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The second bit is our room-rate pricing being very low. That was, is, and will remain only a very low single-digit percentage of transactions. Number three; on a full year basis, we have always been able to generate a positive take rate even if it was very low earlier. Over time, it has increased because of the various system changes and an increased value proposition to consumers and partners.

Also at that time, we used to report the “booked room nights” metric externally because that is what other peers were doing. Internally, this was never a metric that our team was concerned about and instead, we were firmly focused on “used room nights”.

Regarding minimum guarantees

Finally, regarding minimum guarantees. For us, minimum guarantees were always a thin wedge that we used to open up relationships with new partners, both domestically in India as well as in new markets. Our plan was to use minimum guarantees to give ourselves the flexibility to set pricing for hotel rooms and thus improve occupancy by matching supply and demand dynamically.

As of today, the majority of our partner relationships are based on revenue sharing and we only have 2-3% of contracts as minimum guarantees. Also, even earlier, there were only a small percentage of properties that would significantly account for minimum guarantee losses. Over time, each, if not every, such partnership would be net accretive to us from a revenue perspective.

Revenue perspective

Q. Ok, now can we talk about the elephant in the room—the Covid pandemic? How has the pandemic impacted OYO and what are you doing in response?

Sure. Look, first of all, there is no question that we are heavily impacted, given the crisis that it has brought with itself. India, specifically, because there is a nationwide lockdown right now, and it doesn’t seem like it’s going to get better as we speak.

From my perspective, there are a few important areas. The first one is to make sure that we are prepared to ensure that our partners need us more than ever before today. So it’s critical that we can prepare our partner ecosystem. The first thing in the path that we are preparing is a ‘sanitised stay’ tag in our hotels. We have set up a bunch of policies right from entry at the hotel, check in, in-room service and housekeeping, check out, baggage collection and baggage departure.

For each part of the experience, we are working to make sure that we are prepared. At this point in time, it is still difficult to predict in what direction the business is going to go. But, we are seeing some early greenshoots in markets like China, where we have now reached occupancy of 45%, up from 20% or so during the peak of the pandemic.

Q. In the post-Covid world, hotel partners will be faced with challenges they have never seen before. How will you help them? What are you doing to strengthen your relationship with asset owners?

Covid-19 is having a huge impact on the entire hospitality industry worldwide, with occupancy rates plunging.

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We have an app to track how these potential hotel partners score, we have multiple levels of people go and visit the hotel physically to check and validate things.

Are there places where we’ve gotten the check operationally wrong or whether certain city benchmarks differed from other cities? Yes.

AI powered hospitality

AI powered hospitality

What have we done to make those changes? One, we’ve launched an ops bodyguard program, where there is one more check beyond the 140-point checklist. We exited 200 cities in the beginning of the year where we had one or two hotels, where we just found that the supply was just not ready to deliver the experience on OYO. That, by revenue, impacted us by like 1.5 to 2%. But that 1.5%, the noise that it would bring was disproportionate.

And the third one is we’ll try to help all our partners. But we saw that in some places, we just could not provide work with a partner for alignment. Even those were removed. We announced the 10,000 rooms-removal in December.

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Q. Complaints about OYO have not just been from customers, right? Over the last year or so, there have also been many vociferous complaints from your hotel partners. Firstly, in terms of contracts, with people saying that money was never paid as per contractual commitments. And secondly that there was no recourse—hotel partners didn’t have access to the right channels to complain or rectify those issues or it would just go into the ether, but nobody actually responded from OYO. Do you recognise these as genuine problems? If so, how are you planning to fix it?

First off, what are the things we added for our partners? You’d find it very hard to find a lot of partners that will come and complain about the occupancy of OYO. The second thing is OYO OS and the technologies that we bring. And the third is the repeat rate. These are three things that really added value.

Before I talk about the two problems that you laid out, let me share some complexity that we face in our business when we engage with our partners.

