
Oyo's business model is looking a lot like WeWork's - nocoder
https://asia.nikkei.com/Opinion/Oyo-s-business-model-is-looking-a-lot-like-WeWork-s
======
Traster
>SoftBank Group, directly and through its Vision Fund, is heavily invested in
both.

This is the worst case scenario. Every company that Softbank tries to unload
becomes a liability because of the association.

On the topic of the actual business, I think there's a really basic question
people need to ask themselves when they look at these business models: In 10
years time does the industry you're in look different?

Because that seems to be the fundamental problem here, Oyo's business model is
basically that in 10 years time nothing about Hotels will have changed. Well
what does that mean? It means we know how much the end company will be worth
because it'll just be some multiple of a basket of other similar companies
that exist today. So here's the question: Why are they claiming to be more
valuable than InterContinental Hotels Group whilst having 1/75th of the
revenue?

Now onto the financial engineering - overvaluing your company, borrowing using
shares as collateral and then investing that money back into the company. That
is a feedback loop, if you can't pay back the loan the shares are worthless
and so these loans are entirely unsecured. If that's happening at scale, that
is exactly the sort of behaviour that will cause a bubble and it will burst.
Someone really should do some proper reporting on that - find out how common
it is and particularly if it extends outside of Softbank.

~~~
hos234
OYO is India based unlike WeWork and given what Reliance Jio pulled off and
the cash they raised to do it, I feel the context is different.

Travel along an Indian highway and try to find your standard roadside motel as
you would in US ala Best Western. There are no low-mid tier chains.

What OYO is promising is scale. What Best Western took 50 years to do these
guys want to do in 5 or 2 idk.

It's a worthwhile bet given the Indian consumers purchasing power/quality
expectations are on the rise. It's not at all a big stretch to imagine such
chains existing in India 10 years from now. Someone is going to build it. You
can always ask the established chains in the west and they will tell you how
long they think it will take.

Now if you asked a AT&T, Comcast or Vodafone whether they could role out a 4G
network with 300 million users in 3 years across India, I don't think any of
them would think it possible. But Reliance Jio did it anyway.

The textbook on how fast you can scale things is being rewritten. In that
context what OYO does pull off is going to be interesting to watch.

~~~
achow
I agree to your analysis of India the underserved market as far as travel &
tourism for middle class is concerned.

This would have been all good if the focus was only for that market, but the
$10Billion valuation I'm sure is not because of India focus.. it is for
claiming to be 2nd or 3rd largest owner of hotel rooms in the world - the
problem is there.

Without solving fully by hyper focusing on one problem/segment/market, it
decided to conquer the world because of $$ at disposal.

~~~
madamelic
>it decided to conquer the world because of $$ at disposal.

Injecting $ in to a donkey in the hopes it will become a unicorn.

Not all growth is good, some growth is cancer... and it sounds like OYO is
basically stage 3.

------
thekhatribharat
Oyo is en route to failure, and it will be another setback in India’s startup
ecosystem after the Housing.com fiasco.

The initial idea of guaranteeing basic amenities (clean bed/bath linen, WiFi,
breakfast) through strict quality control and staff training was great, but
they failed to deliver.

Instead of improving and growing their first product, they launched new
products and entered new geographies - most likely to inflate valuation.

The founder itself has had a questionable behavior (ref:
[https://www.livemint.com/Companies/7CN7u5d4i3bfYgBAZLdLpM/Wi...](https://www.livemint.com/Companies/7CN7u5d4i3bfYgBAZLdLpM/Will-
the-real-Ritesh-Agarwal-please-stand-up.html))

------
9nGQluzmnq3M
> For its core India business for the financial year 2018, Oyo reported
> revenues of just $61 million and a loss of $53 million.

How on earth does this translate into a $10 billion valuation? For comparison,
Hyatt's market cap is $7.9B, and they made $296M profit on $1,215M in revenue
in _Q3_ :

[https://s2.q4cdn.com/278413729/files/doc_financials/2019/q3/...](https://s2.q4cdn.com/278413729/files/doc_financials/2019/q3/FINAL-Q3-2019-Earnings-
Release.pdf)

~~~
puranjay
Hyatt should just call itself a tech company and increase its valuation 10x

~~~
CaptainZapp
And add Blockchain to the name for an additional 50x valuation.

~~~
oefrha
“Iced tea company rebrands as “Long Blockchain” and stock price triples.”

