Oyo's Ritesh Agarwal talks journey, tactics with HM

In an Airbnb world, the rise of Oyo Hotels & Homes likely was inevitable. The company, founded six years ago at age 19 by Indian entrepreneur Ritesh Agarwal, originated as a “virtual” hospitality brand with aggregated economy hotels and guesthouses across India that could be found and booked online. 

Today, it is one of the largest economy chains in the world, with more than 1 million rooms under management across its hotels and homes divisions. As of June, a full 850,000 of these rooms were in more than 23,000 leased, franchised or partnered hotels while 300,000 were in the company’s collection of vacation homes. The company most recently reported revenue of $3 billion and, if Agarwal has his way, signals only the beginning of what many see as "empire building."

Agarwal has become a flashpoint for many of the hospitality industry's movers and shakers who are eager—if not anxious—to see what his next move in the lodging universe might be. Hotel Management recently caught up with the innovative executive to get his take on his journey from a tech-centric teen to where Oyo is and where it's headed.

Origins

Agarwal first attempted to combine technology with hospitality in his late-teens, when he launched Oravel Stays, an online portal for guest houses and vacation rentals. In short order, however, he realized the world could do with one less booking platform. “I didn't think that I knew something that nobody else knew as to how to make a reservations website,” he told HM. While the platform folded, Agarwal maintained the relationships he had formed with hoteliers.

His early efforts did not go unrecognized and landed him a Thiel Fellowship, a two-year program from PayPal co-founder Peter Thiel that grants 20 teenage entrepreneurs $100,000 and the mentorship of trailblazers like Facebook's Mark Zuckerberg and SpaceX's Elon Musk.

“Acceptance rates are lower than [the] Ivy League's,” said Agarwal about the program. The condition for the grant, however, was that recipients could not be students at a traditional college, which wasn’t a detriment to Agarwal. “This is great; you get paid not to go to university,” he recalled thinking at the time. At 19, he moved to California and spent a year-and-a-half learning from Thiel and other experts, ultimately absorbing two important lessons to prepare him for the business world: Think big and don’t be afraid to innovate.

“Challenging the status quo in every kind of industry [to make] a positive difference is something that can create a lot of value,” he said. 

While in California in 2013, Agarwal founded a company to help manage a property owned in India by a hotelier he had worked with through Oravel Stays. The hotel, located in the New Delhi suburb of Gurgaon, was reflagged as OYO—an acronym for “On Your Own.” Updating the property and maximizing its appeal for budget-minded travelers searching for reservations online boosted the hotel’s occupancy rates from 19 percent to 90 percent in its first month under the new flag, he said.

Oyo's Seminal Growth

Returning to India, Agarwal was eager to put his new education and experience to use. Visiting the independent hoteliers he had worked with through Oravel Stays, he noticed while there were many small-scale hotels worldwide with fewer than 150 rooms, he didn’t see many developers looking to turn these relatively intimate properties into “value-chic or comfort-design experiences for the common man.” Oyo, he decided, could grow beyond a single property, or even a handful of hotels.

The concept for the brand was straightforward. “An equilibrium of quality, location and price is what is required for building the right kind of hotel chain,” he said. By updating the interiors, optimizing operations and services and making the pricing dynamic, the hotel could make both the guest and the owner happy, he figured. “We used great interior design, which inspired people to come into the asset, operated the asset in a manner where consumer ratings were the most important perspective that we cared about, and on top of that, ensured that revenue and yield management were given [a] significant amount of focus.” 

Agarwal put his own experiences visiting hotels to good use, focusing on what details guests cared about most at each price point—and what wound up being insignificant. For example, asset owners might invest significant funds in getting a chandelier, but at the expense of a quality breakfast. “Way too many hotels would not have the warm white light, which is what consumers like. Way too many hotels do not get the entertainment right, which is something that consumers really appreciate," he observed. By insisting on these elements, online reviews improved and the hotels proved profitable.

Leveraging the Lessons Learned

Oyo’s value proposition for owners, Agarwal said, is twofold. First, the company provides the necessary capital to bring a building up to the brand’s standards and then leverages available data to predict RevPAR, internal rate of return and ROI. “With all of those details, we can give—sort of—a yield guarantee to the underlying asset owner,” he explained to Hotel Management. Oyo only manages about 15 percent of the hotels in its portfolio, Agarwal estimated, with the rest \managed by third parties under what he termed a semi-leasehold model.

