OYO Business Model | How Does Oyo Make Money?

Last updated: September 30, 2021

Company: Oyo Rooms
CEO: Ritesh Agarwal
Year founded: 2013
Headquarter: Gurgaon, Haryana, India.
Number of Employees (2019): 25,000+
Type: Private
Valuation (Aug 2020): $8 Billion
Annual Revenue (FY 2019): $951 Million
Profit |Net income (FY 2019): -$335 Million

Products & Services: Online room-booking services (Oyo Rooms) | Oyo Flagship | Oyo Townhouse | Oyo Home | Oyo Capital O | Oyo Collection O | Oyo B Direct | Oyo SliverKey
Competitors: Treebo Hotels | FabHotels | YourOwnRoom | VistaRooms | Keys Hotels | NestAway | NoBroker | SquarePlums | Airbnb

What started from a single hotel service in India, Oyo has now turned out as one of the world’s largest hotel network brands.

It has stretched out its roots to 230 cities with over 44,000 hotels with over 1.2 million rooms. Through its app-based booking facility, Oyo allows customers to book rooms within a few seconds. Oyo delivers similar awesome experience across all of its rooms with its excellent room services and amenities. In 2020, Oyo has expanded its operations to over 800 cities in 80 countries and offers over 130,000 homes around the world through the OYO vacation homes business. [1]

OYO’s valuation dropped by $2 billion from $10 billion in 2019 to $8 billion in August 2020 due to uncertainties in the global market. But OYO’s valuation drop is very small compared to other global giants in the sector like Airbnb that dropped by over 50%. [2]

Business Model Canvas of Oyo

Oyo started as a hotel aggregator and used to lease some rooms and sell them under its brand name. However, it changed its business model from the aggregator to the franchise model. It involved partnering with hotels, asking them to operate as a franchise, and selling their rooms to customers at competitive prices.

So, what does the franchise model mean in the hotel industry?

What it means – Oyo does not own hotel properties that are listed on their website. Oyo renovates the hotels according to its checklist of standard services, and make the hotel property a part of its “standardized budget hotel chain” with Oyo’s branding.   

What makes Oyo’s business model unique and different from other hospitality companies is its standardized hospitality services. It focuses more on user experience rather than only hotel’s room availability and prices.

The company has embarked on an aggressive global campaign in 2020 by offering free accommodation to frontline healthcare workers and foreigners stranded overseas due to the recent health crisis. CEO Ritesh Agarwal selected several facilities from its list of international hotels in India, the US, and other countries to house professionals working on the frontlines. [3]

To become Oyo’s partners, every hotel has to meet a set of guidelines for services, pricing, staff quality, features of rooms, security, etc.

1. Customer Segments of Oyo

Oyo has served over 180 million customers in 2019 from 120+ nationalities and catered to 750,000 guests every night on average throughout December 2019. [4]

The customer segments of Oyo include:

• Adventure Travelers – All those travelers who want to explore different destination independently (in the low budget) or in a small group. Also known as backpack travelers.
• Leisure travelers – Travelers who want to take a vacation from everyday busy life.
• Family travelers – Those who travel in large groups and look for a spacious and comfortable stay, where they can also arrange parties, family events, weddings etc.
• Business travelers – Oyo also has commercial places on its platform where customers can book office spaces and conference rooms for their business purposes.

Here’s a snapshot on our expansion across global markets. We continue to delight millions of guests in thousands of OYO properties across hundreds of cities! More details on our FY'19 Annual Report here: https://t.co/o2ZqV5ODJF pic.twitter.com/8Y6clRPygR

— OYO (@oyorooms) February 18, 2020

2. Value Propositions of Oyo

The value propositions of Oyo are its standardization of services to enrich the guest experience. 

Customer experience: Unlike Airbnb that only connects travelers with local hosts, Oyo takes full responsibility of services of the hotels listed on its platform.

Other value propositions are:

• Well-designed app
• simple and easy-to-use app for booking: Oyo has rolled out its Contactless Check-in feature that allows a quicker and safer check-in experience from anywhere at any time. [5]
• speed and reliability in finding hotels, bars, theatres
• personalized room features
• Holiday packages & discounts
• Discount membership program
• community and entertainment services
• Amenities

To refine its value propositions, it has launched separate banners of unique services.

