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How venture-backed startups are trying to solve the ‘accommodation problem’ in India

Jubin Mehta
17th Jul 2015
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India, a nation of 1.3 billion people, has fewer star-category rooms than Singapore. This stunning fact was told to me by Yogendra Vasupal, the founder and CEO of StayZilla, over email. It might sound absurd; but if you’ve travelled internationally, you can probably vouch for this. There are a lot of hotels, and other accommodation, listed on various platforms in India, but it’s rather difficult to zero in on one,and be confident of what is being displayed online. My experiences with sites like booking.com in countries like Thailand, Cambodia and Turkey have been much better than the experiences I’ve had with similar sites in India. The problem in India is not necessarily withthe online platforms; there are many factors at play here.

Availability and credibility

There is no dearth of hotels and rooms, but certainty is an issue. One can never be sure of what they are getting into once they have booked a property online. “At present, there is the need for over a million new, quality rooms, across Indian towns,” says Yogi. Stayzilla is a marketplace for rooms, regardless of whether they are in a hotel or in a homestay (the company recently raised a $20 million round). Think of them as an Indian Booking+AirBnB. Stayzilla’s current focus is on creating new rooms in the market, not just bringing online or rebranding pre-existing rooms. In the last 40 days, they have created over 1800 first-time hosts,who have agreed to rent out everything from a vacant room in theirhome, to complete villas with three rooms. Their plan is to open up 50000 such rooms by December.


stayzilla_Featured

Companies like Oyo Rooms and Zo Rooms have thus started with the aim of improving availability and credibility. Since he started out with Oravel back in 2011, Ritesh Agarwal, the young entrepreneur, has gained the confidence of many investors; he has raised more than $25 million in venture capital. Renaming the company Oyo Rooms, his team is in the business of rebranding hotel rooms, and giving them more credibility. Oyo Rooms start from INR 999 a day,and go upto INR 5000 and sometimes beyond. “People use Oyo in several cases. They could be travelling for business or pleasure, they might belate at work, there might be no electricity at home, or friends may bevisiting, to name a few exmaples,” says Kavikrut, the Head of expansions at Oyo. For the end user, Oyo brings in three things- affordability, availability and predictability.

The case is similar with Zo Rooms. Founded by a group of IIT-IIM alumni, the company started out as Zostel, which leased out entire apartments and transformed them into well-managed hostels. These kind of hostels are extremely popular in the West and in South East Asia, with backpackers as their primary target audience. The Moustache Hostel in Delhi and Jaipur, the Jugaadus Hostel in Amritsar and more are along these lines. On getting VC backing, Zostel extended its offerings, with Zo Rooms, that rents out rooms to budget travellers who are looking for a branded stay.


zorooms

Traction and the initial hiccups

Backed by VCs, all these companies are pushing for scale.

Oyo has 10,000+ rooms in 1000 partner hotels,across 45+ cities in India.

Zo Rooms has a presence across 350+ properties in more than 25 cities.

StayZilla has crossed 32k properties, with over 4 lakh rooms being listed on the platform, across 4500 towns in India.

Bear in mind that StayZilla (like MakeMyTrip, Cleartrip, Yatra, or any other OTA) has a very different model fromthe likes of Oyo and Zo. OTAs (Online travel agents) mainly focus on the availability part. By creating new properties, StayZilla is moving in a larger zone; they cater to the complete user experience. This means more responsibility and work, but also more revenues.

In the company’s early days, one of the foremost challenges was positioning. “What’s confusing for users, with regard to branded budget stays, at the moment, is that they have part inventory.So the property gets to sell under their original name, on platforms like ours,” says Yogi of StayZilla.

We asked Kavikrut of Oyo and he says, “Most hotels become OYOs over a period of 2 months. In the beginning, some may chose to exist as both, since they may have occupancy that they are already driving, and would like to give us only their unsold available inventory (avg 50% across India).” (this can often lead to such experiences)

Advantages for hotel owners

For the end user, the benefits are clear:affordability, availability and predictability. But there is a large play on the B2B side as well. Just like in horizontal e-commerce marketplaces, where the race is on to get more and more sellers online, it is similar here. All the platforms want more and more property owners on their platform.


OYO

As Kavikrut puts it, here are the benefits hotel owners get:

  1. Operational/Service Benefits - We manage and drive demand, taking away hassles from people of managing their own channels. We train staff, improve operating processes, etc.
  2. Revenue and Profitability - Higher revenue and profits from occupancy of unsold inventory, cost reduction through our national vendors’ network, and best practice processes, as well as additional sources of revenue, from partners that provide ancillary services for the customers, etc.
  3. Brand - Being seen as part of a national brand is not only about pride, but also about the several enduser-facing benefits that they receive.

Sharing economy and other models

When one talks of accommodation and start-ups, AirBnB(and Couchsurfing) are prime examples of scale. But they haven’t taken India by storm. “India is a very different geography. People like to share things, but they need a strong brand that can act as a mediator, a virtual sublayer that ensures that the product is safe and secure,” says Paavan of Zo Rooms (internally at the company, there is a separate expansion team for Zo Rooms and Zostel,and both the brands are pushing aggressively). He believes that both AirBnB and Zo Rooms are trying to solve different pieces of the same puzzle, and that in due course, the better model will prove its impact across the entire short-stay accommodation space.

Yogi of StayZilla agrees, but argues from a user's perspective that it does not make sense to go to different platforms for different types of stays. “We believe that, in the next 3-5 years, platforms will converge to offering both,” he says.

Team StayUncle
Team StayUncle

There are also ancillary models being developed, like NCR-based StayUncle, an hourly hotel booking platform. “We make luxury available to our clients without them paying extra. We are building StayUncle with the vision of providing truly hourly hotel booking. We currently have 12-hour slots. We are aiming to reduce the timespan of these slots even further,” says Blaze, one of the co-founders. Their aim is to innovate the process, straight from the core. There is plenty of room for the introduction of more alterations and improvements, either from the ground up, or from already existing platforms.

Conclusion

Online hotel booking has existed for a while, and people have been using it, but this new wave of venture backed start-ups is tackling the problem from a deeper point of view. They are building properties, rebranding them, and converting rooms to ensure quality for the end user. It is still very early days, and there are going to be many obstacles, but if they succeed, they will have transformed an industry for the better.

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