Winds of change are sweeping through Oyo, the home-grown budget hotel chain.
The past year in particular was probably the busiest for the hospitality firm as it expanded into new countries and businesses. The focus so far has been business-to-consumers.
But that might change now.
Oyo has just formally entered the world of co-working, probably the fastest-growing business segment in a shared economy, by acquiring Innov8 for an estimated $30 million.
Co-working is a business that is still highly dependent on companies. In other words, it is a business-to-business (B2B) operational model. For example, Innov8 already hosts some 6,000 employees of companies such as Swiggy, Paytm, Pepsi, Nykaa, OLX and Lenskart. According to a JLL report, co-working players get more than 60 percent of customers from enterprises.
Oyo will now have to adopt a different operational model. B2B is a more sustainable one. Plus, even big companies, including MNCs, are opting for low operational costs and becoming flexible with employees who prefer elastic working hours and operating from wherever they are. Naturally, co-working is the way to go.
The concept has grown exponentially over the past few years, and the projected numbers show how big the opportunity could be. The assessment of a 2017 report by CII and JLL is there will be nearly 500 co-working centres in India by 2020, up from close to 150. By 2022, the valuation of the industry is estimated to be around $40-50 billion.
Innov8 has 16 centres across 6 cities – Delhi, Mumbai, Noida, Gurugram, Bengaluru and Chandigarh. Oyo now wants to take it to 21 with more than 15,000 seats across 10 cities. It has plans to operate co-working business in three brands catering to three different kinds of customers.
The new business template holds promise as a money spinner for Oyo if it manages to figure out the enterprise-dependent operational metrics.
It will, however, have to fight the likes of US-based WeWork, which commanded a valuation of $47 billion this July. The global player with deep pockets has redefined the co-working game worldwide, with plans to set up 425 office locations across 36 countries. Its India entry means more competition for Oyo. WeWork, which entered India in 2017, is lining up more than 90,000 seats here by March 2020.
Besides WeWork, Oyo will have to compete against firms such as 91Springboard, GoHive, Awfis and GoWork, among others. Additionally, there are small home-grown operators like Social to reckon with.
The bottomline is, Oyo’s main business is all about managing budget hotels, and everything else is secondary. Co-working like apartment renting in Japan is an acquired business – including the operational model – something that will take time for Oyo to get comfortable with.
Despite the opportunity that co-working brings as a business, Oyo’s success in this domain will solely depend on how quickly it embraces the operational parameters and how it wants to run the business. Of course, funds infusion will be the key to warding off any challenge from WeWork for the long run.
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