Bringing budget hotels online

SACHIT SINGHI, YOGENDRA VASUPAL AND RUPAL SURANA, FOUNDERS, STAYZILLA

There’s a saying in Hindi that goes (translated); Every two miles the water doth change, and every four the dialect. Sachit Singhi, the co-founder of Stayzilla, narrates this as he takes me through the primary challenge that he and his co-founders, Yogendra Vasupal and Rupal Surana, had to face, when they started building an inventory of value-based properties in Tier 2 and Tier 3 cities in India for their business in the online travel space. Explaining the challenge, he says when you’re building a business in the non-metro regions, especially in a diverse country such as India, language poses as the biggest barrier. “And, though the three of us knew quite a few languages, we spent two whole years meeting and signing up clients,” indicates Vasupal.

Unlike other OTAs (online travel agencies) such as Makemytrip and Yatra, which offer an entire gamut of services (hotel and flight bookings), the founders of Stayzilla were clear that they wanted to carve a niche for themselves. Thus, in 2005, they incorporated a venture that focuses exclusively on budget room bookings. “We leveraged on two aspects; the increasing penetration of online hotel bookings, and the rapid emergence of budget hotels in Tier II and Tier III cities in India,” notes Vasupal. While the company’s initial focus was on signing up only hotels, by 2007, the team realised the opportunity in home stays, lodges and guest houses, and included these too, in its inventory. “Today, though just one per cent of the bookings happen online, as more and more people rent out their properties online, it will grow to 40 per cent in the next five years. And, this will be our key growth driver,” points out Singhi.

Of course, Stayzilla’s second brownie point stems from the fact that it is among the early movers in this space. “The biggest advantage in being an early mover is in the strong network we’ve built with our suppliers. The three of us have personally travelled and met close to 2,500 owners, spent time with them, built a relationship with them, and maintained it over the years,” states Vasupal. He believes that, while some businesses can be built by paying money, some need to be built by paying time, and Stayzilla falls into the latter category. Until now, the company has partnered with 15,800 properties in 750 cities. By December, it aims to take this number to 20,000.

The biggest advantage in being an early mover is in the strong network we’ve built with our suppliers. The three of us have personally travelled and met close to 2,500 owners, spent time with them, built a relationship with them, and maintained it over the years.

Where’s the money at?

Stayzilla’s business model is largely market driven. As a result, it has to keep alternating its focus between demand and supply. Thus, after spending the initial years focussing on supply, and building an inventory of 3,000 properties, the company sought external funding to improve the demand side of its business. In March 2012, Indian Angel Network invested US $0.5 million, led by Ravi Krishnappa.

A year later, in October 2013, it raised an undisclosed amount of funding from Matrix Partners India, which typically invests in technology-based companies such as Quikr and Limeroad. It channelised these funds towards improving customer service, expanding team size, and improving its partner network, which today stands at 15,800 properties.

In fact, Matrix Partners India’s co-founder, Avnish Bajaj earlier founded the online marketplace, Bazee.com, which was sold later to eBay. This acted as a trump card for Stayzilla’s founders. In February 2013, having signed up a lot of properties, Stayzilla stopped expanding its supply network, and instead, started focussing on demand. But, when Matrix Partners India came on board, Bajaj’s view was that marketplaces grow with supply, thus partner expansions shouldn’t come to a halt. “He said that marketplaces are unique – more supply brings more demand,” recalls Vasupal. And rightly so, the strategy helped, because from March 2014 to August 2014, the company has grown three times, and alternatively, its marketing spend has also come down, due to word-of-mouth-driven increase in demand. “Let me give you an example. Once, a few customers came and told us that there is a place called Tosh in Himachal Pradesh. Though that place was unreachable, our partner hotel was the closest to that place. We realised that constantly expanding our supply network unlocks a demand that we didn’t know existed,” shares Vasupal.

Striking a balance

During the early stage, the founders assumed that the best way to attract customers would be to offer online vouchers, and when the customers availed it, the hotel would take care of the rest. “That was probably the biggest mistake we made, because soon we realised that it’s not enough if a customer is showcased the best budget property, the service element also plays a key role here,” points out Surana. In other words, since Stayzilla’s suppliers were budget hotels, they didn’t have an internal team dedicated to managing check-ins and concierge services. As a result, often, booked accommodations were not available when the customer checked-in. “To tackle this, we introduced concierge services, optimised our supply chain, and setup predictive algorithms, to ensure that the service was delivered smoothly,” states Surana. Additionally, it introduced a chat feature on its website to help visitors choose the best accommodation among the various options listed on the site.

A second challenge it faced was in promoting those properties that did not have a significant online presence. “At the end of the day, we deal with value-based properties and we want to make sure that we deliver a good customer experience online,” states Singhi.

Leveraging on referral network

While in the initial year of operations, the founders were personally involved in signing up properties on the website, eventually, as they began expanding into other cities, they relied on referrals from existing property owners. “Each property owner we have a relationship with, acts as a reference point for us, when we expand into other places. For this to work, we had to resolve trust and safety issues with our supplier at the early stage,” indicates Vasupal.  For example, Stayzilla always insists that it is not a competitor but a business enabler for its suppliers.

Earlier, Stayzilla focussed heavily on offline and online marketing to create brand presence for the company. But, in the past year, due to rapid expansion on the supply side, it has begun to rely on word of mouth to generate business. “In the last six months alone, 18,000 property reviews on sites such as Trip Advisor were of those booked through Stayzilla. And, we realised just last month that these mentions were driving new customers to us,” says Vasupal. He adds that today, 50 per cent to 60 per cent of the business comes through repeat customers. And, 40 per cent of the traffic comes from its mobile app, and 30 per cent of its bookings happen through mobile.

Five years from now, a confident Vasupal indicates that Stayzilla aims to partner with 1,00,000 properties, and also explore expansions outside India. “We’re very clear that our customer is one who travels in a bus or train. And, we’re already routing a lot of business from this segment, through our platform. So, when the online booking market grows to 40 per cent, we expect to capture a large share of it, and build a sustainable leadership position,” envisions Vasupal, on an ending note. 


CONCEPT IN BRIEF 

Sachit Singhi, Yogendra Vasupal, Rupal Surana founded Stayzilla in 2005, with an aim to build a niche business in the online travel space. The company lists only value-based properties in Tier 2 and Tier 3 cities, and until now, has partnered with 15,800 properties in 750 cities. In March 2012, it raised its first round of funding, to the tune of US $0.5 million from Indian Angel Network, and in October 2013, it raised an undisclosed amount from Matrix India Partners. Within the next five years, it aims to partner with 1,00,000 lakh properties and capture the leadership position in the online budget hotel booking segment.


 

Snapshot 

Stayzilla

Founders: Sachit Singhi, Yogendra Vasupal, Rupal Surana

Year: 2005 (website launched in 2010)

City: Chennai

Investors: Indian Angel Network, Matrix India Partners