[https://arstechnica.com/tech-policy/2017/12/iced-tea-
company...](https://arstechnica.com/tech-policy/2017/12/iced-tea-company-
stock-triples-after-adding-blockchain-to-name/)

------
anon8123DF
I was in Houston recently and was surprised to seen an Oyo-branded hotel, as I
hadn't realized they'd expanded beyond being an aggregator.

What do you know? 100% of Yelp reviews are 1-star:
[https://www.yelp.com/biz/oyo-hotel-houston-galleria-west-
hou...](https://www.yelp.com/biz/oyo-hotel-houston-galleria-west-houston-3)

To be honest that actually makes them worse than WeWork at some level. WeWork
may have an awful business model but at least its brand is (generally) known
for consistent quality. [1]

[1]
[https://twitter.com/jasonlk/status/1161659165619523584](https://twitter.com/jasonlk/status/1161659165619523584)

~~~
puranjay
The WeWork I work out of in Gurgaon, India, has the best coworking space I've
ever used. They charge a big premium over other spaces but I'm happy to pay
it.

WeWork, I feel is a very viable business. Its obituaries are too premature. It
doesn't warrant its $47B valuation, but it can easily displace Regus. Easily a
$10B business, if not a $50B one. Which is incredible in itself

~~~
irq11
Except that they’re losing a billion dollars a year at that level of quality.

Cut the perks to make it a viable business, and you’ll probably end up
with...Regus.

Markets are pretty efficient that way.

------
purplex
This went viral some times back in Indian social-media

How Oyo completely ruined my first wedding anniversary: [https://oyo-ruined-
my-anniversary.com/](https://oyo-ruined-my-anniversary.com/)

~~~
Hitton
Although I'm sorry for your terrible experience with them, I'm also kinda
glad, because your description was really entertaining (when you are not the
one who has to live it).

------
leoedin
Oyo are aggressively expanding. When I was in Nepal earlier this year they had
OYO branded hotels everywhere. Since then they seem to have started taking
over the super-budget hotels in London. I assume it's mostly the same hotels,
but they've been paid to slap an OYO sign on the front.

It's hard to see what actual additional value they bring though. They're not
really a stamp of quality, and they're not generally opening new hotels, just
rebranding existing ones. Booking websites are hardly a new thing -
booking.com and hotels.com are pretty entrenched, and have the advantage that
they index every hotel not just ones which agreed to put up the OYO sign.
Maybe OYO will take a cut of the booking.com market (which from what I've
heard is incredibly profitable), but by building an OYO brand with a
reputation for budget low quality, they're moving in the wrong direction to do
that.

~~~
puranjay
The problem with Oyo, and its virtually most people who've used it (me
included) will concur, is that the Oyo brand itself is tainted. Experiences
are extremely inconsistent and the quality is all over the place. Hotels keep
withdrawing from the Oyo platform because of non-payment of dues. Oyo's
customer service is shoddy.

This business should have been built slowly and carefully. But Softbank's
billions meant that they expanded so fast and so soon that they had no quality
control in place.

It's a brilliant idea that would have been inevitably successful. But all that
money is going to be its downfall.

------
beilabs
Oyo ventured into Nepal quite recently. From my viewpoint I see rooms often
can be charged by the hour on some of their signage, not just daily rates.
That's the type of visitor they are looking to attract.

~~~
goatinaboat
_rooms often can be charged by the hour on some of their signage, not just
daily rates_

I wish we had something like that in Wales. Sometimes after a day in the hills
I’d like a hotel room for an hour just to have a shower and change into dry
clothes before driving back down the A470. Fellow Welshmen may mock me now,
I’ve grown soft from spending too much time in England.

~~~
rchaud
Would you be OK with this kind of flex arrangement if it meant that the hotel
couldn't guarantee the state of the room or bathroom when you check in?

Hotel management needs time to send cleaners to change the sheets and such
after all. If booking is on an hour-by-hour basis like say a hotel meeting
room, it isn't feasible to clean the place in between every booking.

~~~
goatinaboat
They could be in the process of cleaning even - I don’t need sheets on the bed
or anything.

------
bengale
I made the mistake of booking one of these OYO rooms in London recently.
Seriously shocking they'd even try to claim it as a hotel, dingy bedsit maybe
a better description. Would never book with them again.

------
technobrat
Startups sacrificing profit on customer acquisition is understandable. But it
is a huge red flag when they start losing both. [https://oyo-ruined-my-
anniversary.com/](https://oyo-ruined-my-anniversary.com/)

------
fareesh
As a consumer, the OYO brand means nothing to me because anecdotally it's
clear that they only claim to enforce standards but in reality it's an
illusion.

In the absence of that assurance, what am I getting from OYO?

If I want a hotel room I will browse listings on the various aggregators that
have them and go with the best find for my budget. Unlike Hyatt or Four
Seasons or Taj, where you can treat the brand as an indicator of some
standard, it doesn't exist in a meaningful way for OYO, even for a far lower
standard. It's all over the place.

If anything I'd be suspicious of OYO immediately.

I'm unsure if my experience is the norm or the exception. If there's a huge
segment of people who associate the OYO brand with trust, then their model
would appear to be working quite well.