The first one is that the majority of our partners are good people. Now, among them, there is some percentage of owners who may sometimes try to short-circuit contracts. For example, there are roughly 25% owners who have said that there has never been any walk-ins at their hotel in their history with OYO. It is slightly unrealistic to believe this.

So, due to that, we will launch a policy of saying that we are going to ensure that going forward, we will have auditors go to the hotel. Or we will basically launch a policy to say that because the customer service is not good, after a certain number of complaints, there will be a fine.

Now, what happens is that disagreements creep in for those specific policies or systems. And those policies or systems disagreements lead to friction with partners. That’s one reason for friction. The second is the price point-volume equation and unrealistic expectations that we could have, in hindsight, managed better.

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But one of the big changes that I’m trying to architect is bringing in a culture of “No problem is too small; Every customer is critical”.

In terms of perceptions about customer satisfaction rating, a lot of times our competitors love to show our Booking.com scores in India and say, “Oh, look at OYO scores that are not so good”. What people forget is OYO gets a decimal point worth of business from Booking.com. And most of these ratings are ones that we inherited from the past. The number of hotels listed on Booking.com is also small. So it’s not just not representative.

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We get many multiples of that booking just from MakeMyTrip and GoIbibo. If you look at MakeMyTrip, OYO’s average rating is 3.5 on 5, and the majority of our hotels are 4-plus in terms of their ratings and services.

Q. But how do you ensure quality when you are merely supplying customers to a hotel owner who runs the business. Like in the Bollywood movie Khosla ka Ghosla, one can ask OYO—“Aap party ho ya broker? ( Are you the principal or the agent?)”

From a consumer perspective, our proposition is very simple—low cost, reliable quality, and most importantly, owning the “end to end experience”. Whether it is a late checkout request, an early check-in, breakfast or any other service, if you booked a hotel room through an online travel agent, the OTA will ask you to discuss with the owner directly.

For us, being “party” or the principal is very critical. As far as the consumer is concerned, OYO is the party. Therefore, we should take decisions like a party so the consumer is assured that they don’t need to worry about what they can or can’t do.

Entrepreneurial Journey and the Principles

Entrepreneurial Journey and the Principles

That said, there are two parts of our experience that we have seen complaints over and are things that we want to improve.

The first is check-in experience. Sometimes you’ve heard about customers saying “I reached the hotel and I didn’t get the room”; “I was stranded”. That is evil. That is unacceptable.

There are some practical reasons this happened. For example, if there’s a medical customer who says that I don’t want to check out, but the hotel has sold to capacity, you’ll have to say no to a customer. So what we’ve done now is adopted a new policy. One strike and a hotel gets deprioritised 50%, two times and the hotel gets removed from the OYO platform.

We have also made this a top area of accountability for all our group CEOs—their bonuses are linked to this. Over the last three months, you’d have seen these issues, even on social media, would have crashed.

The second focus is sometimes you have customers complaining that OYO gave a poor-quality hotel that didn’t deserve to be in the OYO network. Now, the first thing that people sometimes get wrong is thinking that we do no work before we go to a hotel. We put in a lot of effort. There is a 140-point checklist before we put up the OYO signage.

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On the other hand, we continue to remain sharply focussed on the larger demographic of budget travellers.

The second thing that Ginger did, as did others like IBIS, was what they called “No khaana (food)”—they said breakfast will only be at the lobby. For that, too, you will have to pay more. They also squeezed the size of the room. I felt that both of these practices were customer-unfriendly.

I have tried as much as possible, in the majority of our hotels, to promote our hotel owners to continue sending ghar-ka-type khaana (home-style food) to the room. This is one big reason a lot of our customers choose to stick with us.

How much of your business is from repeat customers?

I think corporate is very critical. Basically, corporate for us is two parts—one is corporate employees who use an app and book with us. The second is corporate employees who use the OYO Wizard programme. OYO in India has partnered over 5,000 corporations, including many small and medium businesses. Pre-Covid, we got 20% of our revenue from this stream, what we call MM or micro-market business.

