India's Oyo should feel at home in Japan, home of its biggest financier SoftBank. But will this automatically translate to success for Oyo? This is why it is starting its expansion in Japan with a new long-stay model.
India-based hospitality company Oyo has targeted Japan as its latest market for expansion.
The fast-growing startup has launched operations in Japan through a joint venture with Yahoo Japan and is fielding its new home rental model, Oyo Living, launched last October. This is a long-stay product with a minimum stay of 30 days.
“We are really excited about commencing our operations in our third and potentially the largest home market, Japan, through [this] joint venture [which] will be focused on creating unique living experiences for the Japanese citizens, students and young professionals looking for good-quality, affordable accommodations, starting with our fully managed homes brand, Oyo Life,” said Ritesh Agarwal, founder and CEO of Oyo Hotels and Homes.
India and China are the other two huge markets for Oyo. In Japan, Oyo Life will be used instead of Oyo Living.
Yahoo Japan is majority-owned by Oyo’s biggest funder, SoftBank. Hiro Katsuse, former chief of Handy Japan — another SoftBank investment — has been named CEO of the joint venture, Oyo Technology & Hospitality Company. Katsuse also headed operations in Japan for Booking.com.
Kentaro Kawabe, CEO of Yahoo Japan, said the partnership makes sense.
“With our local know-how, online distribution network, and marketing support, Oyo Life will soon emerge as the most preferred abode for the Japanese citizens and visitors in the country,” he said.
BE WARY, COMPETITORS
Homesharing players such as Airbnb or Expedia’s HomeAway should be wary.
For one, Google and Yahoo Japan are on the number one and two positions respectively in both SimilarWeb’s and Comscore’s rankings of top websites in Japan, getting billions of page views and millions of unique visitors.
Yahoo Japan is not the same as Yahoo Inc., pointed out a report in Japan Times. It offers the most complete offering under a single portal, the most popular services of which include the largest auction site in Japan, user-generated content, and news and ‘pearls of wisdom,’ the report said.
And while Japan has stringent laws on homestays which last June forced Airbnb to delist reportedly 80 percent of its home listings, Oyo Life’s model isn’t the same as Airbnb’s, said Prasidha Menon, Oyo’s head of communications.
“Airbnb is primarily an aggregator in this space. They are a community-based online platform that facilitates the process of booking private living spaces for travelers and on the other side enable owners to list their space and earn rental money,” she said. “Oyo Life, on the other hand, offers fully managed living options that are operated under the ‘lease’ model by us…where we take end-to-end control of the asset with dedicated facility managers in every premise who take care of the needs of guests and property as a whole.”
In short, Oyo takes full control of the property while ensuring guaranteed rental yields to owners. These properties could be an independent home or an entire building. For customers, it takes care of everything — furniture, Wi-Fi connectivity, television, electronic household appliances, regular housekeeping, security surveillance, digitally enabled locks for additional security, and 24/7 assistance, at no extra costs.
With a long-stay, fully leased and end-to-end service model, Japan’s laws on minpaku, or private residences directly rented out by owners as short-term lodgings, do not apply to Oyo, according to a source.
Launched as Oyo Living in India a few months ago, the brand is present in four Indian cities: Bangalore, Noida, Pune, and Gurgaon. In India, Oyo sees an opportunity to be “the biggest provider of housing,” especially to the country’s millennials and young professionals. At launch, it had more than 35 properties with over 2,000 beds in those cities and expressed the intention to expand to the top 10 metro cities by the end of 2019 with more than 50,000 beds.
In India, rates start from 7999 rupees ($112) per bed per month, the affordable price tag being another differentiating factor for the new entrant in Japan.
WOULD IT WORK IN JAPAN?
The strategy could be successful if it is tailored to Japan, Menon said.
“Japan’s housing market is very different from India in supply and demand,” she said.
She said most homes in the dense urban market of Tokyo are studios and one-bedroom, and most students and young adults prefer to live alone rather than with roommates.
“We have, therefore, used our design competence from hotels and homes to use space creatively and get everything onto a small floor footprint and yet offer a comfortable living experience,” Menon said. “Oyo Life homes in Tokyo seamlessly blend space layouts, furniture, and lighting for sleep, study, storage, entertainment, and cooking.”
The company also believes the rise in subscription-based services for music, video, apparel, and furniture are resulting in a change in consumer mindset from owning to sharing, opening a huge opportunity for Oyo Life.
Oyo Life is aiming for more than 1,000 homes this summer in all of Tokyo’s 23 municipalities. Oyo also intends to expand its offering in Japan to include Oyo Hotels, not just Oyo Life. Since the beginning of the year, the company has announced expansions for its hotel business in countries including Saudi Arabia, the Philippines, and the United States.
NOT SO FAST
But while it appears that Oyo is entering at a golden time when Japan needs rooms due to the 2020 Summer Olympics, reports of room oversupply are beginning to surface.
A Japan Times report in April said it’s not just private lodgings that are jumping in to provide rooms; companies from clothing brands to wedding service providers are rushing to provide accommodations.
It quoted a CBRE Japan report that the number of hotels in eight major cities including Tokyo, Osaka, and Kyoto is expected to reach 330,000 by the end of 2020, a whopping 32 percent increase from the end of 2016.
Japan also has no lack of homesharing players. Apart from globals such as Airbnb and HomeAway, it has other players such as Tujia Japan; Hyakunsenrenma, dubbed Japan’s answer to Airbnb; and Rakuten Lifull Stay.
Oyo’s success depends on how cutting-edge Oyo Life is in its design and comforts, and how affordable its pricing is through technology efficiencies, in order to reach a wide audience that includes young people looking for homes as well as leisure and corporate guests staying more than a month.
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Photo credit: An Oyo Life listing in Japan. Oyo announced its move into the market recently as part of a joint venture with Yahoo Japan. Oyo Hotels & Homes