The acquisition of ZO Rooms by rival OYO Rooms has been in news for a while. Earlier reports indicated that OYO Rooms was in process to acquire ZO Rooms in an all stock deal and that ZO Rooms has been laying off employees. Earlier today some speculations came out about the acquisition being completed after ZO Rooms website and app stopped working but were dismissed soon after the website went live again. Now there is a confirmation of the same from OYO Rooms investor Softbank.

The acquisition wasn’t surprising considering the fact that both the companies were spending the funds on expanding rapidly and OYO Rooms had a clear advantage. Zostel Hospitality was unable to raise subsequent rounds from other investors or their existing investors which eventually resulted in the acquisition. Softbank’s earning release indicates that OYO Rooms has grown 34 fold from the previous year.

This acquisition will clearly put OYO Rooms on the top in this space with a significant margin. This segment has not only seen new startups trying to aggregate the budget hotel properties but also the entry of major OTAs including MakeMyTrip, Goibibo and Yatra. While the brands haven’t shown any significant revenue yet, it should change over time as they build trust among travellers.

Source: Business Standard

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The budget hotel aggregator ZO Rooms has been going through a tough phase after failing to fetch another round of funding. News has been floating around that it will be acquired by OYO Rooms, the largest player in this segment but there has been no clear update from either companies on this.

While it is still unclear if the company will be acquired by the rival OYO Rooms, we have learned in another update that ZO Rooms has gradually started laying off employees. The budget hotel brand has already been losing partner hotel properties to its close rival and various property managers claimed that there has been a significant drop in number of room nights sold since OYO Rooms and ZO Rooms were unlisted from leading OTAs.

Many of their hotel partners have also started working with multiple hotel aggregators (including OYO Rooms, which wasn’t the case earlier) because ZO Rooms wasn’t able to bring much bookings. OYO Rooms, with its discounted prices and stronger reach has been offering them better proposition. This is also indicated by the fact that most such properties are marked as ‘sold out’ for most times on the ZO Rooms website. Even though it has been reported widely, we think there might be slim chances of an acquisition by OYO as a large number of hotel partners will be eager to work with OYO after declining sales with ZO Rooms and being new, they don’t have anything like a strong base of loyal customers.

The budget hotel space has seen lot of action recently with the entry of many new players like Wudstay, Vista Rooms, Treebo Hotels and others. Gauging the opportunities in this space, major OTAs like Goibibo and Yatra.com also introduced their budget hotel brands and intensified the competition. But the prime competition for ZO Rooms has been Softbank backed OYO Rooms which has been leading the segment. (Read: Will budget hotel startups eat the OTA pie?)

One of the factors that have driven ZO Rooms to this stage is the change in approach by Tiger Global. Last month it was reported by The Economic Times that Tiger Global Management has decided to tone down its aggressive approach in terms of investments and not support companies which have high burn rate. Earlier they created a mania among internet companies by pouring in huge amounts but all that is going to change now. This came only a few months after a very active Q1’15 in which Tiger Global invested in 8 new companies. This could be because many deep pocketed investors have entered the Indian market and made the discount war a race to the bottom. It will be interesting to see how Tiger Global deploys its funds in the region going forward.

Just like most players in this segment, ZO Rooms was heavily incentivising the customers to book with them by bearing losses and offering room nights at much discounted prices. Not only that but according to some property managers, they were heavily dependent on offering minimum room night guarantee in form of inventory buyout for months which further added to the high operating costs.

Some of the employees have told that the workforce is being reduced from almost all the teams, though, instead of terminating the services, the management is suggesting the employees to resign as the company is short on funds and won’t be able to pay them. The founders are individually reaching out to the employees being removed from the team. It is worth a mention that they are also offering to help the employees land another job by reaching out to their network.

It is yet to be seen what turn this episode takes. We will update you as we learn of any other development. Do you think we will see more heavily funded travel startups go down the spiral?

Update (Dec 17, 2015): According to a news report by Economic Times, OYO Rooms has agreed to acquire ZO Rooms in an all stock deal. The founders and investors will get 7 percent stakes in OYO Rooms once the deal is through.

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The budget hotel segment has been in the news for most part of 2015 but as the year comes to an end, we might just get to hear the biggest of all stories. In what could be a game-changing move for the budget hotel industry in India, news reports indicate that leading hotel aggregator Oyo rooms is in early talks to snap up its rival Zo Rooms.

