Indian hotel brand OYO is tapping the short-term home-rental model of US-based Airbnb – but with a twist that could either make the experiment a big success or a massive failure.
The Gurugram-based company has started a pilot where it will convert residential properties that are lying vacant into modern, serviceable spaces and help home-owners monetise their dormant assets. In exchange, the company will take a share of the revenue.
“We have realised that a large number of second homes and holiday homes are lying locked in India due to low rental yields, owners living in other cities, and, most importantly, the lack of a trusted partner who would take responsibility for the maintenance and upkeep of the home,” Kavikrut, the chief growth officer at OYO, told Quartz.
Tapping into residential neighbourhoods is a bid to lure tourists to an authentic experience in a locality. Compared to a hotel belt, “homes are spread over more diverse neighbourhoods,” Kavikrut said.
The service, called OYO Home, is already active in popular holiday destinations like Goa, Manali, Shimla, Nainital, Coorg, and Pondicherry. So far, the company has listed over 300 homes across these five cities and promises 80% occupancy.
The owner makes anywhere between 50% to 70% of the total monthly revenue from the property, Kavikrut said. The company refused to share details about how the financials of the model would work.
The opportunity
In essence, OYO is taking the Airbnb model a step further.
California-headquartered Airbnb is an online marketplace where property owners can list their houses and connect with potential consumers. The company does not get involved in these transactions beyond making the connections.
But OYO, besides operating like a marketplace, will also handle day-to-day operations at the properties. The company’s staff will handle guest check-in and check out. Where required, it will also spruce up the infrastructure and interiors of a home.
“Oyo is trying to disrupt the market...It’s attempting to be the Airbnb with a twist,” Ankur Bisen of management consulting firm Technopak, told Quartz. OYO is offering home owners a big lure by taking off the pressure to appoint a housekeeper who would manage guests, but this model could pose a hurdle. “A big challenge is how does one build confidence in people’s minds to give the keys [of their properties] to OYO?” Bisen said.
The challenges
Besides the trust factor, OYO’s model is far more capital-intensive as it includes the huge cost of having local staff to maintain individual houses.
The company said it will be able to keep these costs in check by leveraging its existing hotel maintenance and housekeeping staff, revenue management algorithms, and hospitality technology. But Bisen of Technopak believes that individual homes require “very different management skills” than what hotels do.
Running a people-heavy business with homes scattered across the vast country could get in the way of achieving “serious scale,” Ankur Nigam, a partner at management consulting firm KPMG, told Quartz.
OYO did not respond to a question about how many people it will need to manage a home or, alternatively, how many homes can be managed by one person.
It’s hard to put a finger on the size of this asset management home-rental model in India because even though OYO argues the industry is nascent and direct competition is limited, there are myriad fragmented online as well as offline channels operating in a similar market to OYO Homes.
Also, who handles the property – the owner or OYO – hardly makes a difference. So OYO will face competition from domestic rivals MakeMyTrip, worth $3.6 billion, and $218 million Yatra, which offer furnished apartments and homestays on their sites.
Many businesses have already been running the show behind-the-scenes for homeowners on popular platforms. For instance, Airbnb is not in the asset management market directly, but Nigam told Quartz that he knows people who have “chucked their jobs and are trying to do exactly [this] on Airbnb.” These quasi-brokers list and manage other people’s homes for a fee.
Despite these reservations, Bisen thinks it’s a risk worth taking for OYO. “They’re very well-funded so I would at least encourage them to try,” he added, referring to the $250 million funding round led by Softbank earlier this month.
This article first appeared on Quartz.