E Business.docx

How it all started In 2012, then 18-year-old Ritesh Agarwal, hailing from Odisha's Rayagada district, launched Oravel Stays, a website designed to enable listing and booking of budget accommodation. After three months of research and staying in over 100 bed and breakfast homes, guest houses, and small hotels, he pivoted Oravel to OYO in 2013. OYO partners with hotels to give similar guest experience across cities.[10] Shortly after launching Oravel Stays, Ritesh Agarwal received a grant of $100,000 as part of the Thiel Fellowship from Peter Thiel. In March 2015, OYO raised Series A round of funding $24 million from Lightspeed Venture Partners, Sequoia Capital, Greenoaks Capital and DSG Consumer Partners. In August 2015, OYO raised another $100 million from Softbank Group, a existing investor.]A year later, in August 2016, OYO raised $90 million from Softbank Group, Innoven Capital and existing investors. In September 2017, OYO announced it had closed a $250 million series D round of funding led by Softbank Group, new investor Hero Enterprises led by Sunil Kant Munjal, Sequoia Capital, Greenoaks Capital and Lightspeed Venture Partners. China Lodging made a strategic investment of $10 million in OYO in September 2017. In late 2017, OYO launched OYO Home, an Airbnb-like marketplace for short-term managed rentals. OYO Home has presence in more than 10 leisure destinations of India including Goa, Shimla, Pondicherry, Udaipur, Kerala etc. In April 2018, OYO launched its first international OYO Home in Dubai. In September 2018, OYO raised $1 billion. The majority of the funding — $800 million, to be exact — was led by Soft Bank’s Vision Fund with participation from Lightspeed, Sequoia and Greenoaks Capital. OYO said there is also an additional $200 million that has been committed from as-yet-unnamed investors. The deal values the five-year-old company at $5 billion. Oyo rooms came with new concept of data sharing of staying customer with government authorities.

Recent issues OYO rooms were in multiple Indian news in September 2018 after a sexual harassment claim was made by US citizen Jordan Taylor. She had allegedly claimed that she was provided an unsafe accommodation by OYO in Delhi where she was sexually harassed by OYO hotel staff. OYO has been in news for using predatory pricing using its funding money to unfairly remove competition. It was also reported that OYO was not following its own agreements and have threatened the hotels to unilaterally change some of the clauses or suffer the consequences of non-payment. Oyo Rooms had sent mass unsolicited job offer emails targeting senior- and mid-level employees of competitor companies. It was reported by Business Standard in 2017 that OYO rooms were making massive losses without showing any significant revenues.

SWOT analysis of Oyo Rooms Oyo Rooms is a network of budget hotels based out of India. Launched by Ritesh Agarwal the concept was fairly new and thus was accepted well by urban India. What started off as a one room one city thing in Gurgaon today has around 70,000 rooms across 8500 properties in 230 towns? The concept of Oyo rooms was that of an aggregator which was essentially a listing of budget hotels and homestays which users who wished to arrange accommodation could select and book.

The website was known as Oravel. Later this was upgraded to a set of rooms which provided budget accommodation to people. Today Oyo has services in India, Malaysia, and Nepal and is slowly emerging to be a solicited option for the budget stay by both families and single travelers. They also have tieups with corporates and business houses for extended stay options. Strengths in the SWOT analysis of Oyo Rooms : Strengths are defined as what each business does best in its gamut of operationswhich can give it an upper hand over its competitors. The following are the strengths of Oyo Rooms: 

Standardisation: The Oyo rooms are mostly owned by various providers but have just been standardized under the Oyo franchise and thus people are guaranteed of standardized service in all Oyo rooms wherever they may be located.

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Ever growing network: What started off as a one room one hotel thing in Gurgaon now has around 8500 properties to its credit and an additional inventory of 4000 motels and homestays? This is a clear strength.

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Spirit of Innovation: The root idea or need from which Oyo rooms were conceptualized is a highly innovative one of a one-stop shop for a budget stay in India. The company continues to maintain its strong spirit of innovation as is evident from the policy to standardize rooms amongst many others.

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Subsidising Hotel Stays: Oyo subsidizes rooms to make them affordable for customers and similar to Ola and Uber have emerged successfully in their line of business.

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Young and highly spirited leader: The founder of Oyo Ritesh Agarwal is a youngster who has won a lot of accolades and besides entrepreneurship caters to a wide range of interests. This is reflective of every strategy that Oyo adopts since there is a freshness to the approach taken which is one strong reason for its instant success.