Economic Times quotes, “Investors and management from both sides have met“. “The deal has not reached a term-sheet stage as negotiations are still early, but (investors and management) have agreed to take the discussions forward“.

Earlier in August, Oyo Rooms, had raised fresh round of investment at $100 million (Rs. 630 crore) from Japan’s SoftBank. On the other hand, the ride hasn’t been so smooth for Zo Rooms as its investment firm, Tiger Global is looking to slow down and take a backseat with startup-deals. Zo Rooms had raised $30 million (Rs 192 crore) from Tiger Global Management and Orios Venture Partners in August 2015 as well.

This move could have been triggered after the recent foray of leading OTAs MakeMyTrip, Yatra etc. into the budget hotel category. The potential merger of the two could spark a major war in the budget hotel category as earlier both Oyo & Zo Rooms were blocked by these online travel agencies. The higher valuation of the joint entity could follow a trend that started with Flipkart’s acquisition of fashion e-commerce portal Myntra.com and Ola’s acquisition of TaxiForSure in the cab-aggregator category.

Budget hotels have sparked a major evolution of India’s travel ecosystem with Treebo Hotels, Vista Rooms, Zip Rooms being some of the other travel startups in this category.

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India’s leading travel search marketplace has made a move in the fast growing budget hotel segment and introduced ‘Super Value Hotels’. Under this, they offer curated deals from 2,500 budget hotels across 80 cities. The prices will range from INR 599 to INR 2,499. The listings under ‘Super Value Hotels’ are the properties which offer good value for money as the name suggests and offer assurance of basic amenities like Air-con, TV, prime location, good room service, breakfast and Wi-Fi connectivity.

Most of the listings under ‘Super Value Hotels’ come from budget hotel aggregators like OYO Rooms, ZO Rooms, Wudstay, Vista Rooms as well as some independent properties that offer good value and comparable experience for good price. The best prices are fetched from multiple hotel booking websites like Booking.com, Makemytrip.com, Hotels.com and others like any other listing and also from the hotel brand website. This allows the traveller to book at the best price in this already competitive space. Multiple filters further help travellers skim through the results to find the best match.

Commenting on this new addition, Aloke Bajpai, Co-Founder & CEO, ixigo said – “We are making the lives of travelers simpler by narrowing down to the best budget hotels in India from among the 12,000 in our database. We’ve filtered them by amenities, location and by sifting through thousands of reviews and photos on the web. Our team has also visited many of our chosen 2500 hotels personally to ensure that only the best ones earn the ‘super value’ tag. These accommodations provide great value for money and hence we recommend them for price-conscious travelers. We will be rolling out super value hotels on our apps very soon, and will also double the number of cities and super value hotels we cover by December.”

According to Google, the online booking market in India is bound to grow to USD 1.8 billion by 2016 from USD 0.8 billion in 2014. The growth will be primarily fuelled by the growth of smartphones in Tier 2 and Tier 3 cities.

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Travel brands are coming up with innovative campaigns this festive season in a bid to get the attention of the buyers. Earlier this morning, we came across another interesting Diwali campaign by the budget hotel aggregator ZO Rooms. The video campaign #RefriendYourFriend features an amazing video which will take you back to your school days.

In the video they have very neatly managed to connect with the audience emotionally while highlighting the key features of ZO Rooms. The video starts with two kids lighting crackers in the school corridor and after being caught by the principal, head out to end up at ZO Rooms for the complimentary breakfast. The video ends with the two friends meeting outside the same ZO Rooms hotel after years and celebrate Diwali with crackers like they did as kids.

This space is getting highly competitive and brands are becoming aggressive when it comes to acquiring customers. To promote the brand in this season of deals, they earlier introduced room nights at multiple properties for just INR 99. Expect this beautiful video to get them even more attention.

Enjoy the video while I share it with my school friends. Have a safe Diwali.

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October has been an interesting month for the travel industry. Brands got into festive mood, investors poured in funds, unicorns grew bigger, interesting startups came up, established players started fighting for market share and some major events were held. We looked back at the month and picked out our most popular stories. Here is a short roundup just in case you missed them:

#1- Conversation with Stephen Ho, President APAC, Starwood Hotels

Asia is the fastest growing travel market and the habits of Asian travellers are changing fast. Hotels are adapting to the change to stay competitive with new businesses pouring in. We got a chance to have a conversation with Stephen Ho, the man at helm of Starwood Hotels in Asia to know more about these industry trends. Read the full story: “We have to constantly keep evolving & innovating”- Stephen Ho, President, APAC, Starwood Hotels.

