I see rooms often can be charged by the hour on some of their signage, not just daily rates. That's the type of visitor they are looking to attract.

mav3rick2• 7 years ago

What's wrong with that ?

ryanlol2• 7 years ago

Nothing, some prudes just don’t want to stay in hotels where other people have sex.

Odds are that the hourly-rate rooms would be on a different floor than the daily-rate floors for logistical reasons, which makes it even harder for me to see any problem with this.

There’s significant a cultural difference here too, in the areas where Oyo primarily operates young couples need these rooms just as much as prostitutes.

9nGQluzmnq3M3• 7 years ago

Nothing, if you don't mind a constant stream of professionals turning tricks and their drunken clients marching through the corridors at all hours of the night.

dmix• 7 years ago

They were low end hotels before they bought them. Considering they own the whole property it’s not like this is a big deal like it would be for Airbnb (which is already used extensively for that).

notahacker• 7 years ago

It's a pretty big deal if the theoretical rationale for your brand's existence is to offer a chain of budget hotels suitable for lower middle classes travelling on business and with their families, especially if you're tending to charge quite a bit more than the bottom end of the local hotel market.

goatinaboat2• 7 years ago

rooms often can be charged by the hour on some of their signage, not just daily rates

I wish we had something like that in Wales. Sometimes after a day in the hills I’d like a hotel room for an hour just to have a shower and change into dry clothes before driving back down the A470. Fellow Welshmen may mock me now, I’ve grown soft from spending too much time in England.

CaptainZapp3• 7 years ago

Check with local hotels.

Hotels (alas mostly the business oriented ones) absolutely rent day rooms at reasonable prices if they have stock available.

Just ask around.

TwoHeadedBeast• 7 years ago

I was driving from Berlin to Skopje once, and at one point really needed a rest, having not found a hotel in Austria. In Croatia, I did find a place that I could rent a room for 4 hours so I could have a shower and a nap before continuing my journey.

rchaud2• 7 years ago

Would you be OK with this kind of flex arrangement if it meant that the hotel couldn't guarantee the state of the room or bathroom when you check in?

Hotel management needs time to send cleaners to change the sheets and such after all. If booking is on an hour-by-hour basis like say a hotel meeting room, it isn't feasible to clean the place in between every booking.

anon8123DF• 7 years ago

I was in Houston recently and was surprised to seen an Oyo-branded hotel, as I hadn't realized they'd expanded beyond being an aggregator.

What do you know? 100% of Yelp reviews are 1-star: https://www.yelp.com/biz/oyo-hotel-houston-galleria-west-hou...

To be honest that actually makes them worse than WeWork at some level. WeWork may have an awful business model but at least its brand is (generally) known for consistent quality. [1]

[1] https://twitter.com/jasonlk/status/1161659165619523584

puranjay5• 7 years ago

The WeWork I work out of in Gurgaon, India, has the best coworking space I've ever used. They charge a big premium over other spaces but I'm happy to pay it.

WeWork, I feel is a very viable business. Its obituaries are too premature. It doesn't warrant its $47B valuation, but it can easily displace Regus. Easily a $10B business, if not a $50B one. Which is incredible in itself

irq11• 7 years ago

Except that they’re losing a billion dollars a year at that level of quality.

Cut the perks to make it a viable business, and you’ll probably end up with...Regus.

Markets are pretty efficient that way.

Traster• 7 years ago

SoftBank Group, directly and through its Vision Fund, is heavily invested in both.

This is the worst case scenario. Every company that Softbank tries to unload becomes a liability because of the association.

On the topic of the actual business, I think there's a really basic question people need to ask themselves when they look at these business models: In 10 years time does the industry you're in look different?

Because that seems to be the fundamental problem here, Oyo's business model is basically that in 10 years time nothing about Hotels will have changed. Well what does that mean? It means we know how much the end company will be worth because it'll just be some multiple of a basket of other similar companies that exist today. So here's the question: Why are they claiming to be more valuable than InterContinental Hotels Group whilst having 1/75th of the revenue?