~~~
achow
As an idea there is nothing wrong, infact it is brilliant!

Not very unlike fast food franchise business, or Coca Cola bottling franchise
- corporate puts in standards, best practices, supplies 'secret sauce' (some
times literally), invests massively in branding and advertising which would be
way out of thinking league of small time owners of the outlets.

If this was done purely from problem solving perspective (and not as 'growth
hack'), then it would have worked beautifully.

~~~
michaelt
I think fareesh's point is that the "put in standards" hasn't been sufficient
for any investment in branding to be productive.

------
anuraj
OYO in India stand for poor quality. Neither do they have lasting assets other
than contracts with Franchisees. Not a model built to last.

~~~
runn1ng
In Vietnam, they vary in quality so much as to make the brand meaningless.

There are good ones and terrible ones.

The business model doesn’t seem to make sense to me either.

------
oefrha
Franchising, and buying up small hotels to form a hotel chain are both very
old business models. So it seems to me that neither their original (basically
franchising) nor current business model is innovative. What exactly does Oyo
bring to the table? Seems even worse than WeWork.

~~~
lotsofpulp
The valuable part of the franchising business model is ensuring a consistent
experience for the buyer. That would involve spending money to hire a
considerable workforce to continuously visit and evaluate every hotel.

That would involve spending money and make it clear that the marginal costs of
franchising hotels is not zero, and so it’s not worth the crazy multiples of
revenue valuations that software companies are.

All of these companies are an exercise in figuring out how to create plausible
deniability to justify investing in it so that it can be dumped onto a greater
fool.

------
chewz
[] [https://scroll.in/article/940702/teenagers-electrocution-
the...](https://scroll.in/article/940702/teenagers-electrocution-the-litany-
of-complaints-against-oyo-rooms-just-got-a-lot-more-serious)

[] [https://economictimes.indiatimes.com/small-
biz/startups/news...](https://economictimes.indiatimes.com/small-
biz/startups/newsbuzz/from-oyo-to-uber-how-softbanks-100-billion-left-workers-
in-a-hole/articleshow/72032747.cms)

------
Travellersrest
Quite interested in this subject. 1\. Oyo are trying to scale incredibly
quickly, always tough and in this investment climate, better get their
forecasts correct and spend it quickly! 2\. They are trying to scale globally,
but adding software management of revenue and booking under their control is
dangerous to owners especially if they have terms that include %'s take of
increased revenue. This may mean booking at any price regardless in quiet
periods and then there is a staff cost vs margin call. Quality will suffer.
4\. The whole approach appears to be based on brand signage and not guest
experience and is a budget business, so its a bottom feeding brand. 5\. This
budget position in Europe is often based on doing deals in older premises
(quite few local to me). These are not modern eco-friendly, but high
maintenance, unlike the new brands of accommodation which can also be budget
and brilliant.

In in all its seems that the approach may end up with a negative brand
connotation as is developing on their Facebook reviews page and the knock on
effect will ensure poor returns.A Softbank recurring nightmare.

------
wtmt
Oyo is yet another company that shouldn't exist. In India, in an event at the
beginning of this year (2019), it said it has a new initiative where it would
share hotel guest information with the police and the government in real time.
[1] [2] This kind of facilitation of mass surveillance while also enabling
harassment is one of the most damaging ways to run a business and contribute
negatively to a country.

[1]: [https://www.medianama.com/2019/01/223-oyo-real-time-data-
sha...](https://www.medianama.com/2019/01/223-oyo-real-time-data-sharing-
system/)

[2]: [https://www.huffingtonpost.in/entry/why-oyo-sharing-check-
in...](https://www.huffingtonpost.in/entry/why-oyo-sharing-check-in-details-
with-the-govt-should-worry-you_in_5c3ee9d9e4b0922a21da1990)

------
fastball
[https://www.profgalloway.com/unicorn-
feces](https://www.profgalloway.com/unicorn-feces)

