Startup Success Story of OYO Rooms (Case Study)
What is OYO Rooms?
OYO Rooms is a hospitality chain of franchised hotels, rooms and living spaces across the globe. OYO Rooms was founded in the year 2013. When OYO was initially started it was consisted mostly of budget hotels.
Later, this startup scaled internationally with thousands of hotels, vacation spaces and millions of rooms all over the world in countries like India, China, Brazil, Japan, United States and 80+ more.
Who Founded OYO Rooms? - The Story
Ritesh Agarwal is an Indian entrepreneur, he is the founder and CEO of OYO Rooms. He used to travel across India from the age of 17. Ritesh stayed in more than 100 hotels at that age and realized that there is a scarcity of quality hotels in the budget range of common people.
He is known as the world's second youngest billionaire after Kylie Jenner. However, Forbes or Business Insider never listed him as a Billionaire yet.
How was the Early Life of Ritesh Agarwal? - The Struggle
Ritesh Agarwal was born in Bissam Cuttack town in the Rayagada district, within the state of Odisha, India. But he was raised in Titilagarh town in the same state.
Ritesh Agarwal's family used to own a small shop in Southern Odisha. At the age of 13, he used to sell SIM cards. He graduated from St. Johns Senior Secondary School and moved to Delhi in the year 2011 for his college studies. He dropped out of his college and in 2013, he was selected for Thiel Fellowship
Journey of Ritesh Agarwal from Selling SIM cards to becoming an Entrepreneur
Ritesh Agarwal in his late-teens, launched Oravel Stays, an online portal for vacation rentals. Later, he realized the world was competitive and he was not the only one who could make a reservation site.
“I didn't think that I knew something that nobody else knew as to how to make a reservations website”
– Agarwal told in an interview
Even if the platform collapsed, Agarwal maintained the good relationship he had formed with the hotel owners.
Luckily, his early efforts did not go to waste and landed him a Thiel Fellowship, a two-year program from PayPal co-founder Peter Thiel.
This Fellowship grants only 20 teenage entrepreneurs $100,000 and the mentorship of trailblazers like Mark Zuckerberg of Facebook and Elon Musk of SpaceX and Tesla motors.
The condition for this grant was that recipients could not be students at a traditional college.
“This is great; you get paid not to go to university,”
– Agarwal recalled in an interview
At the age of 19, he moved to California and spent more than one year learning from Peter Thiel and other experts, He learned two important lessons from there to apply in the business world: Think big and don’t be afraid to innovate.
How did Ritesh Agarwal started OYO Rooms?
In 2013, when Ritesh Agarwal was in California, he founded a company. This company is to help manage a hotel owned by an person in India, he had worked through Oravel Stays.
This hotel is located in New Delhi, later renamed as OYO. Improved the rooms and reached out to budget-minded travelers, who were searching for hotel reservations online. This boosted the hotel’s occupancy rates from 19% to 90% in its first month itself.
Startup Story of OYO Rooms
After returning to India, Ritesh Agarwal was excited to put his new knowledge and experience into action. He started reaching to small hotel owners he had worked with through Oravel Stays. He noticed that there were so many small-scale hotels all over the world with fewer than 150 rooms.
He didn’t see many entrepreneurs looking to turn these small properties into “quality experiences for common people.” He realized that OYO could grow from single property to handful of hotels. The concept for the brand was simple and straightforward.
“An equilibrium of quality, location and price is what required for building the right kind of hotel chain”
– Ritesh Agarwal
He figured out, that by smartly updating the interiors, optimizing services and setting the dynamic pricing, the hotel could make both the guest and the owner happy.
Agarwal put his own experiences visiting hotels into work, focusing on what details guests cared about most at each price point. For example, asset owners might invest significant funds in getting a chandelier, but at the expense of a quality breakfast.
“Way too many hotels would not have the warm white light, which is what consumers like. There are few many hotels that do serve right, which is something that consumers really appreciate," he observed. By focusing on these elements, online reviews improved and the hotels proved profitable.
How did OYO got Succeed?
Agarwal’s knowledge in technology helped him market his brand to a larger audience.
“We used great interior design, which inspired people to come into the hotels, updated the rooms in a way that consumer ratings were the most important factors that we cared about.”
– Agarwal in an interview
Ritesh Agarwal also had improved the pricing model of OYO for budget friendly customers. OYO team used to adjust rates for 1 million guestrooms more than 50 million times each day, by his estimates.
In the back end, OYO has connected all asset’s staff. E g.- the brand has a dedicated app that lets staff of the hotel know which room needs to be serviced. They tracked how much time the housekeeper spent cleaning the rooms and how clean the guest has reviewed the room to be to the management.
