How Does OYO Make Money? Full Business Model Explained

OYO is an Indian multinational hospitality chain comprising leased and franchised hotels. It is the largest budget hotel chain in India due to its flexible booking policies at affordable prices. In this article, we will explore the OYO business model along with its numerous revenue sources and working strategies. 

Let’s begin

OYO: A Brief Overview

The term “OYO” stands for “On Your Own” rooms. It began its journey as a hotel aggregator by leasing some rooms and selling them in its brand name. Later on, it changed its business model from aggregating to a franchising method. Before diving deep into the business model, let’s have a quick look at the company “Oyo.”

You will get a thorough understanding of the “OYO Business Model” in three sections, namely-

• Working Strategy
• Revenue Sources
• Marketing Strategy

Working Strategy: How does OYO work?

OYO Rooms is a successful hotel booking services company. It became a reliable brand due to its effective and notable working strategies. Some of the key working strategies of the OYO business model are-

1. Blue Ocean Strategy to Aggregate Hotels

This is the prime strategy of OYO that led to its success. Blue Ocean’s business strategy primarily focuses on creating new market spaces rather than competing in existing ones. OYO adopted the blue ocean strategy to create a new market segment of the hospitality sector with affordable hotels. So, instead of competing with luxurious and expensive hotels, it explored and connected the potent low-cost hotels. This strategy was beneficial for the untapped segments of the hospitality sector too! OYO identified the needs of budget-conscious customers. And connected them to low-cost hotels that are primarily omitted in the market segment due to the branded hotel. 

2. Technology-driven Operations

The successful operations of the OYO business model can be attributed to its extensive usage of technology due to which it provides efficient services. Following technologies are used to streamline OYO’s operations and to enhance their customer’s experience-

• Data Analytics
• Machine learning
• Artificial intelligence
• Optimization of prices
• Inventory management
• Customer bookings
• PMS (Property Management System)
• Mobile application
• User-friendly interface to manage bookings & payments

3. Franchise Model

This is the backbone of OYO’s working strategy. Here, the local hotels and homeowners establish a partnership with OYO. Thereafter, they are rebranded under the OYO brand. Also, their properties and other features are upgraded as per the OYO’s standardization criteria. The franchise process involves-

• Providing training & support
• Offering revenue management solutions
• Collaborative relationship
• Encourage the mutual success of the franchiser and the franchisee
• Regular audits

This allows rapid expansion of the brand without any heavy capital expenditure. This strategy helped OYO to establish a strong presence in the hospitality market. And that too at a global level.

The partnering with hotels and homeowners to bring them under the OYO brand expanded its offering beyond traditional hotels. Now you can book OYO vacation homes, resorts, and co-living spaces.

4. Key Partners

Some of the key partners of OYO are-

• Hotels, Vacation Homes, Resorts
• Event Organizers
• Communication platform (Whatsapp): to manage booking confirmation, location, navigation details, and cancellation.
• Electronic payment services: Paytm, PhonePe, Google Pay (UPI)
• Taxi/cab service providers: OLA, Uber
• Dinner reservation services (Dineout)
• GPS services (Google Maps)
• In-room entertainment services (Netflix)

5. Premium Services

Users get the benefits of premium services through OYO wizard memberships. Here, you can get the following exclusive features-

• A reward night after certain room nights
• 10% discount on base hotels
• 5% additional discounts on all bookings on Wizard network hotels.
• Partner coupons worth Rs.3500 to Rs.5500

These premium services also act as a great source of revenue for OYO. We will discuss them in detail in the upcoming sections.

7. Customer Centric Approach

For any successful business, you need to satisfy your customer by offering the best products and services. Therefore, OYO emphasized standardization and quality control to ensure that its guests must have a satisfactory experience. Some key features of the customer-centric approach are-

• Competitive Pricing
• Seamless booking experience
• Properly addressing the customer’s grievances
• Encouraging customer reviews and feedback
•  24/7 customer helplines
• Chat support and email support

Thus, the working strategy of the OYO business model is well-planned and innovative. All these strategies aided in exploiting the untapped market of the hospitality sector.

