Airbnb has acquired a stake in OYO for a rumoured USD150m, with the India-based company due to list some of its properties on the sharing platform.
The deal came weeks after Airbnb acquired HotelTonight, in a move which many saw as a precursor to an IPO.
Last year OYO completed a USD1bn funding round led by SoftBank valuing the budget platform at USD4bn. The group said that the proceeds would be used to build its presence in China, Malaysia, Nepal, Indonesia and the UAE. Last year also saw Huazhu invest USD10m in the group, announcing a five-year strategic agreement to build “a global market leading hospitality business” with OYO.
“Emerging markets like India and China are some of Airbnb’s fastest-growing, with our growth increasingly powered by tourism to and from these markets,” said Greg Greeley, president of homes, Airbnb.
“Airbnb’s strong global footprints and access to local communities will open up new opportunities for OYO Hotels & Homes,” said Maninder Gulati, global chief strategy officer at OYO Hotels & Homes.
SoftBank currently has a 45% stake in the platform, with the other stakeholders including Lightspeed Venture Partners (15%), Sequoia Capital India (11%) and Huazhu (5%). Founder Ritesh Agarwal holds 11%.
Airbnb and OYO shared a connection through Sequoia Capital, which participated in the sharing platform’s seed round in 2009, when it had only 1,000 listings, with the investor commenting that: “They drew us in with their scrappiness, imagination and storytelling – they had a knack for turning a crisis into an opportunity and then a great story. Even then, their commitment to mission, values and culture was clear – and so was their far-reaching vision of a better future by first inventing ‘a better way to travel’ where you are ‘never a stranger’ in a world in which you could ‘belong anywhere’”.
CapitalG (formerly Google Capital) and Technology Crossover Ventures were the lead investors in Airbnb’s latest round of funding, which valued it at round USD31bn, a figure which has since risen to USD38m. The round, which raised over USD1bn, featured a total of 40 investors and described the group as ‘other technology travel’ in its SEC filing.
Sequoia Capital participated in OYO’s Series A funding round in 2015.
Masayoshi Son, founder, chairman & CEO, SoftBank, described his enthusiasm for OYO to analysts on an earnings call last year, commenting: “This is a next-generation type of hotel management, OYO. In just two years, it grew the number of rooms in India to 100,000. By the end of the year, I would say 150,000 more rooms or maybe 200,000 rooms, which will be 10 times more than Taj group’s rooms. It’s completely a new type of hotel and they are growing so fast.
“It’s been less than 12 months since the business started in China. If you look at monthly numbers, 25,000 rooms were created every month. The world’s biggest hotel chain in the world is Marriott, and how many net room adds were created by Marriott monthly? It’s 8,000. Hilton, the second biggest, 7,000, and Intercontinental, the third-biggest hotel chain in the world, they grew number of hotels in last three months, 2,000.
“OYO is not a travel agent. OYO manages hotel comprehensively with OYO’s management, with OYO’s IT, OYO’s booking technology and OYO’s quality control method. It’s like a franchise. OYO helps [owners] to get people and increase the occupancy of the rooms. So in return for that, the profit will be shared with OYO and hotel owners. And what they do is to create heat map with AI for demand production. And with AI, they decide pricing. So per day 43 million micro-optimisations take place by looking at the weather, looking at day or week, looking at what kind of campaign is ongoing.
“Because depending on that kind of situation, demand-and-supply balance is different. So dynamic pricing takes place – 43 million micro-optimisation per day. Without AI, you can’t do such micro-optimisation. I believe this is the most advanced hotel management.”
At the end of last year OYO announced plans to invest GBP40m in its expansion in the UK, aiming to sign up to 300 independent hotels by 2020, launching with two hotels in London. The group said it would use a franchise model to expand, offering redesign, property management and marketing.
Ritesh Agarwal, founder & CEO, OYO, said: “We are thrilled to now be able to offer OYO’s affordable, hassle-free and quality living experiences to guests across the UK – and to be empowering the UK independent hoteliers with the technology and operational expertise that helps them focus on customer experience and thereby generate increased, sustainable incomes.”
HA Perspective [by Katherine Doggrell]: Ah, it’s all about empowering independent hoteliers, or occasional independent hoteliers with this pair and one’s heart swells with delight. When your valuations are in the billions, however, it’s less easy to cough up a conclusion of altruism and a little simpler to think of any deal in terms of filthy lucre.
And if one is having thoughts about what shade of gold one’s mega-yacht should be, then there’s nothing like getting a bit of scale on your business, with a combination of the two potentially scraping up a significant amount of budget travel around the world. What OYO brings is brand consistency, whereas what Airbnb has is volume, and crates of it. OYO can help out a little here too – it launched sharing brand OYO Home in 2017.
OYO, much like Hotel Tonight, adds diversity and guaranteed rooms (Airbnb’s hosts do not have to provide a minimum number of rooms per year) but operates on a different model to Airbnb, taking pricing rights from its franchisees. Airbnb’s hosts report that the platform is eager to send it pricing tips, but that’s where it ends.
For Airbnb, the investment was a snip after the USD400m spent on HotelTonight and a darn sight cheaper than some of the other hotel groups doing the rounds. It will provide a handy second stream of distribution for the India-based company. And make Airbnb ever more the ‘other technology travel’ and further away from lodging.
Additional comment [by Andrew Sangster]: What is OYO? Is it a booking site or is it a hotel brand company? Perhaps it’s a sharing economy platform or is it no more than a consortium?
It certainly makes a lot of sense for Airbnb to be investing in OYO, as Airbnb is itself going through a change process. A case of changeling meets younger changeling.
Like many entrepreneurial enterprises, OYO is opportunistic. In India it had a particular opportunity to move in on the poor quality and badly run guest house market, transforming the product through investment in the buildings and implementing a much more effective distribution system.
Guesthouse owners in some cases had been struggling along with occupancies as low as 20%. In pops OYO with a fairly small capex (think tins of paint rather than structural changes) and transforms the business by sticking the rooms under a recognised brand on an effective distribution system.
In India, the power has been with OYO rather than the, often distressed, guesthouse owners. OYO has dictated terms, insisting that all inventory is sold through its channels and charging high – above 25% – commissions.
It has not been able to use this model in China and instead has fees rumoured to be in the low single digits. This has helped it grow to become one of the four biggest chains in China by room numbers – and claims to be the biggest individual brand – even if its economic value is quite likely outside the top 10 in that country.
In some ways, OYO is the antithesis of Airbnb. While the latter celebrates the uniqueness of its properties, OYO wants to bring standardisation. Not so much Airbnb’s “magical travel experiences” as guaranteeing a clean and safe place to stay.
It is interesting to observe that most of OYO’s closest rivals in India, like Treebo, are similarly focused on bringing brand standards to a highly fragmented and under invested market place.
OYO is also not like the chains in the developed world which focus only on the biggest properties. OYO specialises in the tiny, usually neglected, properties that comprise the overwhelming bulk of rooms in India and a huge proportion of rooms in more developed economies too.
There is a market in the super, super budget end but it is difficult to quantify. Whitbread’s Zip concept, which is quietly winning converts to its cut-price but reliable offer, is one way of tapping into this market. OYO is another, much less capital-intensive, way.