“If they clean it quickly and got a five-star feedback, they could get paid up to 25% more... And if he or she gets paid more, we can hire less. We don't need to hire as many people because ... they are incentivized to be more efficient because they get paid more.”
– said the CEO
What is the Business Model of OYO?
Oyo initially started as a hotel aggregator and used to lease hotel rooms and rent them under its brand name. Later, it changed its business model from the aggregator model to the franchise model. It includes partnering with hotels and asking them to work as a franchise, and rent their rooms to customers at reasonable prices.
• What does the franchise model mean in the hotel space?
Oyo will not buy and own hotel rooms that are listed on their site. Instead of that, Oyo renovates the hotel rooms according to its criteria of standard services, and make the hotel room a part of “standardized budget hotel chain” with Oyo’s branding.
• What makes Oyo’s business model unique?
Business model of OYO is unique and different from other companies in hospitality sector, because of it's standardized quality services. It strongly focuses on user experience, instead of only room availability and low prices.
OYO's business model is based on a franchise model. OYO partners with independent hotel owners and provides them with technology, branding, and operational support. In exchange, OYO takes a percentage of the revenue generated by the hotel.
OYO provides a comprehensive solution to its partner hotels, which includes a range of services such as property management, revenue management, customer acquisition, and marketing. OYO also provides technology solutions such as a hotel management app, a central reservation system, and an integrated payment gateway.
OYO's business model has been successful in providing affordable accommodation options to travelers while also providing a profitable investment opportunity for hotel owners. The company's technology-driven approach has enabled it to quickly scale its operations and expand into new markets, making it one of the largest hospitality chains in the world.
How does Oyo make money?
| Commissions | Oyo charges about 22% of commissions each month from hotels. Commissions may vary as per services offered. |
| Room Reservation Fee | Customers pay a room booking or reservation fee according to the services chosen. The room fee is charged as few percentage of the hotel’s price. E.g.- if a room is priced at ₹ 1,000 per night, Oyo will make only 10-20% commission from it, and that is their revenue. |
| Membership fees | Users who subscribe to Oyo Wizard memberships are charged with fees ranging from ₹ 500 to ₹ 3000. |
| Advertising | Oyo also charges companies to display their advertisement on Oyo’s app and website. It also generates good revenue for Oyo. |
| Sponsors and Partnerships | Oyo also charges some amount from their sponsors and partners by promoting their brand name through ads on their platform. |
| Consulting Services | Oyo also charges for its business consulting and data analysis services, it offers to its partner hotels, clubs, organizations, etc. |
How Oyo managed to get Funding?
After few hotels had partnered with Ritesh Agarwal’s startup Oyo, he needed funds to gain more growth. Silicon Valley-based venture capital firm named Lightspeed Ventures invested $600,000 in Oyo as seed investment. Later, slowly other venture capital firms and hedge funds followed it. Which includes Sequoia Capital, SoftBank Vision Fund and Greenoaks Capital.
“None of them thought we would grow this quickly. The first one came when we were two buildings strong,"
– said Agarwal
With the help of new funds, Oyo started expanding its wings to all directions. Oyo Homes got attention of home-sharing giant Airbnb. which may have invested a rumored of $150 million in the company over the last few years.
How does OYO scaled it's business?
After Oyo got spread all over the India, it started expanding rapidly in China with about 500,000 rooms across more than 10,000 hotels, the Middle East, Europe and also 85 hotels in the United Kingdom.
“Our Europe revenues are roughly 20 percent of our company now,”
– Ritesh said
After this, it helped the company to easily enter it's root in the United States this year. As of June 2021, the company already had 68 hotels in more than 40 American cities.
Ritesh Agarwal estimates that Oyo is opening a hotel per day in the United States. Now the company has a growing presence on the American landscape. Therefore, Oyo plans to invest $300 million for development in the U.S. for upcoming years.
OYO has scaled its business through a combination of strategic partnerships, technology-driven solutions, and aggressive marketing and expansion efforts. Some of the key factors that have contributed to OYO's rapid growth include:
- Franchise model: By partnering with independent hotel owners and providing them with technology, branding, and operational support, OYO has been able to quickly expand its operations and enter new markets.
- Technology solutions: OYO's technology-driven approach has enabled it to streamline its operations, reduce costs, and improve the customer experience. The company's hotel management app, central reservation system, and integrated payment gateway have been critical to its success.