Revenue Sources: How Does OYO Make Money?

Do you know, OYO earned a revenue of $692 million (Rs.5700 crore) in the financial year 2022?

Now, coming to your most sought query- “How does OYO make money?” Well, OYO has numerous sources of revenue that are described below-

1. Commissions

OYO primarily generates revenue by offering hotel rooms and other accommodation facilities to customers through its online platform. Thus, you can say that OYO has a commission-based revenue model, where it charges a commission of 22% from its hotel partners. The commission fee is applied to every booking made through its platform. However, the percentage of the booking value can vary from place to place, type of property, and numerous other factors.

2. Franchise Fees

As you have read above, OYO follows a franchise model. In the franchise model, the franchisee needs to pay a certain amount of money to the franchisor. In other words, Oyo charges franchise fees from its partners for using the OYO brand, technology, and operational support. This franchise fee may be a one-time or recurring payment. This acts as a significant source of revenue.

3. Margins

The margins on room rates are also a significant source of OYO’s revenue. OYO negotiates discounted rates with its partner properties. Thereby, it sells the rooms at a higher rate to guests. Thus, it earns a margin on the difference between the discounted rate and the selling price of the rooms.

4. OYO Wizard Membership

OYO has three types of premium Wizard membership at the following prices-

• Wizard Blue: Rs.99
• Wizard Silver: Rs.199
• Wizard Gold: Rs.399

These memberships provide a great earning source for OYO.

5. Advertisements, Sponsorships, and Partnerships

Have you seen any advertisements or recommendations while using the OYO app? Well, these ads are potential earning sources for the company. These ads generate additional revenue for OYO and its partner properties. It charges fees from the companies who place their ads, sponsorships, and brand promotions on OYO’s app and website.

6. Revenue from other services

OYO also makes money by offering premium offline services and amenities to customers at an additional cost. In some hotels, OYO offers additional services to guests, such as breakfast, transportation, laundry, or other amenities. It charges additional fees for all these services. Thus, it also generates a sizable revenue for OYO.

Thus, OYO makes money through the above-mentioned revenue sources.

Marketing Strategies

OYO employs the following marketing strategies to promote its brand, attract customers, and grow its business-

1. Promotions through Videos & Campaigns

Oyo immensely uses the digital platform to attract new customers. Do you know Sonu Sood is the brand ambassador of OYO? The tagline of the OYO advertisement that featured him was “OYO sanitized before your eyes.” OYO organized several other campaigns. Such as-

• #AurKyaChahiye
• #OneForEveryone contest
• #OYOnauts
• #OYORahoMast

In the promotions, OYO always advertises the affordable costs of hotel rooms that suit the majority of users’ budgets. 

2. Digital Marketing 

OYO aggressively uses digital marketing methods to gain potent customers. Some of them are-

• SEO (Search Engine Optimization)
• SEM (Search Engine Marketing-Paid Search Marketing)
• Social Media Marketing (Facebook, Instagram, Twitter)
• Content Marketing (Travel blogs)

All these digital marketing methods help OYO to create brand awareness, reach a wider audience, and drive bookings.

3. Loyalty Programs

OYO has introduced various loyalty programs to incentivize repeat bookings and customer retention. One such famous loyalty program is the “OYO Wizard membership” that you read about in the above sections. It includes numerous benefits like alluring discounts, exclusive offers, and rewards. This encourages the folks to book OYO!

Conclusion

Thus, the OYO business model is all about its innovative working strategies, diverse revenue sources, and impactful marketing strategies. However, despite having an efficient business model, it is in huge losses (Rs.333 crore). Also, it is struggling hard for an IPO. OYO IPO is getting delayed due to losses as well as its management shifts. But OYO is expecting a 19% rise in revenue in the current fiscal year.