Oyo Townhouse: Through Oyo Townhouse, millennial travelers can get smart services for their smart needs. ‘Smart rooms’ with specially-designed beds, formulated toiletries, power sockets, and TVs with Netflix installed are offered with 24/7 kitchen services. ‘Smart menus’ can be ordered by a mobile application. 

Oyo Studio Stays: Through Studio Stays, people can book rooms for their internships, jobs, or corporate stays. They can rent rooms for either single occupancy or twin sharing.

Oyo B Direct: It is primarily for business stays, which provide simplified reimbursement by GST ready invoices. 

Oyo Homes are fully designed private homes for people who are on their holidays.

Oyo Flagship: Oyo leases whole buildings/apartments for its Oyo Flagship brand. These buildings give a homely atmosphere as well as the comfort of the hotel. Friendly staff, vibrant decorations, theme-based rooms, and building walls with lovely quotations are some of its unique features.

Oyo Silver Key: it’s another exclusive service that provides executives and corporate clients executive apartments with private, spacious, and multi-utility services.

Weddingz.in: Oyo has also partnered with several banquet halls’ vendors to allow people to book their wedding venues through its easy booking services and within best prices. 

Oyo Wizard: Oyo has introduced a subscription model where wizard members can avail exclusive discounts, offers, deals, and cash back advantages. Oyo offers popular packages and hot selling deals for travelers.

An #OYOWizard gives you super OYO powers: 5% off on your current booking & up to 10% off on your future bookings. What’s more? Become an #OYOWizard now at an early bird price of ₹99 only. Tag your friends below to extend your powers. Know more here: https://t.co/6mOrSfcSl6 pic.twitter.com/gxkAtrIEBd

— OYO (@oyorooms) September 2, 2018

3. Customer Relationships of Oyo

Self-Serve Platform – Oyo has self-serve website and app, which is a primary tool for customers to access Oyo services. It has over 10 million+ app downloads so far.  

Hotel accommodation Staff – the hotel staff interacts with customers at the time of check-in and provides hotel services.

Customer Service Support – It maintains 24/7 active customer support to respond to customer queries. Moreover, to ensure customer loyalty and increase their trust, Oyo tracks their Net Promoter Score metric thoroughly. And that’s its why customer repeat rate of Oyo is highest in the industry.

Social Media – It does brilliant digital marketing and social media networking to reach customers.

4. Channels of Oyo

The channels of Oyo are:

• Website and mobile application
• Blogs
• Social media networks like Twitter, Facebook, and Instagram
• Neighborhood hotels
• Student organizations

5. Key Resources of Oyo

The key resources of Oyo include:

• Hi-tech app architecture: OYO expanded its app with two new features in 2020. Smart Pricing Manager was introduced within the OYO OS owner app to allow its partners to adjust their room prices instantly based on the prevailing situation on the ground. This feature enables hotel owners to capitalize on the sudden spike in demand or improve occupancy by reducing the price. It exploits local knowledge to enhance efficiency. OYO also introduced the Cancellation Prediction Engine feature, which predicts whether each customer who has booked a room will check-in. It helps hotel owners to optimize occupancy and avoid overbooking. [6]
• 44,000+ fully leased and franchised hotel properties with over 1.2 million+ rooms. The company acquired 17,000 homes under TUI Holiday Homes in early 2020, which has increased its portfolio of 140,000+ homes spread across 70 countries. The acquisition has expanded OYO’s market share in Europe to become a top 3 player in four key vacation markets. [7]
• Customer Database – Oyo has a large database of loyal repeat customers
• Employees with technical knowledge like programming, development, and maintenance, and other staff for business management.
• Venture Funding – Oyo has secured funding from many venture capital firms such as Sequoia Capital, SoftBank’s Vision Fund, etc.

