It is a tantalizing prospect. Expansion. A prospect knew to emerge, ever so faintly, in the fleeting thoughts of anyone who has ever started a business or harbored thoughts of lording over an empire.
Kings and Queens have been there. So have trading corporations. And brick and mortar companies, taking their manufactured goods to several parts of the world. But now it is the turn of the internet companies; unicorns who manufacture nothing but sell many things. This story is about one such unicorn in particular.
A company from India called Oyo Rooms, a budget hotel management company, which right now is on SoftBank steroids. To the tune of $800 million and a commitment of $200 million more. In its seven years of existence, Oyo has raised close to $1.7 billion. And so, it is expanding.
Initiation of World Domination
But if you are Oyo minus the blinkers of world domination, you’d do well to see that our contemporary world isn’t quite a walk in the park. Evaluated purely on the grounds of the experience of internet companies who have fought hard, access to finite capital resources and value creation for shareholders, the world is a far more complex place than it appears in press releases.
A quick tour should help put this in perspective.
China: Nobody does the business of any significance in China. Except for the Chinese.
The troika of Google, Facebook and Amazon know this well. Courtesy their exclusion from one of the largest markets in the world. Travis Kalanick, the ousted co-founder of Uber, learned it in a long-drawn brawl with Didi Chuxing, the Chinese ride-hailing company; a brawl which Kalanick eventually lost. Incidentally, late last week, Didi Chuxing said it is investing $100 million in Oyo. Both companies share the same investor, Masayoshi Son of SoftBank. The Wired magazine says Son is charismatic and he is eating the world, one tech company at a time.
The United States of America (USA): The US has an abundance of budget hotel chains offering standard accommodation. The entry of another player in the market does not move the needle. In fact, the last technology company to have disrupted accommodation in the US was Airbnb. This disruption, which has now gained legendary hustle status and a world domination story of its own, did not involve hotels.
Europe: While budget hotel chains are few and far between in Europe; geography does not have a quality problem when it comes to cheap accommodation. Hotels across all countries in the European Union (EU) follow stringent quality standards. Take standard 6205, for instance, which states that all 2-star, standard hotel accommodations must have a wine list with four quality wines. That’s a thoughtful gesture. Needless to say, it is also a world far removed from the state of affairs of standard hotels in India; one that necessarily gave rise to a company like Oyo.
Russia: Few Internet companies, from India or Silicon Valley, have thought of Russia as a market ripe for technology disruption. As far as the management of hotels by international players is concerned, the market is small. According to a study by the professional services company Ernst & Young, the total branded room inventory available in Russia as of October 2017—179 hotels with 38,705 keys in 387 locations—was operated or franchised by 22 international hotel chains. The largest market share (80%) was divided between five chains: Accor Hotels, Hilton Worldwide, Marriott International, Carlson Rezidor Hotel Group and InterContinental Hotels Group. Homegrown Russian hotel chains exist and are growing, as you read this.
The last notable tech battle in Russia was between Uber and Yandex, the country’s homegrown internet search company which operates several internet businesses. After burning $170 million, in 2017, Uber exited Russia by picking up a 36.6% stake in Yandex for $225 million.
South America: This is a region constantly in economic flux but favored by international hotel chains. For instance, South America is Accor Hotels’ third-largest market in the world. The company opened 52 hotels in the region in 2017 and is now present in eight countries: Brazil, Chile, Argentina, Colombia, Ecuador, Paraguay, Peru, and Uruguay. All put together, as of August 2018, the Accor group had 330 hotels and 52,000 rooms in the region. To compare, Oyo claims that as of October 2018, it managed 1,33,000 rooms in India.