Photographer: Dhiraj Singh/Bloomberg

A New App Wants to Make Hotels a Hit in India

Oyo attracts foreign investment and fresh competition.

At age 17, Ritesh Agarwal spent three months living out of a suitcase. His mom wanted him to get an engineering degree; instead, he began hopping among dozens of inns and bed-and-breakfasts throughout India, briefly manning reception desks and cleaning rooms at one of them. It was research, he says, for an online database of reliable places to stay. By the end of that trek, in 2011, he was convinced the industry’s biggest problem was a lack of consistent quality, especially among the independent budget hotels that make up almost 60 percent of India’s $7.2 billion lodging market. Respectable-looking exteriors often hid leaky faucets and stained sheets.

Agarwal’s solution was a hotel-booking app called Oyo Rooms, which lets room seekers choose from an approved list his team has selected based on certain minimum standards of service, cleanliness, and safety. The hoteliers agree to maintain those standards and a price. Oyo takes a 10 percent to 30 percent cut of the bookings. “When you book a room through Oyo, you know exactly what you’re going to get,” Agarwal says.

Founded in New Delhi in 2013, the company says it lists about 30,000 rooms in 120 Indian cities. Hundreds of staffers in the field evaluate properties on 200 factors, from the quality of mattresses and linens to maximum and minimum shower temperatures, according to the company’s vice president for product management, Anurag Gaggar. Hotel owners are often asked to buy new linen or apply a fresh coat of paint to get or maintain their Oyo listing, Gaggar says. Field staffer Krishan Kumar says he visits 32 hotels each week, recording the details of his inspections on his smartphone.

The next step, Agarwal says, is to incorporate more customer feedback, using poor reviews to encourage repairs. “If you can’t track it, you can’t make it nicer,” he says.

Ritesh Agarwal, founder and chief executive officer of Oyo Rooms
Ritesh Agarwal, founder and chief executive officer of Oyo Rooms
Photographer: Udit Kulshrestha/Bloomberg

Agarwal seeded Oyo with $50,000 from a local startup accelerator, but he credits the company’s continued existence largely to a $100,000 fellowship from Peter Thiel, the PayPal co-founder who subsidizes students who drop out to start a company. Since then, Oyo has collected $125 million in venture funding from the likes of Sequoia Capital and Japanese telecommunications company SoftBank, and it claims to be doing about $200 million in bookings a year. There’s plenty of room for growth, Agarwal says. India has about two hotel rooms for every 10,000 people, compared with 40 in China and 200 in the U.S. India’s chain-hotel inventory will rise 30 percent by 2020, consulting firm HVS estimates.

Oyo’s founder comes with some baggage. A January investigation by Indian newspaper Livemint alleged that he pushed out early partners, withheld employee pay, and presented investors with inflated listings numbers. (Agarwal denies all of that.) In addition, many Indians aren’t yet convinced that hotels are a worthwhile investment. The country’s big chains reported a 57 percent occupancy rate last year, an eight-year low, as more travelers stayed with relatives. “There are lots of hotels where customers go in thinking, ‘Will there be rats in my room?’ ” says Chetan Kapoor, an analyst at researcher Phocuswright.

Besides providing reliable cleanliness, Oyo is trying to attract skeptical Indians by negotiating with hoteliers to keep prices low. The app’s cheapest rooms go for less than $15 a night, and the average is about $22. A basic room at the budget hotel chain Ginger is $32 a night.

Oyo’s early success and interest from foreign investors have inspired rivals. Zostel, founded last year, has a roster of 600 hotels under its Zo Rooms brand and received $30 million from New York investment firm Tiger Global Management in July. The competitors’ “vigorous efforts” helped drive up online hotel bookings 32 percent, to $80 million, in 2014, according to Phocuswright.

The rivalry is good news for hotel managers like Ashutosh Parashar, who opened the 21-room Maven’s House six months ago in Gurgaon, a city near New Delhi. Early on, Oyo listed his rooms at a 75 percent discount and paid him the difference. “All these companies are fighting for customers, and they are investing money on us to make us successful,” Parashar says. “That’s great for us.”

The bottom line: Oyo has collected $125 million in venture funding in two years, as it tries to change Indians’ minds about hotels.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE