SoftBank-backed Oyo’s much-anticipated Chinese expansion runs into a wall

Oyo Rooms in Bangalore. Photo: Booking.com

Internet giants Amazon.com Inc., Google (Alphabet Inc.) and eBay Inc. have all failed in China. Now, India’s pioneering budget hotel start-up, Oyo, is starting to find out just how tough it is to do business in Asia’s largest economy.

Owned and operated by Oravel Stays Pvt. Ltd, Oyo has set aside $600 million for its expansion in China. However, four people close to the development said the company was still not available on some key travel platforms and was finding it difficult to launch its own website. A large part of Oyo’s bookings in China came from offline channels, said the people on condition of anonymity.

As a result, the company is yet to figure out how to get regular bookings for the 87,000 rooms it has listed in 171 cities across China.

“Currently, we lease or franchise 1,000-plus Oyo hotels through multiple platforms including third-party distribution, WeChat (mini app) and we also host a large number of guests through the walk-in channel,” said Yufei Hu, senior vice president, self-operated hotels and expansion at Oyo China. “We have a razor-sharp focus on improving infrastructure and yield of our leased assets while ensuring a quality stay for our guests. We enjoy a healthy relationship with all our partners, including OTAs (online travel agents),” Yufei added over email, in response to Mint’s queries.

A lot is at stake for Oyo. In less than a year, its valuation surged from $850 million to $5 billion last month, when it raised $800 million from existing investors, led by SoftBank Vision Fund. The sharp rise in valuation was driven partly by investor expectations that Oyo would crack the massive Chinese market. According to Phocuswright, China’s travel market is estimated to be over $134 billion in 2018.

If its China push goes well, Oyo will become one of the rare foreign internet start-ups to succeed there. If it doesn’t, Oyo will join a long list of companies, including Amazon and Google, which had to withdraw from China due to various reasons.

Unlike the US and India, China’s internet sector is strictly regulated and international companies are either explicitly banned or forced out.

Oyo enjoys strong backing from SoftBank’s influential founder, Masayoshi Son. But the company is facing formidable challenges. Oyo is currently unavailable on a large online travel agent, Meituan.

While it is trying to launch its own platform in China, industry experts said it would be an uphill battle, given China’s highly regulated and tightly guarded internet space.

Currently, even Oyo’s own website does not allow one to book properties in China. The properties are also not available on other OTAs such as Expedia and Booking.com.

In an interview on 25 September, Oyo founder Ritesh Agarwal said that while the company was yet to list on Meituan, it was selling properties on smaller platforms—Alibaba’s Fliggy and Qunar.

According to the four people cited earlier, the company currently gets a large part of its bookings via offline channels such as walk-ins, in the hotels it has signed up with. It also gets some bookings through its call centre.

Oyo, which employs more than 1,000 people in China, pays hotel owners to renovate their properties before listing them under the Oyo brand. The company is currently focused on Tier II and III cities, but plans to expand deeper into China over time.

Gurugram-based Oyo is present in five countries—China, Malaysia, the UK and Nepal, besides India.

Founded in May 2013, the recent fundraise has given the young founder the necessary firepower to continue his aggressive international expansion.

According to Agarwal , India has 4.3 million unbranded rooms and China 35 million, but there is only a 25% occupancy rate and his company is aiming to change that.

Earlier this week, Mint reported Oyo is all set to launch its operations in Japan as it eyes a dominant market share in the budget hotel market ahead of the 2020 Olympic Games.

This article was first published on livemint.com