Now onto the financial engineering - overvaluing your company, borrowing using shares as collateral and then investing that money back into the company. That is a feedback loop, if you can't pay back the loan the shares are worthless and so these loans are entirely unsecured. If that's happening at scale, that is exactly the sort of behaviour that will cause a bubble and it will burst. Someone really should do some proper reporting on that - find out how common it is and particularly if it extends outside of Softbank.

geodel2• 7 years ago

Softbank also invested in Flipkart $2.5B which till date is huge loss making entity. But they dumped that crap on to Walmart and made a chunk of profit. Else it would be another dent on this poor vision fund.

mathnmusic• 7 years ago

Actually Walmart struck gold because along with Flipkart, they got PhonePe which is currently valued around 10B $: https://dailyfintech.com/2019/11/08/walmart-hits-gold-with-i...

hos234• 7 years ago

OYO is India based unlike WeWork and given what Reliance Jio pulled off and the cash they raised to do it, I feel the context is different.

Travel along an Indian highway and try to find your standard roadside motel as you would in US ala Best Western. There are no low-mid tier chains.

What OYO is promising is scale. What Best Western took 50 years to do these guys want to do in 5 or 2 idk.

It's a worthwhile bet given the Indian consumers purchasing power/quality expectations are on the rise. It's not at all a big stretch to imagine such chains existing in India 10 years from now. Someone is going to build it. You can always ask the established chains in the west and they will tell you how long they think it will take.

Now if you asked a AT&T, Comcast or Vodafone whether they could role out a 4G network with 300 million users in 3 years across India, I don't think any of them would think it possible. But Reliance Jio did it anyway.

The textbook on how fast you can scale things is being rewritten. In that context what OYO does pull off is going to be interesting to watch.

achow2• 7 years ago

I agree to your analysis of India the underserved market as far as travel & tourism for middle class is concerned.

This would have been all good if the focus was only for that market, but the $10Billion valuation I'm sure is not because of India focus.. it is for claiming to be 2nd or 3rd largest owner of hotel rooms in the world - the problem is there.

Without solving fully by hyper focusing on one problem/segment/market, it decided to conquer the world because of $$ at disposal.

puranjay5• 7 years ago

I agree with your fundamentals. But I don't believe Oyo's execution is right. Nor do I agree with this statement:

It's a worthwhile bet given the Indian consumers purchasing power/quality expectations are on the rise.

India's income and consumption growth have been slower than expected. A recent report even found that rural consumption in India fell compared to 2011-12, and urban consumption increased by a paltry 4%.

In the last two decades, everyone has been building businesses in India with the assumption that India will continue growing at "China pace". Real estate prices are the best example.

But as everyone is also beginning to find out, the money simply isn't there. At least not for now.

Oyo might be a decade too early. This business needs to be built, but not now

mindentropy• 7 years ago

It's a worthwhile bet given the Indian consumers purchasing power/quality expectations are on the rise.

Isn't it undergoing a saturation of sorts as of now? Correct me if I am wrong but the general Indian consumer purchasing power/quality is led by employment in IT sector. What happens if there is a severe downturn in it or there is significant competition from other countries?

Someone is going to build it.

Definitely but if they see profits and positive cash flow in it which I don't think companies like OYO are looking at.

You can always ask the established chains in the west and they will tell you how long they think it will take.

This is because there is something called standards and inspection in the US. This is absent in India. One just has to look at the shoddy houses and apartments being constructed by some reputed builders.

But Reliance Jio did it anyway.

With the full support from the Government I think it would be possible. Also is Jio making a profit? ( https://economictimes.indiatimes.com/industry/telecom/teleco... )

Also would Jio be profitable once they achieve their targets?

signal11• 7 years ago

Travel along an Indian highway and try to find your standard roadside motel as you would in US ala Best Western. There are no low-mid tier chains.

I agree with you, and I was very bullish on OYO precisely because of this opportunity. However they have executed terribly by really not caring about a quality experience, instead chasing short-term growth.

Looking at Indian social media, OYO's brandname is now associated with a crap experience. It may already be too late, however they could still come out of this by doubling down on customer satisfaction ASAP.

The textbook on how fast you can scale things is being rewritten

In hospitality, just putting your branded linens into a hotel isn't really "scaling". It's about consistency of experience. And that takes a time and/or a substantial training budget to ensure at least a few people at each site are trained appropriately, and this learning trickles down to every employee/partner.

dotchart• 7 years ago

This is really just clickbait. Why mention the only the Indian revenue when a large majority of revenue comes from outside India? Also note that valuation is from October 2019 round while revenue is from 2018. OYO's YoY growth is 4-5X so revenue is likely much higher now (even if looking only at India).

chewz• 7 years ago

[] https://scroll.in/article/940702/teenagers-electrocution-the...