#2- OTAs block OYO and ZO Rooms from listing

With the kind of pace OYO Rooms picked up while expanding its footprint, it was very clear that they will be a threat to the OTAs in future. With more players joining the game, the OTAs couldn’t just wait. They finally decided to block OYO Rooms and ZO Rooms, two of the biggest budget hotel aggregators from listing on their platforms to save their market share. Earlier some OTAs also launched their own budget hotel brands to compete in the fast growing space. Read the full story: OTAs hit back at the hotel startups, block ZO and OYO Rooms from listing.

#3- Sherri Wu on the future of Alitrip

Alitrip, the travel business of Alibaba quickly gained momentum in the Chinese market. At this point, almost every global travel brand is trying to woo the Chinese travellers because of the fast growth that market has been experiencing. Sherri Wu spoke during Web In Travel Conference 2015 in Singapore about the journey of Alitrip and their future growth plans. Read the full story: “What we want to do is: Innovation, Innovation and Innovation” – Sherri Wu

#4- Jonathan Hardy on Adara’s plans for South-East Asia

Big data is the most commonly used phrase in travel industry these days. Business are exploring the possibilities of serving their customers better by offering tailored options by utilising big data. Adara is one company that is helping them analyse customer data and derive strategic insights. We had a chat with Jonathan Hardy about Adara’s expansion plans for this region. Read the full story: Travel Data Company, Adara has big plans for South-East Asia & Pacific

#5- FlyZilla: Flight metasearch that drives direct bookings to carriers

On metasearch websites, the results are usually flooded with options from OTAs. TripZilla introduced flight metasearch engine FlyZilla which offers results from airlines only and drives more direct booking to their website. It could be something disruptive in the metasearch space which has been largely dominated by the heavy bidding OTAs until now. Read the full story: TripZilla introduces flight metasearch engine FlyZilla to drive direct bookings to airlines

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In a rather predictable move, multiple OTAs have blocked the budget hotel startups from listing on their respective websites. Sources have reported that Goibibo, MakeMyTrip and Yatra have blocked them and according to industry experts,the move is clearly aimed at safeguarding the OTA market share. With the kind of response & inventory volumes players like OYO Rooms and ZO Rooms are getting with their endless deals, they are clearly posing threat to the hotel side of OTA business.

With heavy investors backing these budget hotel startups, they are taking significant burn to acquire new customers and were listing on OTAs at prices lower than original listed price of the same hotel. It is in order to acquire new customers and keep them coming back to the brand. This could have become a threat in future as these brand could be controlling a large part of the OTA inventory by adding more partner hotels as they grow.

According to a news report by Economic Times, a MakeMyTrip spokesperson has acknowledged the same and has termed it to be a part of the ongoing experiments at the company. Cleartrip still lists these hotels and hasn’t been in any news around this development. The budget hotel aggregators must have seen it coming as Goibibo earlier caused some friction in listing their properties and made the process of listing relatively cumbersome. This was before they launched their own brand of budget hotels called GoStays. Yatra also launched their own brand of budget hotels under TG Rooms. Listing the rivals would also create competition for these brands.

According to the budget hotel brands, this move by OTAs won’t have any significant impact as the OTAs have been accounting for around 10-15% of their bookings. While these numbers appear to be a little optimistic to believe, it is clear that they won’t sit back and wait. Soon after this update, ZO Rooms introduced their festive offer with some really good hotels available for INR 99 to drive more direct traffic.

OYO Rooms recently raised fresh round of $100 million and has been using these funds to actively expand its network across multiple Indian cities and claim to be present in more than 100 cities. The other big player in this space, ZO Rooms, is present in more than 50 cities.

The budget hotel segment has certainly dominated the travel industry conversations for most part of 2015. With all the offers coming your way, this is perhaps a great time to plan your trips.

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Yatra, the leading online provider of travel services in India, has recently introduced TG Rooms and TG Stays. TG Rooms is their range of budget hotels while TG Stays includes verified homestays.

