OYO Business Model | How OYO Makes Money

OYO is a global platform involved in technology for small businesses and entrepreneurs in the hospitality industry to enhance their revenue and operations. It is a means to provide affordable, easy, and trusted accommodations to guests around the world. OYO has more than 40 integrated products and services that comprise more than 157,000 hotels and homes in 35-plus countries, including India, Europe, and Southeast Asia around the globe.

The man behind the business is Ritesh Agarwal, who is also the first Asian resident to take up the Thiel Fellowship. OYO converts the existing and independent hospitality spaces into branded, technology-enabled assets that promise better revenue potential for the owners. These technology tools are offered through Co-OYO and OYO OS and provide features like digital onboarding, revenue management, and business management.

Booking can be done on OYO properties through the OYO app and website, apart from other third-party platforms. The OYO app has over 100 million downloads and provides services such as digital check-in, easy booking, and pre-post-stay services. With a membership base of about 9.2 million, OYO Wizard is the second-largest travel and food brand loyalty program in India.

About OYO

An innovative startup founded in 2013 by Ritesh Agarwal, OYO Rooms has seen an amazing journey through hospitality-treading its meteoric rise and coming across several hurdles on its way. OYO Hotels and Homes was launched as Oravel Stays in 2012, a website that showed budget accommodations and then rebranded as OYO ("On Your Own") to set up a standard pool of budget hotels across the country, before finally being launched as Oravel Stays. At first, OYO had only five hotels in Gurugram, India, but growth was fabulous online bringing small-budget hotels into the purview.

By 2015, OYO had enlarged to 230 cities and was operating with a consolidated network of over 70,000 rooms. The year 2016 started into a new era for OYO international offerings, starting from Malaysia, and had joined the company in the other package that was to become an international company spreading into China, the United Kingdom, and the USA by 2019, with an estimated presence of around 800 cities in more than 80 countries. However, because of COVID-19, the travel industry went haywire; hotel demand slashed, saw massive layoffs, and many hotel partners closed operations or went out of business. OYO is presently caught up in litigation regarding mismanagement and has seen its valuation dip from $10 billion in 2019 to just $3 billion by 2020. However, OYO is focusing on recovery by integrating initiatives like VaccinAid and OYO Workspaces to keep up with the changing market conditions.

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OYO Business Model

Incorporating a distinctive model that blends between franchising and aggregation, OYO Rooms has established itself. Initially, OYO rented Hotel Rooms which it then standardized under its brand and subsequently ensured that these would be consistently serviced through an agreement with partner hotels. Bookings can be made through the mobile app or website. Over the years, this business model has changed into a purely franchising model where the hotels now use OYO's brand without having to lease. This has helped partners to create revenues that could even reach a "double bottom line."

OYO has a range of ancillary services that should be able to address different customer needs. The partner hotels are also influenced by OYO standards in their services, thus, assuring quality and consistency. OYO Flagship thus leases and directly manages hotels to better control them. OYO Townhouse, provides further treatment to young travelers, blessing them with modern rooms, meeting space, kitchens open 24 hours a day, 7 days a week, and digital enhancements like Netflix-enabled TVs. OYO also has a Studio Stay for long-term residents like professionals and students. Event Stay is perhaps their newest segment for weddings or cofunction events. OYO's clients can also find Commercial Spaces for coworking and office use. Finally, its loyalty program OYO Wizard offers subscribers exclusive discounts and deals.

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How OYO Makes Money | OYO Revenue Model

OYO Rooms has always been a multistream revenue model, which inherently varies with time to ensure constant growth. On the other hand, the company makes revenue from a commission-based model it charges its hotel partner between 20%-30% of the gross booking value (GBV) for each booking made through the platform. The collation varies according to the services offered by hotels and booking frequency. 

Today, OYO earns a sizable share of revenue from the franchise model, which now accounts for almost 90 percent of earnings. Under this business model, OYO partners with hotels to run their operations under the OYO brand, thus growing the network without property ownership and having standardized and equable services. Other value-added services provided by OYO, apart from the reservation fees which few add with a markup over the base room rate that they charge and OYO Wizard, are also factors contributing to OYO's revenue. 

Other ways of monetization for the OYO include the revenues from advertising and partnerships, where companies could promote their brands on the OYO platform. A significant number of bookings are not done through third parties, as they have developed direct-to-customer websites and mobile applications, such as OYO, with the resultant loss of dependence and better margins.

OYO Revenue

OYO made a profit of INR 158 crore in the second quarter of FY25, ending in September, as shared by the founder Ritesh Agarwal in a town hall meeting, according to sources. OYO's parent company, Oravel Stays Ltd, had a loss of INR 50 crore during the same period last year in FY24. In the first quarterof FY25, OYO's profit after tax was INR 132 crore, bringing its total profit for the first half of FY25 to INR 290 crore ($35 million). This is a big turnaround from the INR 91 crore net loss in the same period last year. OYO’s revenue in Q2 FY25 also grew to INR 1,578 crore, up from INR 1,413 crore in Q1.