- Strategic partnerships: OYO has formed partnerships with several companies and organizations, such as MakeMyTrip, Airbnb, and Flipkart, which has helped it reach a wider audience and expand its customer base.
- Marketing and brand building: OYO has invested heavily in marketing and brand building, which has helped it establish a strong brand image and increase brand recognition among travelers.
- Continuous innovation: OYO has continued to innovate and expand its offerings, such as OYO Life and OYO Workspaces, which has helped it diversify its revenue streams and tap into new markets.
These are some of the key factors that have contributed to OYO's rapid growth and scaling of its business.
What are the Challenges faced by OYO Rooms?
| Unethical growth strategies | OYO offers rooms from unavailable hotels, those that have halted its service, according to the company’s chief executive and nine of the current and former employees. |
| Complaint of unpaid dues | OYO charges extra on hotels and refused to pay the hotels the full amounts they claimed they were owed, according to interviews with hotel owners and employees, legal complaints, emails viewed by The New York Times. |
| Protests by hotel owners | Independent protests by small-scaled hotel owners are surfacing up in mid-tier towns like Pune, Kota, Manali, Ahmedabad and Jaipur as well as Delhi and Bengaluru. They claim that OYO has been eluding them of their promised returns and minimum guarantees by imposing a ream of charges, often without informing them. |
Some recent news about OYO and its founder Ritesh Agarwal
- Ritesh Agarwal stepping down as CEO: In January 2021, Ritesh Agarwal announced that he was stepping down as CEO of OYO India and South Asia, to focus on his role as Group CEO and to drive OYO's global strategy.
- OYO's ongoing financial restructuring: In 2020, OYO underwent a financial restructuring exercise to streamline its operations and cut costs, which included laying off employees and selling off some of its overseas businesses.
- OYO's continued global expansion: Despite the challenges posed by the COVID-19 pandemic, OYO has continued to expand its operations globally and has entered new markets such as Mexico and the United Kingdom.
- Ritesh Agarwal's investments: Ritesh Agarwal has made several investments in startups through his personal investment firm, RA Hospitality Holdings. In 2021, he invested in an AI-based wellness startup and also in an Indian edtech company.
- OYO's valuation: As of 2021, OYO is valued at over $10 billion and is considered one of the most valuable startups in India.
- OYO's partnerships and collaborations: OYO has collaborated with several companies and organizations to offer accommodation solutions to their customers. Some of OYO's notable partnerships include collaborations with organizations like MakeMyTrip, Airbnb, and Flipkart.
- OYO's focus on sustainability: In recent years, OYO has been focusing on sustainability and has launched several initiatives to reduce its carbon footprint and promote environmental responsibility. These initiatives include implementing energy-efficient systems in its hotels, reducing waste, and promoting eco-friendly practices.
- OYO's new ventures: In addition to its core hotel business, OYO has also entered new ventures, such as OYO Life, which offers fully managed living spaces for long-term stays, and OYO Workspaces, which provides co-working spaces.
- OYO's response to the COVID-19 pandemic: Like many other businesses, OYO was impacted by the COVID-19 pandemic, with a significant drop in demand for hotel rooms. However, the company has since then adapted to the new reality and has implemented several measures to ensure the safety of its guests and employees, such as frequent sanitization and contactless check-ins.
Conclusion
Despite many struggles, This Startup Oyo got successful and success story of its journey is an inspiration for many small startups in India. Oyo has expanded its horizons beyond the bounds of India as well as just hotels. At the moment, Oyo is one of the India’s most gifted startups. Ritesh Agarwal has 30% of the profits of Oyo Rooms.
FAQs
Is Oyo an Indian startup?
Oyo is an Indian startup and is founded by Ritesh Agarwal in 2013. Oyo today is one of the world's biggest chain of hotels, homes and spaces.
What is full form of OYO?
OYO: On Your Own
The full form of OYO is "On Your Own".
Who is the Owner of Oyo Rooms?
The Owner of Oyo Rooms is Ritesh Agarwal an Indian entrepreneur. Ritesh Agarwal is Founder and CEO of Oyo Rooms.
How does Oyo make money?
Oyo makes Money through Commissions, Room Reservation Fee, Membership fees, Advertising, Sponsors and Partnerships and Consulting Services.
Is Oyo Rooms a unicorn?
Oyo Rooms is a Unicorn startup from India and is owned by Ritesh Agarwal. Ritesh is Founder and CEO of Oyo Rooms.
Is OYO a Chinese company?
Oyo is not a Chinese company, it is an Indian startup company founded by Ritesh Agarwal. But, Oyo does have its business in china and many other countries.
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