OYO Rooms: Making the Indian Budget Hotels Accessible

OYO Rooms: Making the Indian Budget Hotels Accessible

India’s very own Mark Zuckerberg (Mark); this is how Ritesh Agarwal (Ritesh), founder of OYO Rooms, is described by many people in India and abroad. Indeed there are striking similarities. Both Ritesh and Mark (founder of Facebook) started coding early on in their lives. Both of them dropped out of colleges to pursue their dreams. Both of them were able to spot a latent need in people’s daily lives and had the requisite skills to build a technology based solution to satisfy that need. And of course both of them became very successful very early in their lives.

Just to put things in perspective, Ritesh’s startup venture OYO (acronym for ‘On Your Own’) Rooms (OYO), which started with one hotel in Gurugram, Haryana in 2013 had, as of November 2016, grown to over 6,500 hotels in about 164 cities in India and had become the largest branded hotel network in India. Compare this to Indian Hotels Company Ltd. (IHCL), owned by the Taj Group, which opened its first property in the year 1903 in Mumbai, India, and has 108 hotels in 63 locations in India as of October 2016. Although OYO differed from IHCL in many respects and also catered to a different consumer segment, what cannot be denied is that startups like OYO represent an emerging and rapidly growing challenge for established companies like IHCL. What is truly fascinating is that a college dropout is able to disrupt a fiercely competitive Indian budget hotel industry...........

OYO’s Founder

Ritesh’s story is nothing short of a Bollywood movie. He was born in Bissamcuttack, a village in Rayagada district of state Odisha, India. Ritesh started coding when he was only eight years old. By age 17, he had not only authored a book named The Encyclopaedia of Indian Engineering Colleges but had also become the CEO of a company called ‘Worth Growth Partners’...........

From Oravel to OYO: Change of Business Model

In its earlier avatar, OYO was Oravel, which was founded in the year 2011 by Ritesh and primarily catered to Bed and Breakfast (B&B), a concept popular in the western economies, and serviced apartments. This business model of Oravel was similar to AirBnB, wherein private landlords rented out a part of their residential properties for short term stays. This mostly catered to budget travellers who were looking for a place to sleep in the night and a breakfast in the morning before going about their business during the day. With this business model, Oravel managed to secure funding of about INR 30 lakhs from VentureNursery and also went through its start-up accelerator programme. But eventually Ritesh dropped the idea of continuing with Oravel and started OYO in the year 2013.............

OYO’s Value Proposition

The primary issue with the Indian budget hotel industry has always been the lack of standardisation between different hotels. At times the consumers get very good experience although it is rare. Most of the times the customers get an experience that leaves a lot to be desired. From dirty linen, malfunctioning air conditioner and no power backup, the list is endless. Budget travellers look for affordable accommodation with basic but working amenities. OYO realized and filled this gap and offered it for this price sensitive but demanding consumer segment..............

Competition

There are primarily three types of players serving the travel industry in India. The first category consists of standalone players that own their inventory. IHCL, owned by the Taj group, comes in this category. Second category comprises of travel agents who offer the entire range of travel related services to its customers including hotel, tickets (train/airplane/bus) and foreign currency. Some of these players, like Makemytrip, operate only online and are known as Online Travel Agents (OTA)...........

Funding

A start-up gets funding in different stages based on the feasibility and viability of the business model, future potential, the management team among other factors (Exhibit IV). The funding round starts with what is commonly known as seed funding which is considered very high risk. This is followed by series A, series B, series C (and so on) rounds of funding at different stages of a growing startup (Exhibit V).........

Challenges Ahead

Although OYO has done fairly well by securing significant funding and scaling up rapidly, it faces multiple challenges in going forward. The first challenge is to stay ahead of the existing cut throat competition. This basically translates to better deals for consumers as well as hotel owners, which entails money being spent by the OBA. Till now OYO had been able to provide better prices to its customers based on the impressive funding it had been able to secure (Exhibit IV)..............

Assignment Questions

I What seems to be OYO’s strategy?
II What should be OYO’s strategy?
III ..............

Exhibits

Exhibit I: OYO-Basic Amenities at Attractive Prices

Exhibit II: Indian Online Travel Agencies (OTAs)

Exhibit III: Indian Online Budget Room Aggregators (OBAs)

Exhibit IV: Levels of Funding

Exhibit V: Funding vs Stage of a Company

Exhibit VI: Funding Received by OBAs

OYO Rooms: Making the Indian Budget Hotels Accessible

Synopsis

This case details the rapid rise of OYO Rooms that has become one of the key players in the fiercely competitive Indian hotel industry. OYO was founded by Ritesh Agarwal in 2013 in Gurugram, Haryana. Ritesh spotted the need for standardised budget accommodation early on and brought to the market a solution that made the standardised budget hotel rooms accessible to the large and burgeoning Indian middle class. OYO has thus unlocked a new set of customers, but largely on the basis of VC funding. Although this follows a similar pattern in the context of e-commerce companies that burn a lot of cash in order to gain suppliers as well as buyers, OYO will have to find sustainable alternate revenue streams if it wants to sustain its competitive advantage in the fiercely competitive Indian hotel industry.

This case provides students with an excellent opportunity to understand how a small player can enter a fiercely competitive industry with the help of a robust business model and generous funding. Given the very young age of its founder, OYO is an inspiration for millions of youngsters in India and abroad for creating more such ventures.

Pedagogical Objectives

• • To illustrate how a new entrant with a great idea and sizeable VC funding can disrupt a fiercely competitive market.
• • To illustrate the importance of a good strategy
• • To explain how a product’s desirability, feasibility and viability matter.
• • To detail the funding opportunities which are available to start-ups

Case Positioning and Setting

This case study would be useful for business students at the postgraduate as well as undergraduate level. This case is primarily meant for the strategic management course but can be used in other elective management courses, especially in the strategy and entrepreneurship areas................