One of India's biggest home stay and alternate stay aggregators, Stayzilla, has suspended operations. Coming a day after Snapdeal's massive restructuring, it is once again an indication of the troubles that India's consumer internet ventures are going through (See: Snapdeal axes 600; co-founders Bahl, Bansal take 100% pay cut). Stayzilla said it is looking to reboot with a different business model.
"This has been one of the toughest decisions that I have taken so far but it is the right thing to do. The hardest part is saying goodbye to a perfect team that has accomplished a lot by putting homestays on the map of India," wrote co-founder Yogendra Vasupal in a blogpost on the Stayzilla website on Thursday.
"I am the most fortunate to have had such a team on my side at this juncture. Whatever and how much ever I write about them is not going to do justice to their commitment. But try, I must!" he said.
Founded as Inasra in 2005 by Vasupal, Rupal Yogendra and Sanchit Singhi under the name Inasra, it was rebranded as Stayzilla in 2010. It has raised $34 million in funding from investors including Matrix Partners and Nexus Venture Partners.
Stayzilla had more than 55,000 stay options across 4,500 towns in the country that catered for both homeowners and travellers looking for non-hotel stay experiences. It has regional offices in Delhi NCR, Kolkata, Mumbai and Chennai.
Vasupal shared some reasons why he thought the idea did not work. "The travel marketplace does not have local network effects and, therefore, we can't really take a focused city-by-city approach in terms of matching supply and demand. The demand and supply for home stays was non-existent 18 months back, excluding a few small pockets. As a result, we had to invest extensively in both sides of the marketplace, creating home stays as well as guests who would choose a home stay across the country.
''We were actually successful at this - we have created 8,000 homestays in over 900 towns - but this stretched us thin."
He said some of India's key macro trends further deteriorated their ability to expand quickly and cost effectively. "India does not have a lot of public goods often taken for granted in mature markets, like logistics, tech savvy suppliers and online user demand. A home stays marketplace needs to invest in educating the market on the concept and even using internet, and not just the product. The costs, both financial and opportunity costs, creep up on you over a period of time and it gets rationalized as cost of doing business in India," he wrote.
He also said it was further exacerbated by the discounting based growth rampant in the travel industry since 2015. "Forced to match prices, we could not even recoup what we put in, necessitating very large capital requirement simply to sustain growth."
Vasupal believes specialization could be the future mantra for Stayzilla. "Focusing all our energies on the supply side will allow us to build on our core strength that we have developed over the last 18 months. Specialized solutions such as the concept of 'Stayzilla Verified Homestays' excite me in particular. Originally conceived to increase trust, this could serve as the benchmark for the entire nascent and unstructured industry," he said.