Regarding our overall national business, 70-75% of our revenue comes from repeat customers. And around 15-17% revenue comes from what we call organic customers. Organic is very simple—people who don’t need advertisements to come stay with us. People will just go to the OYO App, search for a hotel and come; Or if there is a corporate, where there were three employees who used to come and then a fourth employee started coming. So wherever you did not have an incremental expenditure marginal cost to bring the customer.

App Screens & Video Gallery

App Screens & Video Gallery

And this is India only, let me clarify. OYO India would have roughly 90% revenue for which you did not spend marketing dollars. But relatively, Southeast Asia will follow where we see this in the range of 55 to 60%. Our OYO Vacation homes business in Europe will follow, which will be roughly 50%. And then everything else.

Q. Normally, one would think that repeat customers making up the bulk of revenue isn’t necessarily good as that means you’re not bringing in more people into the top of the funnel. How would you reconcile that, especially since your revenues have gone up 4X from 2018 to 2019, but 90% of the same people coming in?

How does that work?

Yeah, I think, first off, the 4X jump is significantly driven by some of the global expansion. But that said, you’re right. A large part of revenue growth is still being driven by the same customers.

I have always believed that in India, if you build a business designed on the back of marketing dollars, it’s very hard to make money because how many marketing channels do you have overall? You have Google, Facebook, and then television. I can’t afford television, and Google and Facebook will squeeze out every dollar I make because there is MakeMyTrip, Expedia, and the big guys who are bidding on those.

The story behind the evolution of a Hero

Our brand promise with OYO was that for roughly Rs 1,500 (US$20) per night, a traveller would get a clean room of a minimum specified size with AC, WiFi, and free breakfast. I believed that such a value proposition would fly off the shelves.

How it all started

How it all started

So I pivoted Oravel to Oravel Inns and offered this service myself. From there, we moved to the OYO avatar and tied up with other hotel partners to offer this standardised, predictable offering countrywide.

Q. That is an interesting back story. While this may well have been a true market gap, what made you believe that this was a value proposition that could be monetised at scale? Even if you could monetise it, how would OYO make money from a room that charges Rs 800 (US$10.5), Rs 1,000 (US$13) or Rs 1,500 per night?

So here’s the thing. I think one of the things that has not been very well understood about our model is the key driver of unit economics. If you speak to folks at Treebo or Fab Hotels, I’m sure you will hear the same things. People think that the average room rent, or ARR in hotel parlance, is the most important metric. It is not.

What is far more important is RevPar or Revenue per available room. For a long time, asset owners operated in a manner where they said that “Because I invested so much capital expenditure, I require Rs 3,000 (US$39.5) or Rs 2,000 (US$26) in the form of earning from this room”. But the occupancy remained very slim.

For instance, if you have a room with Rs 3,000 ARR but a 20% occupancy, your RevPar becomes Rs 600 (US$8). So, the first important criteria for us was to explain that a room of Rs 1000 with 80% occupancy is better than one at Rs 3,000 with just 20% occupancy. If your occupancy is higher, you can easily get 25-30% higher net revenue outcome even if your rates are lower. Very simple principle, right? Anybody who understands any fixed cost business will understand the difference between the price and volume. Our value proposition to the hotel owner was that we will help you get these higher occupancy rates and split the proceeds.

Q. Was OYO the first to offer this type of model? Weren’t entities like Ginger also offering similar services earlier?

Yes, Ginger was there when we launched—they used to offer their rooms at Rs 999, which became a sort of a benchmark for us as well. But they got two things wrong.

One, as soon as they got some demand, they ramped up prices to Rs 2,800 or Rs 2,900 (~US$38). Did they get some short-term RevPar lift? They did. But that dramatically reduced their scale. Because what happened is that they had a certain type of demographic using them but when they increased the price, they became affordable to a much smaller segment of the population —what I call the “credit card customer base”, the 25-30 million Indians who have credit cards.

The problem, as I saw it, was not that there weren’t enough hotels in India. The problem was that for budget travellers, the hotel experience was often broken.