Oyo Hotels, Indian Startup Financially Backed By Softbank, Lays Off Thousands

Another startup backed by Japanese tech conglomerate has started enacting mass layoffs.

Oyo Hotels, an India-based provider of discount lodgings, has fired thousands of people across India and China.

Specifically, Oyo, which had received a $1.5 billion investment from SoftBank’s Vision Fund, is laying off 5% of its 12,000 “employees in China partly due to non-performance” and 12% of its 10,000-member workforce in India. Oyo further plans to cull another 1,200 jobs in India over the next three to four months.

Oyo claimed it is removing poor performers and that it has established a “meritocracy-based” performance evaluation program.

SoftBank had ordered Oyo to phase out unprofitable contracts or businesses by Mar. 31.

Oyo’s parent corporation, Oravel Stays, posted a provisional net loss of $33.5 million for the fiscal year ended March 31, 2019, a seven-fold increase from the loss recorded in the prior year. The mushrooming losses were attributed to higher operating and employee benefit expenses.

Oyo, a company that lets tourists, travelers and business people reserve hotel rooms through its website and app, has received a total of $3 billion in funding. The company has also received financial backing from Airbnb Inc., Sequoia Capital and Lightspeed Venture Partners.

Oyo presently works with 10,000 hotel owners in India and charges a 20% fee on room revenues when hotels join their network. Oyo also owns and operates some hotels on its own. Oyo has an estimated valuation of about $10 billion and plans an IPO in the U.S. in the next few years.

Layoffs at Oyo come on the heels of job cut announcements at other SoftBank-backed companies, including pizza maker Zume of California and Colombian on-demand delivery firm Rappi. Other startups supported by SoftBank, Getaround, Wag and Brandless, have also cut large number of jobs in recent days.

The highest profile debacle related to SoftBank is the ongoing problem at U.S.-based workspace provider WeWork – the troubled startup has fired thousands of workers and failed to return a profit despite receiving billions of dollars in a cash bailout last year.

Oyo is also facing protests from hotel owners in China who accused the startup of violating contractual agreements. In response, Oyo said it will “enhance communications with hotel owners and develop owner loyalty” this year.

“We will launch the VIP owner program, and contact owners regularly, to ensure that the interests and needs of theirs and ours are equally taken into account,” Oyo added.

Oyo has also faced customer complaints about poor experiences at hotels, while reports have emerged that in India the company sometimes uses the services of unsafe and unlicensed hotels.

Indian hotel owners have also complained of poor treatment by Oyo and of being hit with hidden fees.

The hotel startup was also accused of creating a monopoly in India. The Federation of Hotels and Restaurant Association of India asked the government’s Competition Commission to file a complaint against Oyo for allegedly slapping fees and charges without prior warning.

Oyo has recently enacted a flurry of management changes to deal with its challenges and strategy setbacks. In December, the startup promoted its real estate business chief, Rohit Kapoor, to CEO for India and South Asia.

Oyo also just promoted Abhinav Ankur to head of strategy for Oyo India and South Asia. Ankur previously served as a vice president with responsibility for the budget and mid-market divisions. In addition, Oyo promoted Sharad Saxena to chief supply officer for its franchise hotels business for South Asia, while Asit Biswal was named chief supply officer for the company’s frontier business division for South Asia.

“Oyo is one of SoftBank’s current crown jewels,” said Michael Norris, research and strategy manager at the Shanghai-based consultancy AgencyChina. “Issues in China, Oyo’s largest market, continues the Vision Fund’s woes.”

Oyo, Norris added, may find it difficult to secure more funding from SoftBank.

In response to the turmoil surrounding it, Oyo said in a statement that "we continue to be one of the best places to work for and one of the key reasons for this has been our ability to consistently evaluate, reward and recognize the performance of individuals.”