oyo-business-model

How OYO Works: OYO Business Model In A Nutshell

OYO business model is a mixture of platform and brand, where the company started primarily as an aggregator of homes across India, and it quickly moved to other verticals, from leisure to co-working and corporate travel. In a sort of octopus business strategy of expansion to cover the whole spectrum of short-term real estate.

Octopus strategy: OYO multi-brand and multi-product strategy in action

OYO, thanks also to its $2.4 billion in fundings, managed to keep expanding its business strategy to comprise more products (to cover several markets, from traditional rental to vacation and co-working) and brands.

This sort of octopus strategy has seen the company quickly expanding over the years, by splitting its arms in several directions, to cover all the possible facets of the short-term real estate market.

OYO Townhouse: 25% Hotel, 25% Home, 25% Cafe and 25% Store

Announced on February 2017 :

It gives us great pleasure to introduce you to OYO Townhouse. Operating as 25% Hotel, 25% Home, 25% Cafe and 25% Store, these hotels are slated to become to the social hotspot of their neighbourhood. Every single element – from the breakfast menu to the booking process – has been re-engineered to deliver higher quality and better value. Also, unlike the lego-brick approach of traditional hotel chains, every OYO Townhouse is designed to complement its neighbourhood. The tastefully done properties are staffed with highly trained managers to deliver world-class and modern hospitality specially designed for millennials.

Thought for the higher end of the market OYO Townhouse, is steered toward a boutique hotel format. The company purchases real estate and tranforms it into boutique hotels, branded OYO Townhouse, which the company likes to call “‘the friendly neighborhood hotel’ or “a unique combination of a hotel, home, merchandise store and café and is targeted at millennial travellers aspiring premium economy accommodations.

As the company pointed out this is the part of the business targeting higher-income millennials, with six features that make those Townhouses different from the other products (OYO emphasizes them as “6 leayrs of innovation:”

  • Smarter Rooms,
  • Smarter Spaces,
  • Smarter Menus,
  • Smarter Buildings,
  • Smarter Service,
  • Smarter Locations

That is how the formula, that OYO claims, improves over the old hotel formula, was used as part of the initial playbook to expand all over India.

OYO Home: fully managed by OYO

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Source: OYO Rooms Blog

The company announced OYO Home in 2017:

I am excited to introduce OYO Home, our newest initiative in continuing to provide high quality living spaces at diverse locations at a range of prices. OYO is partnering with hundreds of owners across India to unlock, maintain and manage all forms of homes. Everything from villas, apartments, bungalows to farmhouses. Everywhere from Goa, Manali, Shimla, Nainital to Pondicherry.

As the company highlighted back then, there were two main pain pointes t o be solves:

  • Guests: “concerns regarding infrastructure quality and the check-in/check-out experience.”
  • Hosts/home-owners: “The lack of a trusted partner who will take over the responsibility of maintaining the home.”

Thus, the OYO Rooms addressed those two primary pain points to create a platform to renew, expand, and reinvent the existing travel market.

OYO Vacation Homes 

As highlighted by OYO:

At OYO Vacation Homes, we are utilizing the power of data to understand our customers better. Carefully analyzing customer behaviour has given us insights that are significant for business growth. With the help of data analytics, we are able to solve some of the biggest hurdles faced by homeowners, for example, seasonality or low bookings during certain times of the year. It’s data that has helped us understand the impact of a swimming pool or sauna on the occupancy of a particular home. It is also data that highlights that pet-friendly homes witness higher occupancy!

OYO-vacation-home-brands
The brands part of the OYO Vacation Homes varying from self-service to full-service.
vacation-homes-brands
The services offered by OYO Vacation Homes

This segment of the business primarily comprises brands dealing with vacation renal management services, and here OYO expanded also in Europe.

SilverKey: for corporate travelers

secret-key-oyo
The key features of the SilverKey corporate accommodations as recounted by OYO
(source: OYO Official Blog)

Back in April 2019, OYO highlighted “At OYO, our mission is to provide the perfect space in every place. Corporate travel segment is a key engine of our growth for the year and we are stepping up engagement in this segment.”

OYO Workspaces: co-working segment

innov8

After the acquisition of Innov8, OYO entered also the co-working industry with three main products:

  • Innov8 – “Premium Workspace Designed To Help You Create and Innovate
  • Powerstation–  “Vibrant yet professional Coworking Solutions” (fully managed by OYO
  • Workflo– “budget-friendly, functional co-working solutions”

Capital O Collection

This brand targets “new age corporate travelers who are in search for quality and affordable accommodations while meeting their professional and personal requirements.

Other products in leisure, corporate travel, and student housing

Other products comprise:

  • Palette primarily covering the leisure segment.
  • Collection O as the product focusing on the higher-end of the corporate travel space.
  • OYO LIFE, targeting millennials and student housing.