We're making our mark in the Big Apple!
Our Founder & Group CEO, @riteshagar recently took a tour of the @NYSE. Here's a glimpse of his interview where he delved deep into OYO's legacy so far as well as future plans to deepen our roots in the US.#NYSEFloorTalk https://t.co/tIKVhaDEFb

— OYO (@oyorooms) February 22, 2020

6. Key Activities of Oyo

The key activities of Oyo are:

Platform – Creating, developing and maintaining Oyo’s website and app

Partnership– Partnering with hotels, vendors, event planners, etc

Customer experience – Ensuring the hotel services and maintaining quality

Sales & Marketing – Performing advertising and marketing activities. Active social media activities including updating pages of Facebook, Instagram. 

Recruitment – Hiring and retaining talented employees

Business growth – Developing a friendly and promising community to invite friends and attract people to sign up

Communication – Sustain effective communication with hotel partners, vendors, service providers, clients, and customers.

Health and Safety – Oyo launched the ‘Scrubbed Clean’ program in 2020 to ensure all its hotels in the US comply with the CDC health and safety guidelines. [8]

7. Key Partners of Oyo

The key partners of Oyo are:

• Hotels, clubs, corporations, banquet halls, etc.
• Event organizations
• Booking confirmation, location, navigation details, and cancellation can be managed through communication platform such as WhatsApp.
• Electronic payment services such as Paytm
• Taxi service providers such as OLA
• Dinner Reservation Services such as Dineout
• GPS services with Google maps
• In-room entertainment services with Netflix

8. Cost Structure of Oyo

The cost structure of Oyo includes:

• Platform (website and app) development and maintenance costs
• Renovation and branding cost
• IT infrastructure cost
• Marketing and advertising costs
• Employees salary costs
• Hotel Partners’ commissions
• Legal cost
• Other operational and administrative cost

9. Revenue Stream of Oyo

As of fiscal year 2019, Oyo has annual revenue of $951 Million. Now let’s discuss how Oyo makes money?

How does Oyo make money?

• Commissions

Oyo charges around 22% of commissions every month from hotels owners. Commissions may vary as per the services and features offered.

• Room Reservation Fee

Customers pay a room reservation fee according to their services chosen. The room fee is charged with a few percentage margins of the hotels’ prices. For example, if a room is priced at Rs. 1,000 per night, Oyo makes only 10-20% commission from it, and that is their actual revenue.

• Membership fees

Users who subscribe to Oyo Wizard memberships are charged with premium fees ranging from Rs 500 to Rs 3000. 

• Advertising

Oyo also charges different companies to place their ads on Oyo’s app and website. It also generates sizable revenue for Oyo.

• Sponsors and Partnerships

Oyo also charges some amount from its sponsors and key partners by promoting their brand name through advertising on their app. 

• Consulting Services

Oyo charges for its business consulting and data analysis services, it provides to its clients, including hotel, clubs, organizations, etc. It provides these services as it owns an extensive database of locations, hotels, event organizations, users, and their preferences.

Final Word

Oyo has truly revolutionized the hotel industry with its efficient use of technology. It has redefined living spaces and taken the user experiences to the next level. With its quick booking facility, hassle-free rental experience, and convenient pricing, it has transformed the way people stay away from homes.

Its growth is unstoppable with its continual expansions to newer markets while it has strongly built its brand name as the most prominent hotel network with both high quality and affordability.

 References & more information

1. The Genius (2020, May 15). The rise of OYO, the world’s fastest-growing hospitality brand from India. The Genius Works
2. Dash, S. (2020, Aug 4). OYO valuation drops to $8 billion ⁠— but it’s the smallest drop compared to other major hotel chains. Business Insider
3. Gilchrist, K. (2020, April 8). India’s Oyo budget hotel chain pledges to house coronavirus frontline staff and those stranded. CNBC
4. Gupta, A. (2020, Feb 17). ANNUAL REPORT CARD FY 2019. Oyo Blog
5. Business Editor (2020, Nov 1). OYO launches the ‘Contactless Check-in’ campaign. Hotelier India
6. Press Release (2020, September 21). OYO Introduces New Revenue Management Technology. Hospitality Net
7. Press Release (2020, Oct 28). OYO Vacation Homes acquires the TUI vacation rental business. Hospitality Net
8. Karantzavelou, V. (2020, June 4). OYO launches the ‘Scrubbed Clean’ program in line with the CDC and AHLA Safe Stay guidelines. Travel Daily News

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