Collaboration brings bigger gains than competition, and the leading players in the domestic online travel space seem to have understood this. When in October 2015, MakeMyTrip, Goibibo and Yatra jointly decided to de-list budding budget hotel room aggregator Oyo from their platforms, the stage was set for an Oyo versus OTAs (online travel agencies) showdown.
Oyo, however, decided to ignore this unfair practice, which could well have become a matter of investigation at the Competition Commission of India. Instead, it turned its focus on improving its business proposition and expanding its reach. The hotel aggregator moved from a simple distributor model — where it sold some of the inventory of a hotel as Oyo Rooms, while the hotel sold individually on OTAs — to an exclusive model where all rooms were Oyo-branded. That helped it have better control on the systems and processes at the partner hotels.
The growing scale of Oyo made Cyrus Mistry, former chairman of Indian Hotels Company, which runs the Taj group of hotels, refer to the startup as a ‘threat’. While Oyo might not have turned a threat for the luxury hotel chain, its expanding dominance in the budget hotel space did take away some of the business from OTAs. The aggregator, started by Ritesh Agarwal in 2013, emerged with a network of over 7,000 hotels — more than 70 per cent (or 5,000) of which Oyo has exclusive tie-ups with. Since OTAs had de-listed Oyo, it meant that these 5,000 exclusive hotels were not available for the customers of these OTAs, limiting their offering severely. Further, because these hotels were in the budget segment, which has a significant share of the market, the OTAs were missing out on a big chunk of the customers.
Oyo’s run rate, the metric for calculating its revenue based on number of rooms booked, reached 15 million room nights annually, forcing MakeMyTrip and others who had chosen to ignore it to sit up and take notice.
“We believe Oyo poses meaningful competition for MakeMyTrip and is not being priced in by the market. Its recent fundraising , ability to grow with low cash burn, and aggressive business plans can further heighten the competitive intensity in India’s online travel market,” global financial firm UBS said in an October report.
Oyo raised $250 million last September and with 15 million annual room nights currently is the second largest player in the market after MakeMyTrip, which is expected to sell two million room nights in FY18 (based on April-December data).
It was anticipated that the battle for market share in online travel would end after the MakeMyTrip-ibibo merger in October 2016. However, KalaGato believes the battle is far from over. “In fact, the hotel segment, which has long been the cash cow for the OTAs, is under threat.” Hotels bring 22 per cent of MakeMyTrip's profits, while flight tickets account for just 7 percent.
No surprise, then, OTAs are turning their attention on hotels. MakeMyTrip, which now also owns Goibibo, decided to change its stance on Oyo, welcoming it back on board two weeks ago. The Nasdaq-listed firm’s decision follows a similar move by Yatra in October last year. Explaining the rationale behind this decision, Dhruv Shringi, co-founder and CEO at Yatra, said the customer needs and preferences are constantly evolving. “They seek newer and more interesting ways to make their travel bookings seamless and cost effective”.
In one sweep, the tie-up with Oyo has expanded MakeMyTrip’s room inventory from 50,000 to about 53,500. However, not all of Oyo’s exclusive hotels are part of MakeMytrip. To start with, the partnership is only for 3,500 hotels. Rajesh Magow, co-founder and India CEO, MakeMyTrip, had said in 2016 that the decision to de-list Oyo was guided by quality issues. “They were becoming a competition in the budget space. They wanted to aggregate properties and then leverage our platform. It did not make sense for us,” he said. With the evolution of Oyo as a full-scale hospitality company, Magow said, those problems are now a thing of the past, adding that the the business model of an OTA and Oyo is different and there should be no longer be any conflict over dual listing of the same hotels.
“We want to be the one-stop-shop for all travel requirements of our customers, offering as much choice as possible across price segments, particularly in the fragmented hotel supply side, and this partnership is a step in that direction,” Magow added.
MakeMyTrip had also de-listed Treebo, another budget branded chain in early 2017 but brought it back the same year. When Oyo was de-listed in 2015, it got 6-8 per cent of its bookings from MakeMyTrip and Goibibo. Today, over 90 per cent of the bookings come from Oyo-operated channels (including the app) and in future, too, a high share of demand will be driven by our direct channels, said OYO founder and Chief Executive Officer Agarwal.
Oyo consciously chose not to over-index its dependency on channel partners and instead build a strong distribution network of its own. Sales originating from own channels are more remunerative as a hotel chain saves 15-20 per cent of the booking amount that would have otherwise gone to an OTA.
The tie-up with MakeMyTrip has advantages for Oyo too. “We will continue to partner with OTAs to enhance the reach of Oyo hotels across the ecosystem,” said Agarwal.