in 2021 a leading News website of India
wrote this about oo and at the time many
people agreed with this statement this
famous and promising Hospitality chain
struggling hospitality company oo has
reported that its Global revenues have
dropped by 50 to 60% several employees
in the US and in other International
markets on Furs and temporary leaves
this is a message from founder rates
Agarwal anounced that it would lay off
2,400 employees which were roughly 20%
of its total employees just the year
before oo had posted its record loss of
13,123 CR rupees yes that was pure loss
of almost $1.6 billion in just one year
and what’s even more shocking is that it
wasn’t the pandemic year the Year I’m
talking about was the financial year
2019-20 so all that happened before
covid-19 hit in addition to these bad
financial numbers the company was also
fighting many legal battles in the court
first there was this case filed by the
Federation of hotel and restaurant
Association of India which accused oo of
manipulating Revenue numbers and hence
lying to hotels about actual Revenue
figures there were cases filed against
rites agawal 2 where the hotel owner
claimed that the management of oo
changed the terms of their agreement and
that it was done with Criminal Intent
and finally oo’s biggest shareholder
soft Bank was pressuring the company to
go public so that it could recoup its
investment from the company following
this rates Agarwal did file for the IPO
but had to later withdraw it because of
concerns over its profitability and
Regulatory challenges as multiple
organizations had appealed to cancel
oo’s IPO now these were pretty big
challenges and to think that a 28-year
old founder can get through them was
very ambitious but today in 2024 things
are looking way better for the company
it has posted its first ever profitable
year with a net profit of 229 CR rupees
and is projecting three times of this
the next year to 700 CR rupees so the
question is how did this happen how did
one of the most promising startup of
India first went through such tough
times and how did the founder along with
his team get out of it this is what
we’ll discuss in this episode of
backstage with
[Music]
millionaires to understand the issues
that oo faced few years back and how did
rites agrawal save the company we need
to First learn a bit about oo’s early
days as that would really set the
context oo was started in 2012 by
19-year-old Rees Agarwal his initial
idea for the company was to build a
listing platform where people can find
and book budget hotels near them and he
named it oravel stays this idea was
Loosely inspired by Airbnb which at the
time was an upand cominging budget stay
startup in the US now rees’s Journey was
not like other typical startup Founders
VC today people like dender or baves
Agarwal he did not attend any top
universities like I or I IM and also did
not have any strong financial backing
from his family either if it wasn’t for
this guy rates won’t be where he’s today
the guy’s name is is Peter Thiel a
Silicon Valley entrepreneur and investor
he made his fortune by founding PayPal
and later becoming one of the early
investors in Facebook Peter is someone
who does not believe in formal education
and likes to back Young and Hungry
Founders who want to build something to
do this he started something called teal
Fellowship in 2011 where he would select
20 to 30 young people every year to drop
out of college and build something and
he also gave them seat funding of
$100,000 to do this now rites got
extremely lucky and received this
Fellowship as soon as he started oravel
stage and what would have taken him
years to learn and figure out he learned
in just a few weeks one of the key
insights was that finding and booking a
hotel in India was not the main problem
it was the quality of stay and if he
could use technology to standardize and
give a quality experience to the
customers he could build a very big
business this pushed retes to rethink
his entire strategy he started by
changing the company’s name to oo and
use the money he got from teal
Fellowship to hire his early team for
the first couple of years oo’s business
model was very simple it would on board
a hotel partner and take care of the
entire guest experience right from
giving a smooth booking to giving
essential services like clean sheets
free Wi-Fi AC and running water in
addition oo would also do the marketing
of that hotel and for doing all this oo
just charge a small Commission of 15 to
25% depending on various factors and now
that the hotel booking experience was so
much better than before Hotel owners had
seen an in increase in bookings and
hence total income so they didn’t mind
paying this commission to Oyo by 2016 oo
had grown significantly it had a
presence in 100 Indian cities and had
over 5,500 hotels on its platform also
by now it had become India’s largest
branded Hotel aggregator but this was
the time when oo was about to change
completely and this person is the main
reason for that his name is masay Yoshi
son the founder of soft bank one of the
most valuable companies in the world in
addition to soft Bank Masa also manages
the largest tech focused VC Fund in the
world called Vision fund to understand
how Masa influenced Oo we need to learn
a bit about his investment philosophy
see Masa believes that technology will
change Humanity forever and he wants to
invest in the most disruptive companies
and Visionary Founders in the past he
had invested in legendary companies like
Alibaba Uber and bite dance and with a
similar philosophy he invested in rites
Agarwal and his company oo his vision
with oo was that this company could
disrupt the global hospitality industry
by standardizing and scaling budget
hotels with this Vision soft Bank First
invested in oo in August 2015 and over
the next 4 years it invested over $1.5
billion into the company by doing this
soft Bank also became the largest
shareholder in oo having close to 47%
stake and because of this soft bank now
controll the major decisions of oo now
once rites agal had the backing of soft
