In December 2016, OYO, India’s largest budget hotel aggregator, announced yet another change to its business modelan entry into fully managed hospitality through a new brand, “Townhouse”. And it was a complete departure from OYO’s strength: budget hotels.

On paper, the new business model is one of the oldest in the business. OYO plans to lease existing hotels and guesthouses, refurbish them and then operate them itself for a few years. The owner of the hotel gets a hefty guaranteed fee and additional revenue share. While OYO hires the staff, runs the hotel and manages customer experience. Unlike the aggregator model, growth would be slower but more controlled. This business model mirrors that of several larger players such as Sarovar Hotels & Resorts and Marriott International. Since it is a proven business model, raising funds from private equity players for this business shouldn’t be too difficult either.

India is set to be in the top five markets for business travel. According to a report by the India Brand Equity Foundation (IBEF), spending in this market is set to go to $90 billion by 2030. International hotels have started to find traction within the business traveller market as well. So have homegrown players. Makemytrip (MMT), which acquired its closest rival Ibibo in October 2016, is set to raise over $300 million in a fresh round of funding. Airbnb claims it has 22,000 properties in India already. Chicago-based Hyatt, too, plans to open its top-end segment, Centric, in India. Meanwhile, homegrown brands like Treebo and FabHotels have been cranking up their presence too.

OYO, itself, raised $250 million in its latest round led by SoftBank.

There is money to be made. And OYO sees that opportunity.

Come for the wifi, stay for the rooms

For OYO, Townhouses aren’t just rooms. But also co-working spaces and cafés that will drive demand to the hotel. OYO claims those are its moats, along with its budget hotel aggregation business.

“A co-working space and a café? Are they trying to be Starbucks?” asks a competitor, only half rhetorically.

Let’s step back and unbox how the business model truly works.

OYO, so far, has five Townhouses. Four across NCR and one in Bengaluru. The aim is to reach 100 by the end of the year, sources say. A tall ask. And this is why. OYO approaches each property owner, pays Rs 75 lakh to Rs 1 crore as lease for a period of three-five years. In some cases, it has a revenue share agreement too. OYO denies that the model is based on the franchise concept. It says that the entire model is based on revenue share. Sources within the company, however, insist that OYO calls it a lease, instead of a licensing fee. But it serves the same purpose.

“It then spends about Rs 2 lakh per room on upgrading it.

AUTHOR

Patanjali Pahwa

Patanjali has spent over seven years in journalism. He last worked at Business Standard as Principal Correspondent, where he wrote on startups, e-commerce companies and venture capital. He has worked at an array of institutions, which include Forbes India, Caravan and Outlook Business. He is a Mumbaikar, born and brought up. Patanjali did his BSc in IT from Mumbai University and then got his journalism degree from IIJNM in Bangalore. He is enamoured by Ernest Hemingway and Tom Waits and may try to sneak in references to them in his stories.

View Full Profile

Available exclusively to subscribers of The Ken India

This story is a part of The Ken India edition. Subscribe. Questions?

MOST POPULAR

Annual Subscription

12-month access to 200+ stories, archive of 800+ stories from our India edition. Plus our premium newsletters, Beyond The First Order and The Nutgraf worth Rs. 99/month or $2/month each for free.

Rs. 2,750

Subscribe
 

Quarterly Subscription

3-month access to 60+ new stories with 3-months worth of archives from our India edition. Plus our premium newsletters, Beyond The First Order and The Nutgraf worth Rs. 99/month or $2/month each for free.

Rs. 1,750

Subscribe
 

Single Story

Instant access to this story for a year along with comment privileges.

Rs. 500

Subscribe
MOST POPULAR

Annual Subscription

12-month access to 150+ stories from Southeast Asia.

$ 120

Subscribe
 

Quarterly Subscription

3-month access to 35+ stories from Southeast Asia.

$ 50

Subscribe
 

Single Story

Instant access to this story for a year along with comment privileges.

$ 20

Subscribe

Questions?

What is The Ken?

The Ken is a subscription-only business journalism website and app that provides coverage across two editions - India and Southeast Asia.

What kind of stories do you write?

We publish sharp, original and reported stories on technology, business and healthcare. Our stories are forward-looking, analytical and directional — supported by data, visualisations and infographics.

We use language and narrative that is accessible to even lay readers. And we optimise for quality over quantity, every single time.

What do I get if I subscribe?

For subscribers of the India edition, we publish a new story every weekday, a premium daily newsletter, Beyond The First Order and a weekly newsletter - The Nutgraf.

For subscribers of the Southeast Asia edition, we publish a new story three days a week and a weekly newsletter, Strait Up.

The annual subscription will get you complete, exclusive access to our archive of previously published stories for your edition, along with access to our subscriber-only mobile apps, our premium comment sections, our newsletter archives and several other gifts and benefits.

Do I need to pay separately for your premium newsletters?

Nope. Paid, premium subscribers of The Ken get our newsletters delivered for free.

Does a subscription to the India edition grant me access to Southeast Asia stories? Or vice-versa?

Afraid not. Each edition is separate with its own subscription plan. The India edition publishes stories focused on India. The Southeast Asia edition is focused on Southeast Asia. We may occasionally cross-publish stories from one edition to the other.

Do you offer an all-access joint subscription for both editions?

Not yet. If you’d like to access both editions, you’ll have to purchase two subscriptions separately - one for India and the other for Southeast Asia.

Do you offer any discounts?

No. We have a zero discounts policy.

Is there a free trial I can opt for?

We don’t offer any trials, but you can sign up for a free account which will give you access to the weekly free story, our archive of free stories and summaries of the paid stories. You can stay on the free account as long as you’d like.

Do you offer refunds?

We allow you to sample our journalism for free before signing up, and after you do, we stand by its quality. But we do not offer refunds.

I am facing some trouble purchasing a subscription. What can I do?

Please write to us at support@the-ken.com detailing the error or queries.