The current insights and challenges of OYO Rooms

Almost 8 years ago, while travelling through the country, a college dropout spotted the untouched opportunity in organising India’s budget hotels. This year his startup has achieved 3.5x growth in revenue with a current value of $10 Billion dollars. It’s easy to guess that OYO Rooms, a thriving venture by a young entrepreneur Ritesh Agarwal, is being spoken about.

OYO Rooms Funding
OYO Rooms Funding

The funding marks OYO’s presence as India’s most successful unicorn i.e. private startups valued at over $1 billion only after One97 Communications, Paytm’s parent company. OYO has marked its footprints beyond India—to China, Malaysia, Nepal, and the UK.

In 2012, Ritesh Agarwal launched Oravel Stays to enable listing and booking of budget accommodations. After months of research and experiencing various bed and breakfast homes, guest houses, and small hotels across India, he pivoted Oravel to OYO in  May, 2013.

Current Growth, Expansion and Valuation
Major Acquisition
Challenges faced by OYO rooms
Conclusion

Current Growth, Expansion and Valuation

Ritesh Agarwal
Ritesh Agarwal, Founder

OYO partners with hotels to give guest experience across cities. Shortly after launching Oravel Stays, Ritesh Agarwal got a grant amount  of $100,000 as part of the Thiel Fellowship from Peter Thiel.

OYO currently houses 17,000 employees globally, of which approximately 8000 are in India and South Asia. OYO Hotels & Homes is now recognized as a full-fledged hotel chain that leases and franchises assets.

Over a span of six years, the startup expanded globally with thousands of hotels, vacation homes and millions of rooms in hundreds of cities in India, Malaysia, UAE, Nepal, Brazil, Mexico, UK, Philippines, Japan, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, the United States and more. It is even valued higher than the renowned  Taj group of hotels and Oberoi hotel chain.

In 2019, OYO registered 3.5x growth in revenue in FY 2017–18 at Rs 416cr for India operations and a marginal loss of 360 cr. In 2018, OYO reported a loss of 330.97 cr which was better than the previous year.


Also Read: OYO sets foot in UAE after China


Major Acquisition

In March 2018, OYO acquired Chennai-based service apartment operator Novascotia Boutique Homes stepping into the service apartment and corporate executive stay business.

In 2018, the company plundered into the $40 billion wedding management industry by acquisition of Weddingz.in, a Mumbai-based online forum for wedding venues and vendors to breathe new life into a disintegrated, low-yield, broken customer service.

In April 2019, OYO declared a strategic global distribution partnership with bedbank Hotelbeds. The company also announced two joint-venture with Softbank and Yahoo!Japan. 2019 saw a strategic partnership of OYO with Airbnb. OYO in March 2019, announced a 1400 cr investment in its India and South Asia businesses as efforts to increase infrastructure, strengthen technology and internal capability.

In May 2019, OYO signalled the acquisition of Amsterdam-based @Leisure Group, Europe's largest vacation rental company. In August 2019, OYO invested in the United States by purchasing the Hooters Casino Hotel, near the Las Vegas Strip, partnering with US-based real estate company Highgate, for $135 million.


Also Read: Ritesh Agarwal’s OYO heads for global expansion


Challenges faced by OYO rooms

Despite the shiny, successful exterior , OYO’s reputation has been dubious soon after its founding. OYO’s work culture raises questions about the proficiency of its business, according to financial filings, court documents and interviews with 20 current and former employees, as well as others familiar with the start-up’s operations.

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. This boosts the number of rooms listed on OYO’s site.
Thousands of rooms are from unlicensed hotels and guesthouses, its executives have acknowledged.

To save the  trouble from the authorities over the illegal rooms, OYO sometimes provides free stays to the police and other officials, according to nine of the current and former employees and internal WhatsApp messages viewed by The New York Times.
Having a huge base of unmarried couples, a scheme involved workers at properties run directly by OYO conspiring to keep the guests checked in after they left. The workers then cleaned and resold the rooms for cash to other guests and nabbed the money, says an ex-worker.

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.
Some hotel operators have filed criminal complaints against OYO, which said it retained payments.Aditya Ghosh, OYO’s head of India operations, dismissed the argument as “noise,” he said, “the disagreement is about the penalties we charge on customer service failure” .


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. Many of these charges are not specified in the contract between the owner and OYO.
The protestors state that OYO’s accounting and auditing process, and the penalties associated with petty faults and errors, are so heavy that they sometimes find themselves owing money to OYO at the end of the month.


Also Read: Top Successful Indian Entrepreneurs


Conclusion

Despite the hurdles, OYO has broadened its horizons beyond the bounds of India as well as just hotels.
“Anyone who’s tried to innovate and attempted creating large organisations has faced bad press. Zuckerberg, Steve Jobs, Elon Musk, Bill Gates—so I think he’s in regal company,” said Ankur Nigam, a partner at KPMG. “I don’t think it’s fair to judge whether he’s a good leader. What’s visible is that he’s managed to build a $5 billion company and nothing succeeds like success”.

At the moment, Oyo is one of India’s most gifted start-ups, with a valuation of $10 billion. Additionally, Agarwal has in his hand 30% of the profits. But, it’s one thing to think of business tactics, and another to be morally wrong.OYO should realise the fact that integrity is what makes the pillars strong in the long run. If it loses its ethics in the first few successful years, it’s impossible that the company would ever be remembered for any good.

Diversification of its humble beginnings as a budget hotel chain, Oravel Stays—the entity that owns and operates the OYO brand clearly aims for the sky and has accomplished triumph in the last five years to mark its eminence.

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About Joey

A management enthusiast, an avid reader, and a traveler.
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