Weaknesses in the SWOT analysis of Oyo Rooms : Weaknesses are used to refer to areas where the business or the brand needs improvement. Some of the key weaknesses of Oyo rooms are: 

A strategy of co-branding: Oyo does not own any of the rooms that it lets out. But it is more like a hotel aggregation platform where the buyer and seller are allowed to transact with each other through a common window provided by Oyo. Thus they just cobrand with various budget hotels but do not own the rooms.

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Poor service quality: Though Oyo has tried to standardize amenities for each room based on the prices they charge, they have not been able to do

the same with services. This has made the service quality and reliability highly questionable. 

Tight margins: Hotels that are on a tie-up with Oyo can also loop in other agents for which Oyo cannot do anything much to circumvent. In this context, the model thrives solely on how well the margins they provide for their hotels are which can be risky in the long run.

Opportunities in the SWOT analysis of Oyo Rooms : Opportunities refer to those avenues in the environment that surrounds the business on which it can capitalize to increase its returns. Some of the opportunities include: 

Growing demand for aggregators: As the world reels from the aftermath fo repeated recessionary trends, pay cuts, and job losses, most higher end hotels are struggling to balance supply and demand. This increases the scope for aggregators like Oyo since most hotels would prefer to take external support for sourcing new business.

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Focus on budget accommodation: Earlier the trend was more biased towards luxury and boutique hotels but not anymore. People are trying to minimise spending and focus on saving and thus budget hotels that can provide decent boarding and lodging facilities are on a high demand today.

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A surge in the number of business travelers in emerging economies: The number of people who travel on business from both genders has grown profusely in emerging economies. This has resulted in a demand for budget stays.

Threats in the SWOT analysis of Oyo Rooms : Threats are those factors in the environment which can be detrimental to the growth of the business. Some of the threats include: 

Competition: With lowered barriers to entry, every new entrepreneur is looking at aggregating services. There are a lot of online portals like ibibo, trivago, makemytrip etc which offer a varied gamut of services similar to Oyo.

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Growing concerns about safety: Today there is negative imagery of unsafe stays and the number of cases of harassment is on an increase.

Though Oyo does not guarantee safety at any point in time for its hotels they have a moral commitment to ensure that no such untoward incidents happen.

Challenges in Room Aggregation Business in India Indian hotel industry is expected to be around $ 230 billion by the end of 2015. The segment is getting much traction because currently only 12% of the hotel bookings are done through Internet and thus there is a huge scope. Secondly, with the coming up of the room aggregator’s, hotels have started witnessing sharp fall in walk-ins and most of the travellers including budget travellers have shifted towards the Internet booking, reports ET. The two facts combined shows there is a huge gap, which is quickly filling up. As this sector is in its nascent stages and growing fast, in this article, we will discuss the challenges in room aggregation business in India. Oyo could be crowned with the credit of finding the gap and introducing the concept of room aggregation business model, many established players have also thrown their hat in the ring, realizing the potential of the business model. MakeMyTrip launched it’s Value+ and Goibibo launched GoStays in the same segment after delisting Oyo and Zo rooms from its portal. So now there exist two types of competitors competing within and with each other 

The Online Budget Room Aggregator (OBA) and Online Travel Agencies.(OTA)

In OBA category there are about 16 online budget aggregators have been launched in 2014-15, while 7 got funded- Zo rooms, Wudstay, Treebo, Fabhotels etc., OTA category include established players like MakeMyTrip, Yatra, Goibibo, ClearTrip among others. Thus in total around 30 players competing in this sector. Apart from the above-mentioned categories, Roomstonite, which is an Online Budget Room aggregator follows a slightly different model, they are the “last minute hotel booking site” thereby helping the hotels plan their capacity and at the same time providing customers the best deal. They have 2,500 hotels across 275 cities. Business Model of Room Aggregators

What they do These aggregators provide budget hotel rooms to the customers. They promise standardized services like free wi-fi, breakfast, comfy bed, 24×7 customer service etc. On the other side they furnish hotel’s property and brand it on their website and app under its own name. Aggregator Founded Cities

Hotels

Funded Funded by

Oyo

2013

149

4000+

SoftBank, Sequoia $ 125 Capital, million LightspeedVenture

Zo

2014

54

800+

$ 47 Tiger Global and million Orios Venture

StayZilla

2010

4,00 0+ 30,000+ $ 20 IAN, Matrix, Nexus locations properties million

Treebo

2015

$ 6 million

8

24

Fab Hotels 2015

29

200+

$ 5 Accel Partners million

Wudstay

2

40

$ 3 Mangrove Capital million

2015

Online Travel Founded Agency

Aggregation Model

MakeMyTrip

2000

Value (2015)

