Business Model of Oyo Rooms – How Oyo Rooms Work
Oyo rooms is the largest branded network of hotels currently operating in India and Malaysia. Oyo is a hotel aggregator with a business model similar to that of Uber (Aggregator business model).
This Aggregator business model has certain characteristics. The firm organises the unorganised businesses operating under the same domain, make them work as their partners by signing of a contract, and sell their products under its own brand. The main focus, in these type of business models, is on quality of the service provided. Hence, to maintain the name, they make the partners provide services at predetermined standards while they make them more visible to their user-base.
Oyo Rooms – an aggregator, not a marketplace.
Oyo Rooms Business Model is a hotel aggregator model. The services are bought by the users under the name of Oyo rooms and not any individual partner (like in Make My Trip business model). Just like uber, Oyo provides rooms with standardized quality and price.
Business Model of Oyo Rooms is different from AirBnB’s business model as Oyo doesn’t focus just on discoverability of the partners among the users but also on the standardized quality of the services provided.
Business Model of Oyo Rooms
Oyo Rooms Business Model, though a lot similar to the usual aggregator business model (Uber for x business model), is different from it. Oyo Rooms –
Books a part of Hotel’s inventory beforehand,
Organise those hotel rooms under their brand name – Oyo Rooms
These partner hotels provide standardized service to customers of those rooms as decided in a contract with Oyo
Bookings are made through the Oyo Rooms website and mobile application.
Consider reading Aggregator Business Model before reading ahead for better understanding.
Oyo Rooms provide visitors with quality hotel room stays at different places around India. They have partnered with hotels and made them work with them under their name.
Services Provided by Oyo Rooms
Oyo Rooms, started and famous as branded hotel rooms aggregator, provides many more services than just hotel rooms to visitors.
The services included in Oyo Rooms Business Model are –
The most important and revenue generating service. Oyo has partnered with hotels which provide services at pre-determined prices and pre-determined quality.
Oyo’s strategy includes booking a part of the hotels’ inventory and holding it captive for Oyo customers. That is, they hire some rooms every month and provide them to users at a take up rate.
Oyo Rooms has partnered even with 2 star hotels and guest houses, standardized them, and provided them under Oyo’s brand on their website and application.
The partners used to book their own hotels when they used to see less prices on the Oyo’s platform and this became a malpractice benefiting the partners while burning holes in Oyo’s pockets. To curb this, and to expand the business, Oyo Rooms has started leasing of hotels where it has the full control over the day-to-day operations of these establishments. This is a shift from the existing Aggregator Model, but will prove beneficial for the brand as it now already has a brand equity and a set of loyal customers. These leased properties come under Oyo Flagship.
Apart from providing hotel rooms, Oyo also provides fully furnished rooms and flats for long stays like internships, corporate stays, etc. The rooms/flats can be rented on single occupancy as well as on twin sharing basis as well (other provisions are also applicable). Rents are paid monthly. Commission (take up rate) is charged from the owners if the customer comes through oyo rooms.
Just like studio stays. There are many family functions(weddings, parties) as well as corporate functions (seminars, meetings, parties) which involve hotel rooms for their guests to stay for long. This service is also provided by Oyo.
OYO Bazar is India’s first B2B marketplace built exclusively for the hospitality sector. It is a single stop online shop for any hotel supplies required for daily running of the hotel.
Who Are the Customers?
Unlike usual Aggregator Business Model where a commission is charged from the partners for providing them with customers. Oyo earns through a take up rate.
That is, they hire a part of hotel’s inventory for a month or a specified time period, at a specified price and offer those rooms to the visitors of its website/application at different set prices.
Revenue Model of Oyo Rooms
The revenue model of Oyo Rooms is simple.
Oyo Rooms books a part of the hotels’ inventory (expense)
These rooms are put to match the standardised quality like free Wi-Fi, clean toilets, etc. (Expense)
These Rooms are offered to the customers at Oyo Rooms Website/Application
Users buy these from Oyo Rooms at a predetermined price. (revenue)
Oyo is currently in its introduction stage in many cities (and in growth stage in others) and it has to provide (and has being providing) heavy discounts to the customers.
These discounts often result in prices which are even less than the cost price of these hotel rooms and hence result in losses to Oyo rooms.
The expenses also include the heavy expenses on promotional activities to increase the brand equity among the users as well as the remuneration of the employees.
To be precise, the business is at loss.
Future of Oyo Rooms
Oyo is growing. Though this growth is at a cost, it will be worth it afterwards. According to a source, Oyo Rooms has delivered a 15x annual growth with 2.3 million booked room-night transactions in first quarter of calendar year 2016 while its GMV continues to grow substantially every month. This shows the increasing brand equity and demand of Oyo.
Oyo has set its name as the high quality budget hotel network. Which will change in near future as the prices might increase. But since Oyo has come up with a new model of Flagship, there are chances that the prices might be kept as they are now. How this will affect the demand is not known as there are many emerging competitors (like treebo, quikstay, etc.)of oyo.
Oyo has placed its foot in other domains than just hotel rooms which will help them stay in the market for long. SoftBank has been a keen observer and has done a great job in funding them twice.
Oyo rooms, though an aggregator, might have a different fate than aggregators in other domains.
Go On, Tell Us What You Think!
Did we miss something? Come on! Tell us what you think of this article in the comment section.