There is more to the unkempt looks of Ritesh Agarwal, 21-year-old founder and CEO of OYO Rooms, which one might find unusual of his age and accomplishments. Sporting dishevelled hair, shabby beard and muddy shoes, Agarwal started with coding software at the age of eight, becoming a part of a global annual forum for improving science in Asia, authoring a book on top 100 Indian engineering colleges, starting a consulting firm for foreign companies entering India, launching Oravel Stays, an Indian clone of US-based online lodging service Airbnb, dropping out of college and becoming the first Indian Thiel fellow to pivoting Oravel Stays to OYO Rooms, a branded network of budget hotels while he was just 19. What he is now building upon is a globally disruptive idea in accommodation and hotel industry.
Through OYO Rooms, Agarwal is addressing the problem of finding affordable yet standardised accommodation that otherwise according to him never existed globally. Large hotels are standardised but not affordable, whereas budget hotels usually lack standardisation. Running Oravel Stays, Agarwal had stayed at bedand- breakfast serviced apartments every day, mostly in Gurgaon and realised that the challenge was not about finding affordable stays but the lack of standardisation.
“My experience as a customer was very bad. You call the hotel owner, he won’t answer, you reach the hotel but you find doors locked, you get in the hotel and find receptionist sleeping, switchboards in the room not working, washroom has water leakage, so end-to-end experience was broken. Globally, no one took the pain to standardise this,” says Agarwal who himself didn’t have a house until early July this year.
For 10 months since December 2013, Agarwal started standardising hotels to the minimum, beginning with Gurgaon. Each hotel managed by OYO Rooms gets audited every two days by OYO’s mobile app, which is geo-location and room focused with real-time images. This lets Agarwal compare the audited results with customers’ feedback and improve upon it. The model stands disrupted in the market saturated with travel agencies, making the start-up to scale rapidly to more than 2,500 hotels in 125 cities across India in just one-and-a-half years.
“The reality is that Indian market accepts and adapts faster to real problem solutions than anywhere in the world. India’s largest hotel brand (referring to Taj Hotels) used to operate around 10k rooms that they built over two centuries. Globally if we look, Airbnb also (present in 190+ countries) took six years to become what it is now. So, as the nature of the problems in India is so bad, the opportunity is vast and the adaptability is so fast,” he asserts.
People however still compare OYO Rooms’ model with the model like that of an Airbnb’s, but Agarwal compares OYO Rooms with Ola and Uber, online marketplaces for cabs. For him, OYO Rooms’ model already existed in cabs space. “The difference between Uber or Ola and Airbnb is in discovery and instant gratification. You want a cab, you press a button and you get the confirmation for the cab immediately, which is not there in Airbnb. This also means the problem of predictability for hotel or accommodation industry, which we are solving, is similar to Ola or Uber,” he further says.
However still Airbnb is crazily valued at $25 billion but Agarwal calls OYO Rooms as Amazon of its space. “eBay was crazily valued, but when Amazon came in, the world changed though eBay is still big. It is the same thing with us,” says Agarwal. Customers stay at OYO Rooms for reasons like power cuts and watching cricket or soccer matches with friends.
Agarwal intends to encourage people use hotels for every purpose just like people today use cabs for everything including picking kids from schools, which wasn’t the case around three years back. “People prefer OYO not only for its proximity, but also for its inexpensiveness (around one-third of the price for a three star hotel). The interesting part is when electricity goes off in Gurgaon, our business goes up by six per cent, which is huge for us in the region considering we do 50k night bookings a month that means 96 per cent market share for us,” says Agarwal adding, “If given an opportunity, I would like to request the electricity board that whenever there is a power cut, we would like to send an SMS to customers asking to book an OYO.”
Unlike its service, the margin for OYO Rooms from every hotel is not standardised. It earns 10-15 per cent from high-street locations where visibility is important, 25-30 per cent from midstreet locations and 40-45 per cent from low-street locations. However, the startup ensures that every hotel earns at least 1.5 times of profit that they could have earned by renting the place. But how does OYO Rooms maintains that at such lower price points? To this, Agarwal replies, “We drive 90 per cent of the business to hotels since it is about occupancy or volume. For example, Indigo charges much lesser than other airlines because it runs at 85 per cent occupancy. Currently, we are close to $100 million in yearly run rate.”
Agarwal takes a day out every month travelling to any city checking out hotels and meeting locals. Since he is quite young, people don’t come across him as an entrepreneur running a company of 1,500 people. “…so a housekeeping guy or a chef whom I talk to also feels that I do housekeeping or cooking. But in reality I do such things like housekeeping once a month at some of our hotels or parking cars as valet. The good part is that I don’t look like neither I tell them about my identity,” says Agarwal with a smile.
The start-up recently launched OYO Premium for high-end consumers while still pricing them at one-third of a four-star hotel cost. The start-up recently partnered with Ola and restaurant discovery app Zomato to serve customers with a seamless commuting, staying and eating out experience, leveraging each other’s user base, better marketing and branding tools. The start-up is focusing on growing in terms of number of hotels instead of cities and planning to add more than 2,500 hotels they had earlier planned by this year-end.