Yatra

Goibibo

Matrix Partners

Cities

Hotels

Funding

35

1,000

IPO/Stock (went public in 2010)

2006

TG Rooms and Stays 60 (2015)

1,000

Funding received$105 million

2009

GoStays (2015)

1,384

Subsidiary of Ibibo Group

+

99

How They Do Aggregators enter into a contract with the hotel management. All the points relating to the number of rooms, particularly which rooms of the hotel, price of the room, basic amenities etc are negotiated in the contract. These companies prepurchases the property for a specific period and the onus of management of the property (so that a specific standard of quality is ensured to the customer), remains with the aggregator. After purchasing these properties the aggregators market these properties under their own brand at a discounted price. On an average these companies purchases hotel rooms for a negotiated price from the hotel and re-sell at a discounted price of as low as 799 sometimes (most often 1000-1200) to attract the customer base and as high as 4000 depending on the type of hotel and its location. The hotel owner has got an assured amount of payment for his rooms which otherwise would have been occupied only around 50%. That seems a winwin situation for hotel owners and customers. Customers get a cheaper accommodation with all amenities and the hotel gets an assured income/ higher occupancy rate, online marketing (though indirect), property maintenance etc. but what about the aggregators? As reported by ET, Oyo has two business models, the one above and the second one, wherein the company does not purchase the property, but simply market it on their website, and if the sale is made the revenue is shared. On the other hand, OTAs does not brand the hotel with their own name rather they brand the hotel itself on their website so that the customer knows where he is going. This gives OTAs one extra point when hotels decide their online marketing platform. For each room Goibibo sells, it charges a commission of 30%. On the price war, OTAs are selling rooms as low as 499 (Yatra) as compared to OBA’s 799. Challenges in Room Aggregation Business in India 

High Cash Burn Rate

This business involves a very high cash burn rate. Since companies are in their expansion mode they are offering a lucrative discount to acquire the customers. Yes they are doing it with investor’s money and are not profitable yet. Oyo Rooms chief growth officer Kavikrut said, “We have been growing at 100 percent growth rate MoM and with this pace, we are likely to be profitable in three years.” 

Competition

It is true that leaders define the path. Leaders with big pockets are able to afford heavy discount like Oyo. Oyo rooms in talks to buy Zo rooms- one more consolidation in high cash burning industry like Rooms Aggregators. Leaders with big pocket like Oyo and now MakeMyTrip and Goibibo too, are able to afford heavy discount. This becomes a two side sword for the new and smaller players, who are neither able to build more inventory nor can they offer huge discount due to lack of funding. Thus, it becomes highly difficult for small players to compete with Oyo and other established brands. We can hope for more consolidations in the coming time as funding dries up. OBAs are not only competing with each other but also with OTAs who    

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cater to the entire spectrum of travel from tickets to hotel. They already have a huge customer base, thus cross-selling budget hotels is very easy to them Since they are 6-8 year-old companies, customers trust them more As some of them do not brand the hotel under their name, rather brand the hotels on their website thus increases the chances of hotels opting for them over OBA They are already profitable companies and can use their positive cash flows to give head-on competition to the OBA. Standardization

is a major issue. In the race of growth, quality of services and its conformance is often compromised. This is the biggest pain point of the customers. As OBAs do not brand the property, the customer does not know to which hotel he is going and on reaching the destination if one receives sub standard or below expected service it could result in loosing the customer forever. Since these companies are dealing with non-branded hotels, the level of professionalism is low and thus becomes a challenge for the aggregators to delight their customers at every point of contact. 

The unregulated market

Since this is a new business model and an unregulated one, many a times hotel owners dishonor the contract by switching between the brands. 

Tracing location:

As most of the aggregators do not promote the hotel brand on their website, sometimes it becomes highly difficult for customers to locate the rooms. On

booking a room through Oyo, location is received through a message and on reaching the destination billboards directs the customer to the hotel. Although this might seem to be a small problem but the process might result in a nightmare experience for a customer who may not want to return back to the site again. To overcome this issue, MakeMyTrip’s Value+ promotes the hotel brand on its site. Although we have discussed the problems and challenges in room aggregation model there are many positive factors that support the business and makes it a potential venture. New companies are backed by wealthy investors, thus enabling them to capture the market fast, after all, it is all about scale- ‘the more, the merrier’. Extensive use of technology and their focus on niche market segment stands them out from the competition.