Oyo Rooms may buy Zo Rooms

Budget Hotel site Oyo Rooms (Oravel Stays Pvt. Ltd) has expressed interest in buying smaller rival Zo Rooms, which is scrambling to raise a fresh round of funds in order to avoid being sold. The overture from Oyo Rooms follows the entry of large online travel firms MakeMyTrip, Yatra Online Pvt. Ltd and Goibibo into the budget hotel segment.

Though Zo Rooms, run by Zostel Hospitality Pvt. Ltd is currently in conversations with at least two investors for a fresh funding round, it faces an uphill task as its biggest investor; Tiger Global Management has decided to go slow on writing large cheques for the smaller companies in its portfolio. Zo raised roughly $35 Million from Tiger and Orios Management this year.

Oyo Rooms is the early market leader among budget hotels, having raised $100 Million from Japan Softbank Group and others in August. Budget hotel aggregators were supposed to be the next big thing for investors and entrepreneurs, but as with most other new, unproven business such as food tech, investors and entrepreneurs seem to have overestimated the potential of the business.

Budget hotel launches by online travel agencies has only made investors in hotel startups more cautious. MakeMyTrip, Yatra and Goibibo launched their budget hotel businesses, putting them in direct competition with Oyo and Zo and potentially triggering consolidation among startups. The online travel firms have already delisted Oyo and Zo from their platforms, indicating their ambition to build a budget hotels business independently.