In a move to reduce cash burn, Softbank-funded budget hotel accommodation provider, OYO Rooms has almost stopped giving minimum guarantee of occupancy, it offered to partner hotels. It now purely operates on a revenue share model, according to a top company executive.

“Minimum guarantees have been used by many companies including even Uber and Ola to acquire supplies. So, that was a very strategic choice, we made at a point of time when we had a competition which was using that strategy aggressively”, said Maninder Gulati, Chief Strategy Officer at OYO Rooms referring to Zo Rooms, which has now become defunct.

“We started slowing that down around September last year. We completely shifted on to a different model by March. Since March, it has been less than 3 percent. It is mostly revenue share now”, he added.

‘Minimum guarantee’ is a well-known capital guzzling exercise used by different start-ups. In case of a hotel accommodation, it is used by offering the hotel owner an assurance that even if a portion of the inventory is not sold, the company will pay them from its own pocket.

Unlike other hotel accommodation start-ups, such as Treebo and Fab Hotels that keep full inventory of a property, OYO mostly works on partial inventory with the hotels.

Gulati says that a partial inventory model, doesn’t bring any difference in the customer experience, instead it allows the company flexibility to choose inventory across multiple locations.

“We won’t take inventory risk for the sake of taking inventory risk and lose money on it”, he said.

“As our model stands today having a predictability promise to provide you a room at any point in time requires us to have a wide network and a very dense network”, he added. Oyo usually takes up 30-40 percent of the inventory while signing a hotel.

OYO Rooms was in the process of acquiring rival arch-rival Zo Rooms – till now there is no clarity on the deal. Zo, however, shut down its operations early this year.

The company was also de-listed by online travel agencies including MakeMyTrip, GoIbibo and Yatra last year, who started off with their own budget hotel segments.

According to Gulati, given that almost 98 percent of OYO’s business comes from its own channels, the company is able to understand the nature of the demand and book inventory accordingly.

“If I am dependent on an OTA or anybody else to generate that demand, I will never have that intelligence”, he said adding that the company is making money on every transaction.

The company recently inked a pact with niki.ai, under which users will be able search and book their rooms using an artificial intelligence-based personal assistant.

As of May, OYO had 68,300 rooms across 5,855 partner hotels in India. In July 2016, the company raised Rs 413 crore from existing investor Japan’s SoftBank Group Corp.

Source: moneycontrol