OYO Rooms in China: Scaling the Great Wall
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Case Code: BSTR560 Case Length: 13 Pages Period: 2011-2018 Pub Date: 2019 Teaching Note: Available |
Price: Rs.400 Organization: Oravel Stays Pvt. Ltd (OYO) Industry: Hospitality Countries: India Themes: Market Assessment, Market Entry |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
OYO's Business Model
OYO was based on the home-rental model of Airbnb but with a twist. OYO's website showed only listed rooms with no mention of the partnering hotel names. It partnered with other hotels but listed their products under its own brand name. OYO's main focus was to ensure high quality service. Its partners had to meet some predetermined standards like providing free Wi-Fi, breakfast, TVs, clean bed linen, branded toiletries, etc. in each room. Once the standards were met, OYO made those rooms more visible to the customer-base through its website and mobile application. A room could be added to OYO's network within 5-6 days of the agreement being signed...
Time to Change
Realizing the problems that aggregation involved, the company decided to change its strategy. Following reports of malpractices by a few hotel owners, OYO started reducing its dependence on the aggregator model. Reportedly, there were instances of customers who had booked a room in a hotel through OYO being denied accommodation and being told that the room had been given to someone else...
OYO's Acquisitions & Investment Bets in India
The competition intensified with startups like RedDoorz , Wudstay Hotels , FabHotels , and Treebo Hotels operating in the budget accommodation space. In April 2017, RedDoorz raised US$1 million venture debt from InnoVen Capital. In July 2017, OYO's rival, FabHotels, raised US$25 million in a funding round led by Goldman Sachs ...
Scaling Up in China
In September 2017, OYO partnered with China Lodging Group Limited, a leading and fast-growing multi-brand hotel group in China, to enter the country. OYO entered into a five-year Memorandum of Understanding (MoU) with China Lodging Group to facilitate and strengthen collaboration to build a global market leading hospitality business. Additionally, China Lodging Group also agreed to invest US$ 10 million equity in OYO to become a minority shareholder. Jenny Zhang, CEO..
Chinese Tourism Market: Opportunities & Challenges for OYO
Analysts opined that the opportunities were big in mainland China. Ankur Nigam, a partner at KPMG, said,"(The hospitality market in) China would be twice the size of India i.e. in excess of a $1 trillion market. That said, the penetration is still low and they have 4 rooms per 1,000 people as compared to 10 rooms in the UK and 20 in the US. So despite a large market already, there's headroom for growth." ..
Future Outlook
In September 2018, OYO raised a huge funding of US$ 1 billion and turned into a US$5 billion unicorn. The company decided to invest US$600 million from new funding to strengthen its position in China. OYO further expanded to 171 cities and 87,000 rooms in the country...
Exhibits
Exhibit I:OYO's Fund Raising Series
Exhibit II: OYO'S Revenue
Exhibit III: Inbound & Domestic Tourism in China
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