Bank he started to think bigger and aim
for global scale oo did this by taking a
two-pronged approach firstly in order to
onboard more hotels it launched
something called a minimum income
guarantee model where the company told
new hotel partners that irrespective of
how many bookings they get hoyo will
give a fixed income every month to them
this motivated many Hotel owners who had
initially been hesitant to join this
young new company as for the minimum
guaranteed income it varied based on
several factors but in most cases it was
50% to 200% higher than what these Hotel
owners had been earning before another
issue that hotel owners faced earlier
was that there was so many fluctuations
in their business in Peak Seasons their
hotel was overbooked but in off Seasons
there was little to no demand and when
oo promised them a fixed predictable
income these people could not say no for
example this bangaluru based in- owner
claimed that he was promised 7 lakh
rupees every month by oo as a guaranteed
income and of course all of this money
came from investors particularly soft
Bank whose sole aim with oo at this time
was to capture as much Market as
possible the next thing that oo did
after soft Bank came on board was
aggressive expansion it first started
with India and according to this article
the company hired a sales team of
thousands of new people whose job was to
talk to new hotel owners and convince
them to join oo the next Target was the
global market and the company started by
expanding to Southeast Asian countries
first its promise of a guaranteed income
was loved by Hotel owners in other
countries as well and by 2019 oo was
present in 80 different countries One
Market where oo so unprecedented growth
was China see China at the time was a
market similar to India its budget and
mid deer segment were highly fragmented
there were many small independently
owned hotels with inconsistent quality
and a lack of brand standardization it
provided oo with a great opportunity to
replicate its success from Indian market
here in China and by the end of
financial year 2020 oo had partnered
with over 9 18,000 hotels in China alone
this number for context was more than
India itself a similar aggressive
strategy in other countries in Europe
and North America made oo the third
largest hotel chain in the world in
terms of total rooms it was only behind
Marriott and Hilton now from a distance
this rapid expansion looked good and it
reflected in the company’s Revenue as
well oo’s total revenue increased from
32.8 CR rupees in F16 to
13,160 CR rupees in F 20 more than 400
times in Just 4 years but this growth
came at a big expense see as oo grew
from being a small india-based hotel
aggregator to one of the world’s largest
hotel Brands the company made many
changes to how it ran the first step was
to fundamentally change its relationship
with hotels from being an aggregator
earlier the company now started to work
on a franchise based model this was done
primarily for two reasons one to have
more control over a users’s experience
and second to scale fast but for hotels
this was a big change see earlier hotels
were independent and only partnered with
oo the hotel owners had total control
over prices listing and other management
issues but once oo switched to the
franchisee model it took control of the
entire inventory so now oo decided on
the prices of these hotel rooms and also
issued a long list of guidelines which
these Hotel owners had to comply with
and of course all Hotel owners were not
happy with these changes let me give you
an example to explain let’s say there
was a three star hotel which was earlier
priced at 2,000 Rupees now since oo
managed the supply and hence the price
it could increase or decrease this price
depending on what its algorithm thought
right this led to many Hotel owners
thinking that they were now at the mercy
of oo on how much would their hotels
earn next oo did all this very quickly
as I mentioned earlier oo set up a team
of thousands of sales people to register
more hotels and as a result their total
number of hotels in India increased from
6,000 in 2017 to 18,000 in 2020 and if
you include hotels outside India then
this number shot up to 43,000 hotels in
2020 that’s a crazy growth in just 3
years because of this rapid expansion
the execution got screwed see a lot of
these Hotel owners did not read terms
and conditions properly they were just
sold oos franchisee in Li of good
business so finally when dust started to
settle a lot of tough realities started
to kick in to begin with many hotels as
I said did not return terms and
conditions properly and because of this
they failed to meet the promised
standards this led to customer
dissatisfaction and both the hotel and
the customer blamed oo for this the next
issue was oo’s unclarity over its
Revenue model remember the guaranteed
fixed income promise that oo sold to
many Hotel owners well by now oo started
to realize that this model does not make
sense see what had happened was when oo
made these promises to these Hotel
owners they had OV expected the demand
and when the demand was met oo had to
pay them from their own pocket every
month just to give you an idea of how
much money this was in fi 201920 oo’s
total losses were
13,123 CR rupees and I’m sure a lot of
money was spent for this oo of course
realized that this is not sustainable
and they hurriedly started changing this
model company now introduced a revenue
sharing model where both parties will
share the amount of total booking value
but the thing is it wasn’t communicated
properly to many Hotel owners which led
to protests and even legal cases against
rites Agarwal and the issues that I just
mentioned were not only happening in
India it was also happening in other
countries like the US and China small
hotel owners in these countries who
mainly joined oo in order to earn a
guaranteed income now got angry when oo
changed its business model A lot of
these hotels sued oo in their respective
countries now just when oo was trying to
