OYO Business Model Analysis | How It Earns Money?

Ritesh Agrawal Started OYO Rooms (On Your Own) in 2013 and now it is one of the biggest hotel chains in the world. One of the main reasons behind the success is its business models which made OYO different from its competitors and largest hospitality company of India.

OYO uses aggregator business model same as of Uber and OLA. OYO rooms are a hotel aggregator as it uses the aggregator business model. Let’s know what does the aggregator business model mean and how it works?

Aggregator business model is a network business model where the firms collect information about a particular industry which is unorganized and populated sector, make them their partners, and sell their services under their brand name.

OYO uses aggregator business model to run its business. Ritesh Agrawal in his early age wanted to be an entrepreneur and was fond of traveling around different places. One major problem he commonly found during his travel days was the quality of hotel services. Various hotel chain acquired hotels which had more than 100 rooms.

Around 90% of small unorganized hostels were operating in the country freely. Ritesh noticed that huge sector of business opportunity was available. So, he decided to open OYO rooms and organized small hostels under the one uniform brand name.

OYO acquired its first hotel in Delhi in 2013 and from that day there has been no looking back for OYO. The OYO business model focus on making a partnership with hotels, apply uniform standards and develop user’s friendly environment in their hotels.

Initial Business Model of OYO

OYO hotel chain builds its operations by building its business model around the aggregator business model but things have changed since 2018.

In its early days, OYO used to organize the partner with hotels, lease some rooms, and sell them under its own brand. OYO got popular because of the service offered by the company. People can get standard service in affordable price under OYO hotels.

 How OYO business model is different from other hotel aggregator?

While OYO is hotel aggregator but it’s business model is different than of other hotel aggregators such as Airbnb. OYO takes in it for itself to standardize the quality and services offered in the hotel.

OYO trains the staff on a regular basis and focuses on the retention of employees in the organization. Unlike other hotel aggregators, the customer can complain about the services of hotels to OYO. If OYO finds out that the hotel is not providing the standard service of the company, then it delists the hotel from its app.

The present-day Business model of OYO

The process still remains the same but the business model has changed from aggregator to franchise. Despite being the aggregator business model in its early years, OYO business model had the essence of a franchise.

Unlike its previous days, OYO rooms now don’t take hotel rooms on lease. Instead, OYO asks the hotel partners to operate to them as a franchise. OYO rooms have good brand equity and boast a 100% increase in revenue to their partner hotels.

Now OYO rooms are the largest branded network of hotels currently operating 12,000 hotels in 337 cities in India, Malaysia, UAE, Nepal, China, and Indonesia.

Is the business model of OYO rooms sustainable?

The business model of OYO rooms is highly profitable and sustainable. The reasons behind the sustainable business model of OYO are:

• Standard services quality
• Affordable price
• Good feedback system
• Regular employee training

4 Strategies that made OYO a successful company

All other hotel chains combined in total don’t have half the number of hotel rooms OYO has in India. Only after 5 years of establishment, hotel chain OYO has expanded in more than 330 cities across the world. OYO did not achieve success overnight, it had to work hard to attain the position it now enjoys. Here are the 4 strategies that made OYO successful:

1. Assets Light strategy

One of the major strategies OYO implemented is assets light strategy. It doesn’t own hotel but take them on lease and invest a small amount of money to make it as per the standard of the company. Asset light model is popular among startups company because the business owns fewer capital compared to the value of its operation. Small hotels which accounted for almost 90% were vacant and nobody was paying attention to them. Ritesh Agrawal partnered with these small hotels instead of building them yourself, which saved him a huge amount of money. The asset-light strategy helped OYO to gain profit and expand the business in no time.

2. Takes full responsibility for Customer experience

OYO takes the end to end responsibility of customer experience on itself. The company takes care of all the requirement a customer may have such as Searching hotels, booking hotels, easy check-in, easy checkout, and world-class experience. OYO spends a small additional amount to money to change the look and feel of the hotel to create a world-class experience for the customers.

3. Focus on Predictability

Ritesh Agrawal in his early days in OYO realized that data plays an important role to gain and satisfy customers. OYO collects the data from the consumer to understand what are the things which consumer liked and what they don’t. The company focused on making the consumer of the service like predictable in the organization. The main aim of OYO is to create repeatability through predictability in service.

4. Use of technology for Speed and Scale

Ritesh Agrawal knew that if he had to make rapid growth and achieve high scale then technology was the most important part of it. Agrawal himself started coding at the early age of 8. OYO focused on making mobile app a user-friendly application and through the app, you can book a room in 3 clicks and 5 seconds. The company not only created an app for customers but it also created a separate app for its partners. Thus, minimizing the use of the human resource through technology. OYO also created a dedicated team of data science and the company aims to invest more money on innovation and Research & development in the coming years.