Agarwal’s education in technology helped him promote his brand to a broader audience. When travelers put in their hotel criteria at booking websites, he found they mostly clicked on one of the top-five options. Examining what elements were most appreciated at each price point, he then began visiting the properties ranked at six or below on the booking websites and—once they adopted the new flag—helped them move up on the booking sites so that they could attract more clicks.  

One useful element Oyo incorporates for this effort is Google’s TensorFlow, an open-source software library for dataflow and differentiable programming. The Oyo team uses the available software to predict what kind of revenue a hotel is likely to generate based on its pictures and other variable data.

Agarwal also has improved the pricing model, adjusting rates for the company’s 1 million guestrooms more than 50 million times each day, by his estimates. Back-of-house tech also extends to each asset’s staff. For example, the brand has a dedicated app that lets housekeepers know what rooms need to be serviced, lets management know how much time the housekeeper spent cleaning the room—and how clean the guest has reported the room to be. “If they clean it quickly and got a five-star feedback, they could get paid up to 25 percent more,” said the CEO. “And if he [or she] gets paid more, we can hire less [sic]. We don't need to hire as many people because ... they are incentivized to be more efficient because they get paid more.” 

Opening Up

Once a few hotels had joined Agarwal’s platform, he needed funds to gain more ground. Silicon Valley-based venture capital firm Lightspeed Ventures invested $600,000 in seed money (from the same funds they had used to invest in Snapchat, Agarwal noted), and other venture capital funds and hedge funds soon followed, including Sequoia Capital, Greenoaks Capital and SoftBank Vision Fund. “None of them thought [we] would grow this quickly. The first one came when we were two buildings strong," said Agarwal.

With the new funds, Oyo expanded into a vacation-rental division, Oyo Homes, which the company manages itself as opposed to the semi-leasehold model it uses for the hotel division. As with the hotels, Oyo extends CapEx spending to the home-rental units, and makes money from both management and marketing fees for the assets. 

Oyo Homes attracted attention from home-sharing giant Airbnb, which invested a rumored $150-million-plus in the company over last spring. “Oyo Homes [is] essentially a very important partner of Airbnb because Airbnb is able to get great supply at the right locations for the right prices with them,” Agarwal said of the investment. “But Airbnb, as you know, is just a website where you can book these places. They don't manage [them].” Oyo’s responsibility, he said, is as a manager, while Airbnb’s is as a distributor, so the two are not in direct competition.  

Onward and Upward

As Oyo gained ground in India, it expanded rapidly into China, (500,000 rooms across 10,000 hotels as of June), the Middle East and Europe, (85 hotels in the U.K.). “Our Europe revenues are roughly 20 percent of our company now,” he said, adding these numbers helped propel the company into the United States earlier this year. As of June, the company had 68 hotels across 40 American cities.

He estimates Oyo is opening a hotel per day across the U.S., with a “fair balance” between independents joining up and conversions from competing brands. “The opportunity is pretty impactful,” he said. 

Now that the company has a growing presence on the American lodging landscape, Oyo plans to invest $300 million for development across the country in the coming years, driven by the Oyo Hotels and Oyo Townhouse brands. “We're focused on the few, very large markets that exist in the world and going deep there,” he said of the company’s global growth strategy. “Oyo is not interested to be in every country across the world yet, just to be in a few countries—but very, very deep in each of those markets.” 

In July, Agarwal signed a $2 billion primary and secondary management investment round through RA Hospitality Holdings (Cayman), increasing his stake in the company from 10 percent to 30 percent. At the same time, two of Oyo’s earliest supporters—Lightspeed Venture Partners and Sequoia India—announced plans to sell part of their holdings in order to help the founder increase his stake while “remaining invested significantly” in the company’s long-term strategy. 

“I have always been a believer in the big cause that we're trying to build here at Oyo,” Agarwal said regarding the deal. “This is a company that will fundamentally redefine how hospitality and real estate [are] seen by consumers and asset owners across the world.” The investment, he said, will “double down” on his commitment to the company and emphasize his interest “in trying to make a long-term impact” in the hospitality sector.

“I'm lucky to be living in a generation where it doesn't really matter how old you are,” Agarwal said of his success as a young entrepreneur. “If you're really making a positive difference, there is a significant amount of capital chasing you. We were lucky that we were building a good business, and people found out about our good business, and when they found out they tried to put their capital [to] work on the process.”