OYO Revenue Y-o-Y

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OYO Unique Selling Proposition

OYO has transformed the budget hotel category by providing guests with standardized, high-quality spaces with bathrooms and charges for free wi-fi and breakfast, including other services, without compromising on price. The technology-driven online platform creates unprecedented seamlessness in booking, dynamic pricing, and real-time inventory management. For modern travelers, features like 24-hour check-in and excellent customer support address travel needs.

OYO now operates in over 80 countries and still manages to blend global coverage with localized service and standards for rigorous checks on quality. It provides marketing, technology, and access to large distribution networks to help small hotel partners increase occupancy levels in many locations. It offers a very diverse range of unique accommodation options from vacation homes to more premium Townhouse stays complemented with dynamic pricing and a customer-centric philosophy that engenders monopolistic loyalty.

OYO SWOT Analysis

OYO Strengths

• Standardized Quality: OYO sets the provision of all the amenities and services across its locations such that they become unified into one experience in every property for the customers.
• Extensive Global Network: Spread wide to include over 85000 hotels worldwide, OYO boasts of diversification, which greatly widens its market penetration.
• Asset-Light Model: The company works with existing hotels and does not have any property by it; hence, the company has the possibility of speeding up in most of the cases where flexibility is given to investments made into real estate.
• A Range of Accommodation Types: There are many offerings for customers' different needs of budget hotels, vacation homes, co-living spaces, and even high-end accommodations.

OYO Weaknesses

• Heavy Dependence on External Financing: It is becoming very dependent on venture capital for its future growth which brings the proposition about the sustainability of the business model and long-term profits in the shift into a self-sustaining business.
• Brand Equity Problems: The speed with which operations grow often leads them to become quite inefficient and mishandle customer experience, which negatively affects the equities of the brand in a few markets and customer faith.
• Regulatory Complexity: This diversity within the market operations provides for some further complications in laws and compliance under which these sporadic disputes and operating impediments take place.

OYO Opportunities

• Emerging Markets: Emerging markets are cast in spotlight areas on the continents that include Africa and South-East Asia, which presently concern increasing underdevelopment with respect to hospitality.
• Technological Integration: Technological arm in creating applications by innovations like artificial intelligence and IoT in which customer services will be improved, operations streamlined, and the experience with these intelligent technologies further focused on the guests.
• Green Initiation: Since greener hotels are preferred by travelers, the same is financially beneficial for OYO once it becomes sustainable as a claim within this segment mind of travelers.
• Strategic Alliance: This is the development of an engine, joined with a travel agent and a local business network adding plenty more revenues into the company in exclusive packages for the customers.

OYO Threats

• Highly Competitive Market: Competition is quite a challenge for OYO as it is a competitor with established hotel chains like Marriott and Hilton, and the likes of Airbnb, all betting for the same space in the market. 
• Economic Sensitivity: Economic downturns entail cutting back on travel budgets, leading to reduced demand for budget-friendly accommodation and inexpensive lodgings.
• Concern for Safety and Innovation: Safety standards are maintained, which sustains consumer trust; keeping up with rapid developments will, however, ensure constant disruptive competition.

Conclusion 

OYO is growing steadily in the global hospitality industry. It has grown phenomenally, become dynamic over the years, and continues to develop. Having an entirely different business model, based on the principles of standardization and low-cost budgets, has allowed OYO to occupy a market open for competition in one of the existing highly competitive markets. OYO holds certain advantages that will contribute to success, primarily, an extensive network of properties, brands, and technology.

Among the major challenges facing the company will include an economy of scale, brand reputation issues, complex governmental regulations, and some stiff competition from international and local chains of hospitality and a new generation of platforms. Tackling some of its weaknesses and taking off opportunities from developing markets, emerging technologies, and sustainability would create commercial value in OYO. Above all, the place and customer experience will matter for the gradual growth and sustainability of the business as it will involve an ongoing evolution and change according to the dynamics of the market.

Particularly, adopting these principles will prove critical in business continuity, optimization of performance post-COVID, and ensuring that OYO handles growth and profitability consistently well. Indeed, in the coming years, it will probably be fine to discuss whether this company has a future in hospitality.

FAQs

What is OYO?

OYO is a global hospitality company founded in 2013 by Ritesh Agarwal. It provides affordable and standardized accommodations, including hotels, homes, and vacation rentals, across multiple countries. OYO uses technology to simplify booking and improve guest experiences.

How does OYO make money?

OYO earns money through commissions from hotels, franchise fees, room bookings, leased properties, and extra services like food and event spaces.

What is OYO USP?

OYO's USP is affordable, standardized, and tech-enabled accommodations with easy booking, consistent quality, and wide availability across locations.