SoftBank’s Oyo’s Business Practices Questioned

On January 3, Indian company Oyo’s rapid growth was questioned, including its business practices. The startup founded in 2013 is now valued at $10 billion and in more than 80 markets, including Dallas and Las Vegas. SoftBank Group is a large investor in Oyo. Oyo offers budget hotel rooms and aims to be the largest hotel chain by 2023. 

“This is the only company which went global at this scale from India,” Satish Meena, a senior forecaster for the research firm Forrester in New Delhi, said of Oyo. “But as of now, there are serious doubts about the business model.”

Oyo allegedly inflates the number of listings by including unavailable rooms. These rooms are listed from unavailable hotels, including those that have left Oyo, unlicensed hotels, or guesthouses. Some of those rooms were listed as “sold out” as a way for the company to try to entice those hotels to return to its service. Other unlicensed hotels would be vulnerable to a government raid. To avoid legal trouble, the company sometimes offers free accommodation to the police and other officials. Oyo supposedly included extra fees and “refused to pay hotels the full amounts of money they were allegedly owed, based on interviews with hotel owners and employees, emails, legal complaints, and other documents.” The withheld payment was alleged to force renegotiated contracts. Additionally, employee training has been an issue, as approximately 80 percent of employees have been with the company for less than a year. The company’s aggressive growth has been questioned and the company has been compared to SoftBank’s WeWork. Oyo had a net loss of $332 million for the year ending in March 2019, with a rapid expansion in international markets, including, China, the United States, and the United Kingdom. Efforts to expand in some countries have failed.

The New York Times reported that “Mr. Mukhopadhyay, who began working at Oyo in August 2018, said employees were under so much pressure to add new rooms that they brought hotels online that lacked air-conditioning, water heaters or electricity. He and eight others said their managers had asked them to engage in a monthly shell game of briefly inserting these unavailable properties into Oyo’s listings — complete with fake photographs — to help impress investors.”

Oyo has also investigated fraud perpetrated by its employees and hotel partners. The Times reported that “[b]ecause Oyo hotels are popular with unmarried couples looking for places for their trysts, one scheme involved workers at properties run directly by the start-up colluding to keep the guests checked in after they left. The workers then cleaned and resold the rooms for cash to other guests and pocketed the money, the people said. Oyo has conducted surprise raids at some properties, seizing employee cellphones and checking rooms and records for evidence, they said.”

Former employees described Oyo as a toxic work environment. When describing the company, a former employee said, “[i]t’s a bubble that will burst.” 

In November, SoftBank added Betsy Atkins, CEO and founder of Baja Corp. to its board, in an effort to help their situation and ease concerns. Oyo is “trying to improve its governance and diversify its board amid concerns over SoftBank increasing it[s] stake in the company.” Additionally, Oyo’s recent fundraising doubled the company’s valuation, now at $10 billion and tripled CEO Ritesh Agarwal’s ownership to 30 percent. SoftBank’s stake increased to almost 48 percent. Agarwal secured a $2 billion loan from Japanese banks, which were used to buy-back stock from investors.