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Young entrepreneur shakes up India's sleepy budget hotel business

NEW DELHI -- OYO Rooms, an India-based online marketplace for affordable hotels, has big ambitions. Established in 2013, it expanded nationwide last year. Now it has set its sights overseas with the launch of operations in Malaysia this month.

OYO Rooms founder and CEO Ritesh Agarwal sees opportunities in Southeast Asia, where Malaysia is its first port of call.

     Valued at $400 million, the startup is backed by Japanese telecom company SoftBank. OYO was set up by Ritesh Agarwal, 22, with just one hotel partner in Gurgaon, near the Indian capital. It has helped transform substandard hotels into standardized accommodations to ensure that customers have a satisfactory, affordable stay. In less than three years it has become India's largest branded network of hotels, with a presence in 160 cities and about 4,500 partner hotels.

     "We book a million room-nights a month and continue to grow very fast," Agarwal, OYO's founder and chief executive, told Nikkei Asian Review.

     Although rooms start at less than $15 a night, the company offers air conditioning, complimentary breakfast and Wi-Fi, along with 24-hour-a-day, seven-day-a-week customer service. Other services include OYO Care, which sends cleaners to hotels to ensure a hygienic stay for guests, and OYO Cafe, which supplies food.

       OYO's competitors include ZO Rooms, Treebo Hotels, ZipRooms and Room On Call. Online travel aggregator MakeMyTrip also recently launched its own brand of budget hotel rooms in hopes of grabbing a slice of the budget hotel market in India.

Build something new

Agarwal is India's first recipient of the Thiel Fellowship, a program started by Paypal founder Peter Thiel for college dropouts. The fellowship provides a $100,000 grant to aspiring young entrepreneurs. This month, Agarwal made onto Forbes' annual list of high achievers under the age 30.

     "Across every OYO Rooms hotel in India, you will get free Wi-Fi and free DTH [direct-to-home broadcast service] with our hotel partners because of an agreement we signed with Bharti Airtel," said Agarwal.

     Investors in the company include Greenoaks Capital, Sequoia Capital and Lightspeed India. Its most recent funding round last year was led by SoftBank and raised $100 million.

     Most budget hotels in India, which generally charge between $25 and $40, are owned by people who invest only in the land they are built on. They typically hand the property over to a general manager for day-to-day operations. Before OYO appeared on the scene, these hotels faced a litany of problems. They were not marked on Google maps; their staff were not trained in hospitality; rooms and baths were not standardized; there was no branding at the reception area, no use of technology. 

     "Still, a customer ended up paying a heavy price because the hotel could not find anyone else. It extracted a lot of money from whoever walked in," said Abhinav Sinha, chief operating officer of OYO.

A group of youngsters walk toward an OYO Rooms hotel on Mall Road in northern hill city of Mussoorie in India.

     "OYO transforms the property at a very fast pace at the best cost," Sinha said. The cost of upgrades to the hotel is borne by the partner, while OYO invests in training the staff. 

     Room inventory for OYO partners is managed through a cloud-based platform. Owners also have access to software that allows them to get updates on daily business activity, wherever they are.

     Occupancy at hotels that have been an OYO partner for more than three months typically increases to 80% from 20-30%. "We are there hand-holding them and helping them solve their problems. Then they come to our platform and we market them," Sinha said.

Rising fast

OYO has grown explosively. It had one hotel partner in 2013, more than 50 in 2014 and about 4,500 in 2015. This year it is expanding into Southeast Asia with the launch of operations in Malaysia, a country with higher-than-average mobile phone penetration and many Internet users.

      The company feels its model is suitable for markets with a large proportion of unbranded hotel rooms, such as Southeast Asia, Africa and South America.

       While some might question whether OYO has overextended itself, Agarwal believes the rapid growth, when properly planned, can actually be a plus. "We have very strongly set-up processes, systems and individuals to lead various items across the company. We [have been] planning for everything that we did. It was not [too] rapid, including reaching 4,500 hotels," he said.

       He is not done yet. Agarwal said five years from now "we would like to bring a million rooms as part of our network from close to 45,000 ... today. There's still a lot to be done. ... We want to make hotels for customers [that are] nicer than their own homes," he said.

       According to Sinha, India has an estimated 100,000 to 150,000 budget hotels, with an average of 18-20 rooms each. That translates to 2 million to 3 million budget rooms in India. "These are nonstandardized ... [and] that is the budget hotel market for us."

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