A funding round for ZEN from an undisclosed Chinese investor fell through at the last minute in 2018, as per a source with knowledge of events. Deep in financial trouble, ZEN had to downsize its business. It exited several of its eight Southeast Asian markets and executed brutal layoffs
ZEN has since stayed focussed on the Philippines. The company offers guarantees selectively, and most of its properties are fully leased, giving it better control of the margins, said co-founder Boublil. Its SaaS product—alongside a revenue management service—helps hotel owners manage inventory and distribute rooms online without giving up their own brand. As a result, they don’t have to spend on sprucing up their property to join a franchise chain.
Been there, done that
The SaaS product enjoys a “special distribution” arrangement with online travel agent (OTA) Booking.com, which backs Yanolja, said Boublil. He added that the SaaS business has continued generating revenue during the Covid-19 crisis, but declined to divulge any figures.
But ZUZU offered the SaaS-plus-service model first. The model made sense as people no longer cared about the brand in the mid-to-budget segment thanks to OTAs, which provide crucial information like customer reviews.
Today, ZUZU has more than 2,000 hotels as clients, to which the startup has delivered an average 40% increase in online revenue, claimed co-founder Vikram Malhi. We could not independently verify the claim. ZUZU earns mainly by taking a cut of the revenue, which is why its business has been affected by the crisis. But because it doesn’t need to hire people to manage properties nor spend on minimum guarantees, “we were profitable on a unit basis [before the crisis],” he said.
Unlike ZUZU, ZEN may find it harder to scale its SaaS business because of conflict-of-interest concerns. “If I’m an independent hotel owner, how can I be sure that ZEN is not prioritising its properties over mine?” said an investor who asked to remain anonymous to avoid upsetting any of the players in the space.
Finding ways to cope
It appears that investors were right to worry about whether the OYO model, while scalable, was sustainable.
With revenue on a downhill slide, hotel chains, mainly OYO and RedDoorz, have been compelled to restructure their contracts with franchised hotels. They’ve pulled the plug on guarantees, claiming force majeure. Both have switched those contracts to pure revenue-sharing. “Everything we have implemented has been done as per our contract terms and in full accordance with the hotel partners’ support,” said RedDoorz’s Saberwal.
For wholly-leased properties, companies had to make concessions with hoteliers, getting them to waive rent, agree on a discount or defer payment due dates.
ZEN’s exposure to minimum guarantees was little, claimed Boublil. Landlords of half of its fully leased properties in primary market Philippines, as well as Singapore agreed to negotiated terms. The other half enjoyed high occupancy rates—when borders closed, Singapore had to play host to a large number of its stranded Malaysian workers. In the Philippines, a ban on all public transportation meant accommodation for workers near offices.