[] https://economictimes.indiatimes.com/small-biz/startups/news...

9nGQluzmnq3M3• 7 years ago

For its core India business for the financial year 2018, Oyo reported revenues of just $61 million and a loss of $53 million.

How on earth does this translate into a $10 billion valuation? For comparison, Hyatt's market cap is $7.9B, and they made $296M profit on $1,215M in revenue in Q3:

https://s2.q4cdn.com/278413729/files/doc_financials/2019/q3/...

aptwebapps• 7 years ago

The valuation does not come from their operating numbers, core or otherwise. It comes from their last round of funding.

9nGQluzmnq3M3• 7 years ago

I'm aware of that, but the valuation implies that at least the investors think there's a plausible path for the business to be larger than Hyatt.

puranjay5• 7 years ago

Hyatt should just call itself a tech company and increase its valuation 10x

CaptainZapp3• 7 years ago

And add Blockchain to the name for an additional 50x valuation.

rchaud2• 7 years ago

I imagine the valuations are based mostly on the price paid for whatever % of Oyo shares investors have bought up. In any non-VC type business, valuation would be based on an estimate of what free cash flow would look like in a 1-yr, 5-yr and 10-yr period. Depending on the type of business and its growth stage, the time horizons and assumptions may vary.

oefrha2• 7 years ago

Franchising, and buying up small hotels to form a hotel chain are both very old business models. So it seems to me that neither their original (basically franchising) nor current business model is innovative. What exactly does Oyo bring to the table? Seems even worse than WeWork.

lotsofpulp2• 7 years ago

The valuable part of the franchising business model is ensuring a consistent experience for the buyer. That would involve spending money to hire a considerable workforce to continuously visit and evaluate every hotel.

That would involve spending money and make it clear that the marginal costs of franchising hotels is not zero, and so it’s not worth the crazy multiples of revenue valuations that software companies are.

All of these companies are an exercise in figuring out how to create plausible deniability to justify investing in it so that it can be dumped onto a greater fool.

anuraj• 7 years ago

OYO in India stand for poor quality. Neither do they have lasting assets other than contracts with Franchisees. Not a model built to last.

runn1ng• 7 years ago

In Vietnam, they vary in quality so much as to make the brand meaningless.

There are good ones and terrible ones.

The business model doesn’t seem to make sense to me either.

fastball• 7 years ago

https://www.profgalloway.com/unicorn-feces

bengale• 7 years ago

I made the mistake of booking one of these OYO rooms in London recently. Seriously shocking they'd even try to claim it as a hotel, dingy bedsit maybe a better description. Would never book with them again.

leoedin• 7 years ago

Oyo are aggressively expanding. When I was in Nepal earlier this year they had OYO branded hotels everywhere. Since then they seem to have started taking over the super-budget hotels in London. I assume it's mostly the same hotels, but they've been paid to slap an OYO sign on the front.

It's hard to see what actual additional value they bring though. They're not really a stamp of quality, and they're not generally opening new hotels, just rebranding existing ones. Booking websites are hardly a new thing - booking.com and hotels.com are pretty entrenched, and have the advantage that they index every hotel not just ones which agreed to put up the OYO sign. Maybe OYO will take a cut of the booking.com market (which from what I've heard is incredibly profitable), but by building an OYO brand with a reputation for budget low quality, they're moving in the wrong direction to do that.

coredog64• 7 years ago

Hotel chains have to share revenue with OTAs like booking.com. OTAs typically have agreements that they get the lowest public rates. Therefore, if you’re a hotel with enough online presence to drive demand, you can keep more of the money by having customers book direct via a loyalty program. One way to do that is a broad network that allows customers to always book directly with you.

puranjay5• 7 years ago

The problem with Oyo, and its virtually most people who've used it (me included) will concur, is that the Oyo brand itself is tainted. Experiences are extremely inconsistent and the quality is all over the place. Hotels keep withdrawing from the Oyo platform because of non-payment of dues. Oyo's customer service is shoddy.

