How Ritesh Agarwal Saved OYO?

00:00 - Intro
02:14 - Early Days
02:54 - Thiel Fellowship
04:47 - Enter Masayoshi Son
07:04 - Rapid Expansion
08:33 - Tough Days
11:52 - COVID-19
13:18 - Turnaround
15:46 - Future Plans

The story of how Ritesh Aggarwal saved OYO is a tale of resilience, strategic pivots, and the determination to steer a sinking ship back to profitability. Founded in 2012 by a 19-year-old Ritesh Aggarwal, OYO began as Oravel Stays, a platform for finding and booking budget hotels. Inspired by Airbnb, Aggarwal sought to solve a critical problem in the Indian hospitality industry: inconsistent quality in budget accommodations. With the help of the Thiel Fellowship, Aggarwal transformed Oravel into OYO, focusing on standardizing guest experiences across a wide range of budget hotels.

The Early Success and Rapid Expansion

In its early years, OYO's business model was straightforward. The company partnered with hotels, offering services like clean sheets, free Wi-Fi, air conditioning, and running water, while also handling marketing and customer experience. In return, OYO charged a commission of 15-25% from hotel owners. This model was well-received, leading to significant growth. By 2016, OYO had a presence in 100 Indian cities with over 5,500 hotels on its platform.

This success caught the attention of Masayoshi Son, the founder of Softbank, who saw potential in OYO to disrupt the global hospitality industry through technology and AI. Softbank's Vision Fund invested over $1.5 billion in OYO between 2015 and 2019, making it the company's largest shareholder. This model promised hotel owners a fixed income, regardless of bookings, in exchange for joining OYO. The strategy worked, allowing OYO to expand aggressively in India and internationally, particularly in China, where OYO partnered with over 19,000 hotels by 2020.

The Downfall

However, OYO's rapid growth came at a significant cost. The shift from an aggregator to a franchise-based model alienated many hotel owners, who lost control over pricing and operations. OYO's 'Minimum Income Guarantee' model also backfired, as the company overestimated demand and had to pay hotel owners out of its own pocket when bookings fell short. This led to massive financial losses, with OYO reporting a loss of ₹13,123 crore (approximately $1.6 billion) in the 2019-20 financial year.

The situation worsened with the onset of the COVID-19 pandemic, which devastated the travel and hospitality industry. OYO was forced to lay off thousands of employees, shut down unprofitable properties, and faced increasing pressure from investors like Softbank to go public. It seemed OYO was on the brink of collapse, similar to other failed startups like WeWork and BYJU’S.

The Turnaround

The company delisted thousands of underperforming hotels, reducing its Indian portfolio from 18,000 to 8,000 hotels. This move did not negatively impact OYO's revenue; in fact, the company's gross booking value per hotel increased by 80% in just one year. OYO also abandoned the 'Minimum Income Guarantee' model in favor of a revenue-sharing model, which reduced financial pressure on the company and aligned the interests of both OYO and hotel owners.

In addition to these operational changes, OYO rebranded itself to cater to different market segments. The company introduced OYO Townhouse for the affordable segment, OYO Homeluxe for homestays, and Palette and Sunday as premium hotel and resort chains. OYO also scaled down its global operations from 80 countries to 35, focusing on markets that generated revenue without facing stiff competition. This strategic retreat, coupled with a focus on first-generation hoteliers more comfortable with technology, allowed OYO to improve its profitability.

One area where OYO is betting big is spiritual tourism, a rapidly growing sector in India. The company plans to open 400 new properties in cities like Ayodhya, Varanasi, and Puri to cater to the rising demand for spiritual tourism. This focus on high-growth areas, coupled with OYO's operational and strategic pivots, has set the company on a path to profitability.

In 2024, OYO posted its first-ever profitable year, with a net profit of ₹229 crore (approximately $28 million), and it projects a profit of ₹700 crore (approximately $85 million) for the next financial year. The company's gross booking value per hotel has increased significantly, and it has managed to improve its brand image while reducing its operational footprint. It will be interesting to see how the company navigates the future challenges of the global hospitality industry.

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