OYO Rooms - Road to Profits

OYO Rooms – Road to Profits

We are carrying forward from our previous post of B2B v/s B2C and the correlation of the two business models.

Coming back to the Indian Unicorns, which are largely operating in B2C space and with losses and losses and piling up and investors valuations going up, who minds that when nobody is hurting. Especially when they know that scared sharks like Walmart will come and buy Unicorns and make everyone happy. Whether the founders or the investors had built a vision or roadmap to make profits for Flipkart.

In VC world, all roads lead to cash out. 

B2C companies will continue to bleed in the Indian context, where the consumer is so nimble that he switches the loyalty the moment he finds better/cheaper price. B2B is the way to make profits. E-Comm portals are planning to enter/launch their own brands and taking cue from Kishore Biyani, better known as Retail King in India, who has launched his own labels to make better margins as compared to his suppliers who offer limited margins. It is applicable to all types of Unicorns, whether its Flipkart, OYO Rooms, Makemytrip, OlaCabs. Makemytrip is still struggling to make profits in spite of its listing on NASDAQ in US. 

My fundamental question, Where is the innovation in the whole e-comm or business model of Unicorns? If they are grabbing few slices of strategy from their American tech counterparts and some slices from Indian traditional operators. Or probably building the efficient mix is called business innovation. Ultimately one may say anything about Indian Unicorns, it is deep discount model, like the old Indian saying, “Paisa phenk, tamasha dekh”.

We can agree for Flipkart’s losses, which operate on wafer thin margins in retail space. But what about the other Unicorns, who operate in healthy space of considerable margins like beauty, apparels or bookings space?

Zomato will be making profits though its valuation may not skyrocket going forward. Zomato is backed by naukri.com, whose blood belongs to subscribe and pay and profitability model.

Let’s take the case of OYO Rooms, it is the fancy hotel directory of cheap hotels in town. It added the feature of book and pay. No doubt, building a directory in a country like India is not an easy task. OYO Rooms has done phenomenal job of 8500 properties in 230 cities. Which Unicorn can boast of having data of 230 odd cities in India and OYO Rooms properties range from 2 rooms to 200 rooms.

VC/PEs are money managers, they know how to make money on their investments. Doesn’t matter the traditional financial metrics on any business. More money a company wants, better it is for the VC/PEs, more is their importance in the whole cycle of customer engagement and funding process.

OYO Rooms offers its commission from hotel owners to its users (customers) plus some more as they have to show increasing user engagement on their platform – month on month. That area of high growth began tapering off, after all OYO Rooms cannot pull from their houses and tell them to stay in OYO Rooms just because it is cheap and offering discount. I know and agree, it is a boon for unmarried couples. Total enjoyment without worries at almost no cost.

OYO Rooms launches OYO Townhouse. OYO Townhouse are grey coloured properties, which OYO has leased from owners, refurbish properties in standard format and completely operated by OYO team and staff. Think of it like, since people were slow in signing up properties on Airbnb, hence Airbnb has started renting properties and offering the same to their customers.

After few billions of dollars investment, if the technology is not able to engage with the customer on its own, it means either technology never existed or the investment has been tossed into a bin. Sometimes, I really wonder which Unicorn is able to leverage mountains of data they have collected creeping into our smart phones that at times, cab company fails to catch your location.

Unicorns are under pressure from their investors to perform on customer engagement metrics, no matter the costs. And when the metrics fail, then they take on the process of capturing the forward integration supply chain of customer acquisition. Investors are not wrong in expectations when they are throwing hundreds and hundreds millions of dollars.

But given the choice, what can be done from OYO’s side to better engage with customer to make more money from the same customer or profit from every customer. Instead of forward linking they could go backward linking with the process, which is completely delineated from the customer perspective. Though in terms of service perspective, somehow or the other, it is linked to the customer.

Look at the boss, Google feeds itself on B2C data but relies on B2B for earning. 

Or Amazon, which is developing new industries as they are obsessed with lowest price and customer satisfaction and perhaps they understand they will never be making enough money in Retail business.

Instead of building Townhouse, burning few more millions of investors money in a brand which may or may not deliver, they should look at developing the services for the hotels who are operating through their platform. Innovation only does not lie with how you use customer data and engagement, rather how you can use and utilize the data generated from businesses as well.

OYO Rooms can enter laundry business and offer cheap services to hotel owners, so that they can decrease the costs of hotels and take advantage of the same in terms of pricing and also make money in the laundry business. OYO can operate Laundry business through back alleys of primary business districts in some of the major cities, which collects soiled and dirty sheets from hotels and supply fresh sheets everyday.

OYO Rooms ensures every hotel has fresh set of sheets in every room every day, which would allow them to take care of one most important aspect of customer satisfaction in the hotel business and also ensure minimum level of quality in the process. Clean sheets is an issue in small uncategorized hotels. Or better tell hotel owners to shun the bed sheets, pillow covers and drapes and pay rent daily for use to OYO rooms.

OYO Rooms can become the largest owner and processor of sheets and laundry services in India. A small hotel owner does not possess the knowledge, technology, data and analytic ability to capture the smaller elements of his business and reduce cost beyond a point. 

Or perhaps build a supply store for hotel owners in ten cities and tie up with another Unicorn to operate the store or delivery process and negotiate prices with vendors and offer discounted prices to hotels for supplies and keep its small margin. 

OYO Rooms can get into the business of providing mattress on rent to hotels. Customer satisfaction will sky roof as they offer similar mattress in 8500 properties in lets say 1,00,000 beds. People go to OYO Rooms to sleep not to lounge around. Again, they can get into own and lease model or perhaps buy on behalf of hotels at much cheaper rates and earn commission and provide consistency in service. OYO Room can become the largest owner of mattress in the world. 

I am sure, OYO’s management would have run the business model of OYO Townhouse and how to make it profitable? But it is in total contradiction to their primary business model of listing hotel properties. Where hotel owners are feeling the heat of OYO Townhouse, which is next door operated by OYO Rooms and their inventory managed by OYO Rooms.

For me, the larger part of the debate is B2C vs. B2B.

At the same time, I also question VCs who raise funds only for B2C. They should be investing in B2B, which are directly responsible for providing products for B2C startups. B2C startups are too focused on signing up customer but it is ultimately B2B, which makes them realize what you can be. How to increase customer engagement, how to keep them hooked?

B2B is the way for valuation and B2B is the way to profitability. 

We need to learn and act.