Lead Story

Making Room For Everyone

OYO was growing at a breakneck speed until it noticed that stakeholders and customers weren’t cheering it on

It was a hectic pace of growth.

In less than seven years, OYO had spread to 80 countries, had over 77.5 million users on its app. With over a million hotel rooms globally, it had over 43,000 hotel owners as partners. But, something was amiss.

The dark clouds of trust deficit between OYO and its stakeholders were gathering. And suddenly, at the end of 2019, the darling of India’s start-up sector became the centre of a massive controversy. As critics hit out, nothing seemed to be going right for the company. “We were growing our business in the years leading up to 2019, and somewhere in this rapid growth, we did not spend enough time engineering product innovation,” says 27-year-old Ritesh Agarwal, founder and CEO of OYO. COVID-19 presented the opportunity and Agarwal set about correcting his mistake.

Opportunities from Crises

“Never let a good crisis go to waste,” said British prime minister Winston Churchill while trying to build the United Nations from the ruins of the Second World War. While the savagery of war is incomparable, the controversies that have hit OYO from time to time—over issues of governance, culture, business model and ethics—have been devastating enough to leave deep battle scars. “The trick is to take your lows and make them your strengths,” says Agarwal.

He has never let a crisis ‘go to waste’, be it a funds crunch in 2016 when he used the opportunity to reposition brand OYO, or the controversies that started in 2019 or the pandemic in 2020. Agarwal is honest about the mistakes he’s made since he started up at 23 with a mission to disrupt the travel sector with technology. “Our philosophy has been to acknowledge the mistake, make it our opportunity for unique learnings and use it to preempt future mistakes,” he says.

This philosophy was put to test when an avalanche of bad news hit OYO in 2019 with hotel partners dissatisfied with the start-up’s terms and unhappy customers went public with their discontent —some even filed police cases. It gathered speed with murmurs of fake listings of rooms to show volume, talk about excessive control over its board by lead investor SoftBank, allegations of boosting valuation by unfair means, add to this, restructuring in the company in early 2020 and the pandemic that followed, ravaging the travel sector. Chaos reigned with critics ready to write off OYO as the next WeWork – another SoftBank-backed company based in the US, whose valuation crumbled overnight on the back of concerns over business model and profitability as it attempted to go public in 2019.

Agarwal was quick to identify distrust as the underlying reason for these disputes. So, he set about redesigning his business model with a ‘stakeholder-first’ focus, by infusing simplicity. “For healthier economics, we moved to a format with simplicity saying, all our owners will get only a single business model whether it’s a small hotel or home,” he adds. “Once you plug the OYO OS (a smartphone-based cloud operating system that among many other things also consolidates payment policies and reconciliation systems of all booking platforms) in into your hotel or home, we are able to give you a reasonable lift in revenue and give you an ability to operate your premises better. And for that we will charge a fee, against the revenue that is generated,” says Agarwal explaining how 2020 saw the complete transition in the business model for OYO, from minimum guarantee programme (which as the name suggests guarantees a minimum income whatever the business a property owner does) to revenue-sharing model.

Along with this, OYO has constantly innovated to introduce new features and programmes to reduce costs and improve margins while providing a better experience to customers. As OYO tries to ensure technology is being optimally used to plug all the disputes and discomforts of 2019.

Pause to Reflect

“For a company like ours, which is ever-evolving, the important thing is to make sure that you can take a pause. I always say experiences are cheap but reflections of such experiences are valuable,” says Agarwal philosophically. But it’s not philosophy but data and anecdotal evidence that helped OYO pivot.

There’s more.

So, there’s a new tariff manager to give hotel and homeowners greater freedom in pricing. There are chatbots for efficient handling of queries; Discover OYO; and staycation programmes to ensure higher consumer acquisition in a pandemic-ravaged economy. For travellers, there are programmes such as ‘Sanitised Before Your Eyes’ and 'Vaccine Aid' to infuse a sense of trust and safety.

And the results are for all to see. “We have recovered our gross margin dollars over 100% from January of this year. India was breakeven from December 2020 through to March. Europe has been profitable in H1 from January to June 2021,” says Agarwal. “Our OYO Homes business has generated more than $27 million in bottom line in H1.” Buoyed by the results OYO is launching new features in its operating system every two weeks, he adds.

COVID, Confusion & Communication

But the most important intervention has been the weekly townhalls between Agarwal and all the hotel and homeowners. OYO started this interaction during the peak pandemic month of June 2020. “It is a two-way communication, and I answer all owner questions during these town halls. Apart from that they also have a direct WhatsApp line with me. Every week, the leadership at OYO is required to read all the feedback and commentary coming from our merchants and customers,” says Agarwal.

These are rumbunctious virtual meets every week that bring together thousands of OYO owners in a room with Agarwal. “In a crisis like COVID that has hit the hotel business badly, global insights from the OYO leadership team and seamless communication are key to clearing clouds of confusion,” says Deepak Singh Rana, a Delhi-based hotelier who has 16 properties around Delhi-NCR listed on OYO. He began his association with OYO in 2015 with one hotel and the partnership has grown over the years. “COVID has been a nightmare for business continuity, especially, for the hospitality sector. That is where the townhalls are a big help, OYO with its global experience and insights helps us with a survival guide.”

Agarwal reflects: “We hope to continue to earn that trust which will not happen overnight, we have made significant gains there.” Agrees Rana and adds that trust deficit has not been “removed” but has been “significantly reduced to a manageable level”. He credits it to OYO’s initiatives such as timely reconciliation, weekly payments, regular communication and using technology to bring simplicity.

The snowslide of bad news has settled. OYO has proved that it’s not another WeWork and Agarwal is not Adam Neumann (one of the founders of WeWork who was forced to resign after the debacle of 2019).

As OYO emerges stronger from the onslaught of the pandemic, questions will be asked whether the company with its growth focus lost sight of its partners and customers, allowing discontent to fester, reaching a tipping point in 2019? Could the mistake have been avoided?

In hindsight, says Agarwal, OYO perhaps took too much time in dismantling the minimum guarantee programme.

“Once COVID-19 hit, we realised this is the time to double down and make sure innovation becomes our core strength. This was partly out of opportunity and partly out of compulsion,” says Agarwal and we add that it is entirely because a smart entrepreneur never wastes ‘a good crisis’.