With 500 accommodations in 60 cities, TG Rooms and TG Stays will offer basic amenities to its budget travellers. TG Rooms will have free Wi-Fi and Air Conditioners while TG Stays will provide reliable and verified and comfortable homestays in prominent holiday destinations of the country. The starting price of such accommodations is INR 499.

According to the report, Sharat Dhall, the President of Yatra, quoted:

“Growing our hotel business is a key focus for us, and the launch of TG Rooms and TG Stays is another step in the same direction. With TG Rooms and TG Stays, we are looking to expand our inventory even further and offer travellers a diversified portfolio of budget accommodation options. TG Stays is targeting a new segment in the market by aggregating verified home stays, which are especially ideal for short vacations, weekend getaways and road trips that are gaining immense popularity amongst Indians…”

Dazzled by the kind of progress OYO Rooms is making in India, many small and big players have entered the budget hotel segment recently. After taking note of the opportunities in this space, almost everyone is trying to take a bite out of the pie. However there is more to it for the OTAs like Yatra or GoIbibo.

With brands like OYO Rooms and ZO Rooms expanding quickly, this was definitely expected from the OTAs (Read: Will budget hotel startups eat the OTA pie?). The comissions from hotel bookings drive large volume of business for the OTAs. With the kind of size these budget hotel startups are growing to, OTAs were under threat of being pushed out of the equation. With the entry in this segment, they will try to build up on their name and widespread network before the dust settles. GoIbibo recently introduced GoStays and there have been reports of MakeMyTrip working on something along the same lines. With the kind of reach Yatra has among hoteliers, reaching different geographies shouldn’t be Yatra’s biggest problem. The problem would be posed by budget hotel chains like OYO Rooms and ZO Rooms which have already grown big and are expanding aggressively.

Homestays are also starting to catch up and we will see them as a major trend in few years (Read: 5 upcoming travel trends in India). In India, Stayzilla is making most headlines in this space while Airbnb has been a party killer for hotels in many other countries. Over the years Yatra has built strong trust among Indian travellers and that can help drive people towards homestays with TG Stays. TG Stays has got huge potential as Airbnb isn’t a big name in India yet.

While they have made a move in homestays in time, we can’t say the same for TG Rooms. They will face stiff competition here and many others have a lead with the head start. Plus there will be more competition with other OTAs entering the picture and the price war might get even more aggressive.

What do you think will change with the entry of OTAs in this space? Do you think they can be a threat to brands like OYO Rooms and ZO Rooms?

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The Travel & Tourism industry has seen a huge surge in the past few years and things have gained even more momentum this year. Innovative startups are coming up in this space and scaling at a rapid pace. We have also witnessed some major acquisitions like TaxiForSure by Ola and Mygola by MakeMyTrip. Local investors that were dormant until now have joined the game to further heat up things in this segment. The investments grew by over 50 percent in the second quarter of the year as compared to the first quarter.

Here is an exclusive infographic by TravHQ which consolidates some travel startup investments that have made the news in 2015. There are some startups in the list who haven’t disclosed the amount, but the experts can predict the range by looking at their categories, funding source and observing similar other investments.

Budget stays

This segment has seen the most action this year and according to industry experts, we will see a lot more activity in budget stays in the coming months. Finding quality budget stays was a major challenge for travellers in India and these startups seem to  be addressing the issue. While most of the inclusions are budget hotel chains like OYO Rooms, Zo Rooms, Treebo Hotels, FabHotels and Wudstay, Stayzilla operates as a platform for individual hotels as well as alternative stays.

Trip Planning

These services help you plan your travel by offering multiple itineraries or tools that can help you create your own. This is another industry segment that might see more players though growth is limited by the high dependence on community and limited monetisation opportunities here. Trip Hobo and Tripoto are two startups that help you discover itineraries of other people and help you plan your own vacations.

In-destination services

These services come in handy when you are travelling or have reached your destination. It isn’t exactly the hottest segment right now but with newer technologies entering the scene, it will gain momentum very soon. Guidoo and Trip38 are two very different startups that wiill help you in your travel. Guidoo allows you to explore destination with audio visual guides and offers the option to book local activities. Trip38 manages the itinerary in one place after you have got the bookings done via a booking service. It also offers the option of booking local activities similar to Guidoo.

