Oyo is easily one of the most recognised internet companies in India, especially when you roam around cities.
It lists over 125,000 rooms in India. Despite a lot of hurdles, including some scams, along the way, Oyo seems to be clearly marching ahead.
In fact it is also marching towards … China.
Journey to the East
Since landing in Shenzhen in 2017, Oyo has been very aggressive in the most difficult internet market for foreign players.
A recent funding (announced in September) of US$1 billion from Softbank (which also funded Oyo’s previous rounds) gave it more fuel to expand its global business, of course with the most noticeably growth coming from China.
The company has also been hiring very aggressively – many of Momentum Works’s friends working for tech startups, especially O2O ones, have been approached. A few already jumped ship.
It now claims to have already listed 120,000 rooms across 219 Chinese cities including big ones like Xi’an, Guangzhou and Hangzhou.
Very impressive growth, indeed.
The market
It is not hard to understand why China is so attractive to Oyo. About 80% of China’s hotel market (or 11.29 million rooms) are middle and low end. Among these more than 9 million rooms are independent (i.e. they do not belong to any franchise).
In addition, the famous franchises have not really penetrated most of the 3rd (or below) tier cities – the cities whose consumers supported the success of Pinduoduo, Qutoutiao and Kuai (two of the trio have already IPOed, while the third is working on its listing).
In other words, home turf for Oyo.
Many of the low-end independent hotels have the problem of customer acquisition. On OTAs such as Ctrip they do not really stand out; besides, the OTAs themselves not only take a hefty commission, but also impose rules that are sometimes difficult to comply with.
For many of them, franchises are as much a bully as OTAs, charging hefty fees and setting tough standards.
Exactly the problems that Oyo claims to be able to solve for hotel owners.
Competition from everywhere
That said, it is not easy to win this market.Â
First is obviously competition. Any business model that is proven to be attractive is bound to attract hundreds if not thousands of players – a fact about China’s market that everyone already knows.
A related point that not everyone is clear about is: competition does not necessarily comes from players with the same business model – it can very much come from big (and paranoid) players who serve the same (or similar) demand, or even just facing the same customers.
Major OTAs such as Meituan(yes Meituan has everything), Ctrip and Qunar have de-listed hotels that are obviously affiliated to Oyo, in an attempt to prevent Oyo using their traffic to convert customers.
Alitrip (whose Chinese name, Feizhu, literally means ‘flying pig’) is a notable exception. That is not hard to explain though, Softbank, the major investor of Oyo, is also the biggest shareholder of Alibaba, Alitrip’s parent company.
Oyo also secured US$10 million investment from Huazhu Hotels Group, a big hotel management company that runs multiple chains, including all the Accor brands in China.
However, our opinion is that the Huazhu investment might not necessarily be helping Oyo, as the two’s strategic interests could very easily diverge.
Inner force
Execution – which Oyo is not famous for – could be a challenge too. Multiple visits by journalists in China reveal that in many of the Oyo properties, the quality and service are far from what they claim to deliver (sounds familiar no?).
The Property Management System it uses is simply a sinicized version of the Indian system; many of the bookings are still completed offline, with online payment (ubiquitous in China) only available for a small number of properties.
Of course, all these are (high speed) growth problems which should be fixed along the way, if the management team has the oversight and good control over all aspects of operations.
We shall see.