This business should have been built slowly and carefully. But Softbank's billions meant that they expanded so fast and so soon that they had no quality control in place.

It's a brilliant idea that would have been inevitably successful. But all that money is going to be its downfall.

billfruit• 7 years ago

They(Oyo) seem to an aiming it's focus for the convenience of booking/cancelling/payment s through their app, over everything else, and their app seems decent and focused to that end. That might appeal to many consumers especially in India, where the experience of booking a hotel stay in small and medium hotels is a terrible experience mostly, 8f you tried to do it your self, case in point the hotels in Pahargunj area in New Delhi.

technobrat• 7 years ago

Startups sacrificing profit on customer acquisition is understandable. But it is a huge red flag when they start losing both. https://oyo-ruined-my-anniversary.com/

thekhatribharat• 7 years ago

Oyo is en route to failure, and it will be another setback in India’s startup ecosystem after the Housing.com fiasco.

The initial idea of guaranteeing basic amenities (clean bed/bath linen, WiFi, breakfast) through strict quality control and staff training was great, but they failed to deliver.

Instead of improving and growing their first product, they launched new products and entered new geographies - most likely to inflate valuation.

The founder itself has had a questionable behavior (ref: https://www.livemint.com/Companies/7CN7u5d4i3bfYgBAZLdLpM/Wi...)

purplex• 7 years ago

This went viral some times back in Indian social-media

How Oyo completely ruined my first wedding anniversary: https://oyo-ruined-my-anniversary.com/

Hitton• 7 years ago

Although I'm sorry for your terrible experience with them, I'm also kinda glad, because your description was really entertaining (when you are not the one who has to live it).

fareesh• 7 years ago

As a consumer, the OYO brand means nothing to me because anecdotally it's clear that they only claim to enforce standards but in reality it's an illusion.

In the absence of that assurance, what am I getting from OYO?

If I want a hotel room I will browse listings on the various aggregators that have them and go with the best find for my budget. Unlike Hyatt or Four Seasons or Taj, where you can treat the brand as an indicator of some standard, it doesn't exist in a meaningful way for OYO, even for a far lower standard. It's all over the place.

If anything I'd be suspicious of OYO immediately.

I'm unsure if my experience is the norm or the exception. If there's a huge segment of people who associate the OYO brand with trust, then their model would appear to be working quite well.

achow2• 7 years ago

As an idea there is nothing wrong, infact it is brilliant!

Not very unlike fast food franchise business, or Coca Cola bottling franchise - corporate puts in standards, best practices, supplies 'secret sauce' (some times literally), invests massively in branding and advertising which would be way out of thinking league of small time owners of the outlets.

If this was done purely from problem solving perspective (and not as 'growth hack'), then it would have worked beautifully.

michaelt• 7 years ago

I think fareesh's point is that the "put in standards" hasn't been sufficient for any investment in branding to be productive.

wtmt• 7 years ago

Oyo is yet another company that shouldn't exist. In India, in an event at the beginning of this year (2019), it said it has a new initiative where it would share hotel guest information with the police and the government in real time. [1] [2] This kind of facilitation of mass surveillance while also enabling harassment is one of the most damaging ways to run a business and contribute negatively to a country.

[1] https://www.medianama.com/2019/01/223-oyo-real-time-data-sha...

[2] https://www.huffingtonpost.in/entry/why-oyo-sharing-check-in...

Travellersrest• 7 years ago

Quite interested in this subject. 1. Oyo are trying to scale incredibly quickly, always tough and in this investment climate, better get their forecasts correct and spend it quickly! 2. They are trying to scale globally, but adding software management of revenue and booking under their control is dangerous to owners especially if they have terms that include %'s take of increased revenue. This may mean booking at any price regardless in quiet periods and then there is a staff cost vs margin call. Quality will suffer. 4. The whole approach appears to be based on brand signage and not guest experience and is a budget business, so its a bottom feeding brand. 5. This budget position in Europe is often based on doing deals in older premises (quite few local to me). These are not modern eco-friendly, but high maintenance, unlike the new brands of accommodation which can also be budget and brilliant.

In in all its seems that the approach may end up with a negative brand connotation as is developing on their Facebook reviews page and the knock on effect will ensure poor returns.A Softbank recurring nightmare.

Oyo's business model is looking a lot like WeWork's

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