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What does a late stage bet by Microsoft mean for OYO?

OYO is likely to use Microsoft’s Azure cloud infrastructure post the strategic investment.

August 02, 2021 / 08:38 AM IST
Ritesh Agarwal.

Ritesh Agarwal.

Global technology giant Microsoft's bets in late stage emerging businesses in India is far and few. The company which invested in Flipkart four years ago and in news aggregator Daily Hunt in 2020 is now in advanced stage to invest in hospitality firm OYO.

Moneycontrol reported about this on July 29

The Softbank-backed hospitality firm which is trying to regain the lost market share post the pandemic is likely to use Microsoft’s Azure cloud infrastructure post the strategic investment.

This development has taken many up by surprise because unlike Flipkart or Dailyhunt, despite having 19 million downloads and being the third most downloaded app after Airbnb and Booking.com, OYO is not a high frequency technology app.

However marred by negative consumer feedback and incessant protests by hotel partners OYO has been aggressively working on revamping its technology infrastructure since the last couple of years where Microsoft’s expertise may come handy.

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We deep dive to explain why an investment from Microsoft could be the next big thing for OYO.

Microsoft’s investment strategy!

Much like any other investor, a financial return out of their spend is a key criteria Microsoft looks at before making an investment. However today what is even more important is a key area of partnership involving Azure services.

Azure is Microsoft's public cloud computing platform which provides cloud services such as analytics, storage, computing and networking.

Usually, this cloud partnership works in more high frequency businesses like digital content or e-commerce where cloud plays a big part given that these companies host a lot of content and video streaming.

Companies such as Flipkart, Dailyhunt, BookMyShow and Dream11 could be large clients for cloud hosting.

Typically hotel aggregators are not seen as that but merely because of the scale OYO has not just in India but globally it makes an interesting preposition for Microsoft.

OYO claims to be having a base of 170,000 small hotels and homes who work with them across the globe. A lot of the hotels it works with are less than 75 rooms in size with most of the properties being in the budget and economy domain.

"Microsoft may get access to the hotel owners. These are small and medium business enterprises with many of them in the Tier 2-3 locations. That's the ecosystem Microsoft is investing into," said an analyst requesting anonymity.

Microsoft Corporation which invests from its balance sheet usually puts in $30 million to $100 million in start-ups. In parallel they get partnerships. For bigger companies, they could write larger checks but this is their sweet spot.

According to people who have worked on deals which had Microsoft in it, most of their deals are directly handled by the US office with involvement from the corporate welfare and investments teams while some of these deals also originate from the strategy and business development teams which are the regional teams of India or South East Asia.

"Microsoft is not a typical investor per say. As long as their money is making money and they get a partnership, they are actually fine and as long as they are investing in late stage companies, the risk of their investment becoming zero is also very low," said one of the persons quoted above.

The timing is right for Microsoft. Given the pandemic they are bound to be getting a good deal and once the travel market opens up in India they will be having the firepower.

While Moneycontrol couldn’t ascertain the amount being invested by Microsoft in OYO, according to sources the investment is happening at a valuation of $9 billion.

It must be noted that in the last couple of years OYO has completely revamped its model from offering minimum guarantee to now running its operations purely on a revenue sharing model with partner hotels.

OYO takes charge of pricing, distribution and conversions and its technology powers the entire operations of hotels. OYO also allows owners to recommend edits to the price within a range of 5-15 percent depending on specific situations.

It charges a commission of 18-35 percent for these services.

Besides this, it also offers value added services such as specific insights to hotels on their clusters. They can also buy promotions depending on the requirements.

In a recent interaction with Moneycontrol, Ritesh Agarwal, founder and chief executive of OYO said that, "On one side, we have a service that we provide to our small hotel or the holiday home owner, to whom we provide typically two of our software's OYO OS and CO OYO. Upon receiving that software, our partners' revenue increases, and they can operate their premises better. And on the consumer side, consumers get trustworthy, easy to use experiences at the right price through our OYO mobile app."

While he declined to comment on the talks with Microsoft, he said, "We see that longer term, doubling down in creating technology-based products, which makes a difference in the lives of our hotel owners and customers is always going to create multifold impact."

Microsoft's Azure largely competes with Amazon Web Services and helps companies host the technologies they built so that people across the world can access it.

The amount of cloud bandwidth needed depends on the size of the operation of the client.

Microsoft came into Flipkart in its $1.4 billion round in 2017 soon after the company announced the adoption of Microsoft's Azure as its exclusive public cloud platform.

However unlike Flipkart where millions of people come to the website despite having 19 million downloads OYO is yet to drive customer frequency on its app like a content service provider.

However, according to the company, 90 percent of the business it drives on the app comes through organic channels which could be a promising sign.

The development also happens at a time when the company is gearing up for an IPO. In an interaction with Moneycontrol on July 17, Abhishek Gupta, the chief financial officer of the company told Moneycontrol that the company was working on the readiness as the board had asked the management to be ready for the public market event by the end of this year.

OYO and Microsoft did not comment for this story.

If the deal goes through, Microsoft will join the league of companies like Chinese ride-hailing giant Didi Chuxing, Southeast Asian ride-hailing firm Grab and US-based hospitality firm Airbnb who also are strategic investors in OYO.
Priyanka Sahay
first published: Aug 2, 2021 08:16 am

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