deal with these many mishaps it was hit
by another blow covid-19 travel and
Hospitality was was one of the hardest
hit sectors during the pandemic in the
early days oo promised support to its
Hotel Partners but as the lockdown
period extended and the demand did not
pick up the company took several
measures to stay alive to begin with it
laid off thousands of employees both in
India and overseas this was followed by
shutting down properties which were not
making money now these issues were still
manageable but the biggest setback
company got when it faced pressure from
its investors to make money especially
soft Bank see soft Bank at this time was
going through a rough patch its biggest
investment in vork had failed and it had
lost almost $15 billion and it was a
personal setback for Masa Yoshi son he
now had to make money from his other
Investments like oo if he had to survive
this was when oo which was already
running terribly bad was forced to go
for an IPO in September 2020 oo filed
for the IPO for the first time this IPO
wasn’t accepted by a lot of people
because of oo’s irregular numbers and
heavy losses then there were
organizations like sebi who were
investigating the company for alleged
fraud for a while it looked like things
were not going to work out for oo and it
might become another VOR or BYU but fast
forward to today oo has posted its first
ever profitable year with a net profit
of 229 CR rupees so how did rates
Agarwal and his team turn things around
for the company well to begin with oo
changed its entire Focus from growing at
any cost to Growing profitably to do
this the company first Dlisted thousands
of old hotels which were not performing
well this included hotels which had low
visitor turnout or that they had low
customer experience in addition the
company also removed hotels which did
not agree with its new business model as
a result total number of oo hotels in
India reduced from 18,000 at its peak to
8,000 now and what’s really interesting
is that it did not affect oo’s total
revenue which is actually increasing now
this is happening because oo is now
focusing on making more money from exist
listing hotels they’re doing this by
improving the customer experience and
cutting cost using technology to give
you a number oo’s gross booking value or
Topline Revenue has increased from 2.19
lakh rupees per hotel to rupees 3.9 lakh
now almost 80% increase in just one year
another point which I earlier mentioned
was oo’s change in its business model
the earlier model of guaranteed fixed
income had added heavy fixed costs for
the company this has now been changed to
revenue sharing model which REM moves
any sort of financial or other kind of
pressure from oo now hotels are as much
responsible as oo to give a good
experience to the customer next thing oo
is doing now is changing its brand image
from a budget friendly hotel chain to
one that is available in all segments so
for example for the affordable segment
the company has oo townhouse for people
who prefer home stays there’s oo home
Lukes next for corporate Travelers oo
has two different options depending on
price and location and these are the
option under oo’s own brand the company
has also launched two new brands pallet
and sunde both of which are premium
Hotel and Resort chains so what we are
seeing here is that oo has spent last 10
years learning ins and out of Hotel
business and now they’re using all those
lessons to get into every segment of
Hotel business these changes that I just
talked about were changes done in India
but oo has taken a new approach for its
Global business as well firstly it has
scaled down from 80 countries to 35 now
this also means a bigger focus on the
market that are bringing in revenue and
where the company does not have to go up
against big competition for example the
company has scaled down its business in
countries like China and double down on
countries like the UK and Nordic
countries as a result while oos overseas
base has shrunk its Revenue has actually
increased now these were the changes
that the company has already done but
there are many ongoing things which look
very promising for the future the first
one is tapping first generation Hotel
owners see one reason oo faced so many
difficulties in the past was because it
was dealing with Legacy Hotel owners
these were the people who are not too
comfortable with technology and made the
process too complex the company is now
looking for young first generation Hotel
owners who oo can train to run their
hotels more smoothly for this the
company launched a dedicated accelerator
program and it’s already running
thousand hotels under this project next
thing oo is doing is tapping future
growth areas which look promising and
one particular area which I want to
mention here is spiritual tourism see
postco India has seen a massive rise in
spiritual tourism it is happening
firstly because people are looking for
new ways to reconnect with themselves
and Two the government has focused on
this a lot through schemes like prashad
and swadesh dasan schemes according to a
report by Ministry of tourism in 20121
67.7 CR people participated in spiritual
tourism which generated a revenue of
$7.9 billion in 2022 this number
increased to 143 CR people and a revenue
of $16.2 billion and according to the
same report this Revenue could grow 4X
to $59 billion by 2028 so oo has
realized that this is a massive
opportunity and the company has jumped
on this trend pretty early on in January
2024 oo announced that they will be
opening 400 new properties to cater to
this new demand the focus will be on
cities like aodha Varanasi and Puri and
because of these efforts oo is
projecting a net profit of 700 CR rupees
and fi25 almost three times of fi4 and
the company’s already on track to do
this they did 132 CR rupees in net
profit in quarter 1 of fi25 so it’ll be
really interesting to see where they end
this year at in the end I want to hear
from you what was your biggest takeaway
from this eventful journey of oo share
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