Let’s start today’s story with a question.
What is the easiest and sure-shot way for a startup to enter the exalted “Unicorn” club consisting of companies valued at over a billion dollars?
Why, raise a billion dollars, of course.
According to reports, OYO Rooms, the SoftBank-backed hospitality startup, is poised to do exactly that in a new funding round of up to $1 billion that may value the company at a mind-boggling sum of over $4 billion.
If that isn’t enough, now that SoftBank has exited Flipkart and written off Snapdeal, OYO seems to have emerged as the behemoth’s favourite child in India. A considerable part of SoftBank’s recent earnings call was dedicated to OYO. Masayoshi Son, SoftBank’s mercurial founder, made the following statements on it (lightly paraphrased for easy reading):
- OYO is a completely new type of hotel, a next-generation type of hotel management. It is not a travel agent but manages hotels comprehensively with its own management, IT, booking technology and quality control method. It’s like a franchise.
- Taj Hotels is the biggest hotel chain in India with 15,000 rooms. In just two years, OYO grew the number of rooms from 1,000 to 100,000. By the end of the year, it will add 150,000 to 200,000, which will be 10x more than the Taj group’s rooms.
- OYO started in China as well and in less than 12 months, 25,000 rooms were created every month.
- The world’s biggest hotel chain in the world is the Marriott, and they added 8,000 net rooms in the last three months. In contrast, OYO grew 10x faster, adding 81,000 rooms in the same period —34,000 in India and 47,000 in China.
- With OYO, the occupancy grew from 30% to 78%. So from a hotel owner’s perspective, the occupancy rate grew dramatically with OYO. In return, the profit will be shared with OYO and hotel owners.
- OYO’s business and management are being more efficient through AI. They use heat maps with AI for demand prediction and to dynamically decide pricing. 43 million micro-optimisation takes place per day by looking at the weather, looking at day or week, looking at what kind of campaign is ongoing. Without AI, you can’t do such micro-optimisation.
Son also claimed that OYO is already profitable at a unit level, and would become profitable at the company level as it scales further. “The cost of acquisition and development are considered early proactive investments, but since the volumes are huge, growth margin should exceed such fixed costs. Once it exceeds, you will see a dramatic improvement in profitability, similar to what Google, Microsoft and Facebook have proven”.