Marketplace/ Travel search

Travel marketplaces are still evolving in India and are slowly gaining traction. Portals like Travel Triangle, Trip Factory or iTraveller leverage technology to capture customer preferences and offer a better tailored package for them. Travel search engine ixigo also saw investments this year while they are working to ramp up their services and increase the focus on mobile.

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A large number of people associated with the travel industry won’t paint a very pretty picture of OTAs more commonly called as Online Travel Agencies. They drive a large number of bookings to hotels in exchange for commission on bookings. Airline & Train bookings also form a large part of their business model but the hotel industry is their cash-cow. On the flip-side, Hoteliers always try to gain more direct bookings. Often they will lure you with discounts and upgrades if you book directly with them the next time around.

Hotels have to pay huge amounts in commissions to OTAs but that isn’t the only reason they try to get direct bookings. Paying commissions is good as long as hotels are getting new customers through websites like Yatra or MakeMyTrip. It can’t exactly be termed as customer loyalty yet but people have started picking their favourites among them. It is very common for people to discover the hotel through a native ad and then book through an OTA.

Hotels also lose the opportunity of direct relationship with the clients that book through the OTAs. In many cases, price is the driving factor for them and the next time around, they might book with some other hotel because of a small price difference. In case of a direct booking, the hotel could have offered a better deal to a returning customer in the name of a loyalty program.

But all this might change as the budget hotel chains like OYO Rooms and ZO Rooms continue to expand their footprint rapidly. These aggregators are joining hands with individual budget properties, rebranding them to maintain their quality standards and then drive bookings.

How do they work?

At this point most of the players in budget hotel segment are expanding their footprint across the country. They are aggressively signing contracts with new properties, offering them minimum room guarantee, giving them signup bonuses to revamp the properties and offering lucrative discounts to acquire new customers. Apart from offering bookings through their individual websites, they are listing the properties on OTAs as well. Let’s assume an OTA charges 15 percent commission on every booking (this could be higher in many cases) and the aggregator takes 20 percent. If the hotel pays the OTA commission, it will end up paying 35 percent overall and if the aggregator pays the commission, it will make just 5 percent off every booking. It isn’t a problem yet as most of the budget hotel brands are taking care of most of the commissions for now in a bid to get hoteliers onboard but things aren’t going to stay the same forever.

What has changed?

By now it is very clear that these budget hotel brands will restructure the Indian hotel industry (Read: How budget hotel chains will make an impact on the Travel Industry). The highly fragmented and unorganised market stands to gain a lot with the entry of these players. In the years to come, most of them plan to add hotels from even the Tier 2 and Tier 3 cities over and above the crowded Tier 1 cities. If you frequently book hotels through OTAs, you will notice that many hotels that were listed for ages are still there but now they are listed with a brand prefix. The number of such listings is going up as brands like OYO try to standardise and add as many hotels as they can. Hotels are happy to join hands with them for many reasons and judging by the pace at which these brands are expanding, we will soon see OYOs and ZOs flooding hotel searches.

There are plenty of hotels listed on OTAs with brand prefixes

What is the threat?

Judging by the current scenario, it appears that a large number of hotels from the unorganised segment will be a part of some hotel chain or the other in future. With the massive amount of funding some of these players have, the smaller players will fade away or get acquired. It isn’t going to happen very soon but this is a strong possibility you can’t rule out. Even if there are hotels operating separately, the number would be insignificant. In such a position, apart from the premium hotels, a large number of options you will find listed on OTAs will come from one hotel brand or the other. This is when they can pull the trigger, stop listing the properties on OTAs and focus on direct bookings.

Another reason why people prefer booking through OTAs is because of the experience they provide. They have huge teams fine tuning every little thing, from payment to interface, to provide the best experience. The budget hotel brands strongly rely on technology and have already got everything in place, from good websites to excellent mobile apps. When the time comes, they won’t disappoint customers with bad menus or slow website.

The way ahead

Of course the market is far from saturated at the moment and a situation like this is still years away. Despite expanding rapidly, the budget hotel chains still have a very long way to go. The small players will remain competitive as long as investors keep pouring in money. But it is something OTAs need to ponder upon. Revenues from Airline industry are volatile and Hotels & Packages account for around half of the revenues for many OTAs. The budget hotel brands have the potential to leave a dent here and maybe OTAs should start exploring other ways to profitability.

What is your opinion on this? Do you think the budget hotel chains can be a threat to OTAs?

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