OYO end-to-end experience

HOW OYO DELIVERS GREAT CUSTOMER EXPERIENCE
OYO objective is to cover the hospitality experience end-to-end.
Image Source: Official OYO Blog

A lot goes into delivering what we promise and we never shy away from going the extra mile to give the guests an unforgettable experience.

The OYO Team

The process of standardization of the experience starts with what OYO claims to be a 150 point checklist that goes from the booking experience to the support center and the on-ground Cluster Managers, ready to solve any problem it might arise during the experience of guests.

Up to other initiatives like the “Captain.”

OYO and the era of Hyper Agile

Ajay Shrivastava, former head of technology at OYO, back in 2016coined the term “Solver Team” as a sort of Hyper Agile approach based on his experience at OTO.

As he highlighted:

Early last year at OYO, we experimented a new model of collaboration in software development called the “Solver Teams”. Over the year we shipped dozens of products and hundreds of features using this methodology. It’s an impactful execution mechanism, that churns out multiple features every week at a very high speed, while having a positive synergy and camaraderie in environment across business, product, design and technology teams.

As he highlighted in the old model, the starting point of a product development would start from the business going down product, design, engineering and testing/release.

The issue with this sort of approach is well explained in the graphic below by

Source: Ajay Shrivastava, on “Solver Teams — Hyper Agile & Well Oiled Execution”

In a Solver Team approach (or hyper agile) self-sufficient teams come together, so that different functions are comprised in the same team:

Solver Team (ST) = Business + Product + Design + Tech members. Self-sufficient group of experts from different functions who work together on a specific problem end-to-end.

Some of the key advantages of this approach are:

  • Deep understanding of end-to-end flows
  • Very high speed of execution
  • Strong sense of ownership

Going “Glocal”: from top-down, to bottom-up

Source: Hotel Ratings OYO Official Blog

As highlighted by OYO engineering team back in 2018, they launched an important update related to the Hotel Rating:

When a user visits the OYO Mobile App, Mobile or Desktop Website, hotel ratings are displayed alongside all the properties with essential details on the hotel listing page and hotel details page. If the total count of rating is less than 10, then a ‘New’ tag appears on the hotel. Upon clicking on a hotel rating, it expands to show a more detailed review and displays a happiness index (out of 100) on amenities and core promises. Hotel ratings are collected post check-out via mobile app, customer care and emails.

For aggregator websites like OYO, mechanisms like Hotel Ratings are crucial as they flipped the market upside down. Where conventional rating mechanisms, in the previous era (where digital business models didn’t take over yet) were primarily top-down.

Large scale algorithms and platforms made consumers the raters, thus enabling a bottom-up approach, with a social-media mechanism, and user-generated content, repackaged in the form of synthetic ratings (what OYO calls the happiness index) that enable the platform to show hotel ratings at scale.

OYO in numbers

OYO has been using over the years an aggressive playbook in terms of expansion. First, in India, then globally. This aggressive expansion calls for substantial growth in revenues, but also a growth in net losses (as we’ll see). And as the pandemic hit, while the company still had over a billion in cash at the bank as of 2019, it will have to cut more and more on expansion plans to fit the current market scenario.

OYO growth channels

Total demand and how it was broken down in 2019. (Source: OYO Official Blog)

Among the key channels the company uses to growth, and to make its business stable over time we have repeat customers, organic and paid.

OYO revenue generation

In 2019, revenues increase 4.5x over 2018, reaching over $951 million:

The OYO Rooms Revenue Growth from 2018, to 2019 (Souce: OYO Official Blog)
While Gross margins increased from 2018 to 2019, as you’ll see also net losses escalated
(Source: OYO Official Blog)
OYO Recorded $335 million in losses as of 2019, as it continues with its aggressive expansion playbook, across the world. (Source: OYO Official Blog)

Consolidated net losses increased from 25% in 2018 to 35%  in 2019. The increase in net loss was primarily due to OYO global expansion plans.

As the company moved from a growth playbook focused on India, to expand globally. The expansion in new markets also resulted and will result further in overhead costs that will be amortized over the years.

(Source: OYO Official Blog)

This expansion strategy, which worked exceptionally well in times of market expansion, and available cash for growth, it’s now backfiring as the pandemic hits, especially business models built on short-term real estate rents.

That is why, as of March 2020, OYO started to cut its expansion strategy drastically, especially in China.

Key takeaways

  • OYO business model is a mixture of platform and brand with an aggressive expansions strategy that looks like a sort of continuous blitzscaling.
  • The company expanded in several verticals in the short-term rental real estate and it managed to build several products and to acquire several brands.
  • This stot of business strategy while working extremely well to dominate the market, might also get very risk when the market contracts, thus requiring drastic cuts to keep up with the lack of expected growth.

Other resources:

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here