Indian budget hotel chain OYO has managed to impress the US company that had inspired it in the first place.
On April 01, the world’s largest short-term home-rental firm Airbnb confirmed investing in the Gurugram-based OYO. While the companies did not disclose the quantum of the investment, reports have pegged it at around $200 million (Rs1,386 crore).
Beyond just money, Airbnb brings to OYO a goldmine of expertise, given its experience in running an online hospitality business across over 190 countries. Also, the deal could go a long way in boosting OYO’s revenue as Airbnb will now be listing the Indian company’s accommodations on its platform, too.
“Airbnb’s strong global footprints and access to local communities will open up new opportunities for OYO Hotels and Homes to strengthen and grow,” Maninder Gulati, OYO’s global chief strategy officer, said in a statement.
This is a significant achievement for OYO, which is already backed by marquee investors like Japan’s Softbank and has been rapidly expanding overseas. It now has a presence in China, Malaysia, Nepal, the UK, UAE, Indonesia, and the Philippines.
But what’s in it for Airbnb, which has established itself as a frontrunner in the home-stay industry over the past 10 years? The answer, according to experts, is: India and China.
The world’s two most populated nations are extremely important to Airbnb, and OYO has already tasted some success in the region. “Emerging markets like India and China are some of Airbnb’s fastest-growing, with our growth increasingly powered by tourism to and from these markets,” Greg Greeley, Airbnb’s president of homes, told Reuters.
OYO opens the doors wider for Airbnb to enter eastern countries, particularly India, where it has been trying to make inroads for some time now.
For instance, this deal will boost Airbnb’s India inventory immediately as it will be able to add an additional 10,000 OYO homes and villas to its catalogue.
Currently, Airbnb boasts of over 30,000 listings across India. In 2018, the San Francisco-based company had partnered with several state tourism boards and government bodies across India to increase awareness around homestays in untapped locations.
“India represents a big growth opportunity for Airbnb and the investment will further increase its footprint in the country,” said Kartik Hosanagar, professor of technology and digital business at University of Pennsylvania’s Wharton School.
OYO and Airbnb are not direct rivals—the former lists hotels and the latter homes—but “their customer could potentially be the same,” said Harish HV, an independent startup analyst. The two businesses could help piggyback on each other to attract more travellers. “It’s possible for a tourist to stay in a home in one town and go to a hotel in another one.”
Moreover, OYO can be Airbnb’s ticket to China—a closed market where western entities like Google and Uber failed to survive unscathed.
Meanwhile, Airbnb is “locked in a high-stakes battle with Chinese rival Tujia which in turn is backed by Ctrip (China’s largest online travel agency),” Vivek Durai, founder of business intelligence platform Paper.VC, told Quartz. “Airbnb needs allies in China. Desperately. This investment creates a soft alignment with Softbank.” The investing behemoth led a $1 billion funding round for OYO in mid-2018.
Collaborating with competition
Given India’s diverse consumer base, winning in the country isn’t a one-man show for any internet business.
“The concept of frenemies is gaining currency as companies try to keep up with the pace of disruption and they can’t innovate as fast on their own,” said Yugal Joshi, vice-president at Texas-based consulting firm Everest Group, citing other examples like China’s Didi Chuxing investing in south Asian cab-hailing company Grab.
Airbnb recently acquired hotel booking platform HotelTonight to build up its war chest against online travel industry giants like Booking.com and Expedia in the US.
In India, OYO can offer some valuable hand-holding when it comes to navigating “how good the Indian market is from a security perspective in terms of having proper means to track property IDs and KYCs,” Everest’s Joshi said. “There’s a reason why unfortunate incidents happen with digital-first businesses like Uber and Ola in India. Because there’s no strong verification on the ground.”
Airbnb’s pursuing inorganic growth as a defensive play rather than an offensive one, Paper.VC’s Durai told Quartz. “…while these deals appear to be expensive and aggressive, they are more likely an outcome of strategic thinking that seeks to protect potential growth markets and everything interconnected with them,” he said. Especially because the data-hungry digital company “needs clear windows into tourist traffic and how they flow into home and hotel markets”–things a local player can provide.