On Our Radar: Deals we are paying attention to for their impact on industry.

Airbnb has invested between $100 million and $200 million in Indian budget lodging group Oyo Rooms, signaling the San Francisco-based home sharing site’s deepening reach into emerging markets and hotel reservations in a quest to continue growing ahead of a possible initial public offering.

The move could also allow Oyo, whose name stands for “On Your Own,” access to developed markets. The firm, founded in 2013 by a then 19-year-old Ritesh Agarwal, claims more than 8,500 properties in 230 cities across India under its umbrella, a presence in Malaysia and Nepal, and aggressive expansion plans in China.

Oyo says it has revolutionized the fragmented and legacy-driven budget hospitality space in India by enabling standardization of services, amenities and in-room experience, with its proprietary apps for inventory management, room service, revenue management and customer relationship management.

Maninder Gulati, Chief Strategy Officer at Oyo, and Greg Greeley, Airbnb’s President of Homes, both confirmed the investment in statements to the media.

Founded in 2008, Airbnb today boasts a network of 6 million listings in over 191 countries. By 2030, when the World Travel & Tourism Council forecasts more than 1 billion travelers will arrive in emerging economies annually, Airbnb expects to see more than 400 million guests using its platform in emerging markets.

The company is currently valued at about $31 billion, and may go public this year or in 2020, although a date has not yet been set.

The Oyo investment and last month’s announcement that it would acquire last-minute hotel booking website HotelTonight, worth a reported $465 million, accelerate Airbnb’s plans to ramp up their hotel business, which already has a relationship with SiteMinder, said Dan Wasiolek, a senior equity analyst at Morningstar in Chicago, in an interview with Karma Network.

“That said, past commentary from Airbnb management, including language from the HotelTonight acquisition press release, point to the focus being on adding boutique hotel content versus traditional hotel content. We think that strategy makes sense, given Airbnb’s communal culture,” added Wasiolek.

“The proposed investment could be good for both parties,” Manav Thadani, founder and chairman of Indian hospitality consulting firm Hotelivate, told Karma. He added: “Airbnb has not been very successful in both India and China and has in fact lagged behind, compared to what they have managed to do outside these two countries.”

In 2018, Oyo raised $1 billion in new funding to grow its business in China and expand into other international markets, with $800 million from SoftBank’s Vision Fund and participation from Lightspeed, Sequoia Capital and Greenoaks Capital. That deal valued the then-five-year-old company at $5 billion.

Oyo, with 179,000 units in India, has done “tremendously well in a very short span of time,” said Thadani. By taking Oyo under its wing, Airbnb will be able to grow its 45,000 listings in India, a potentially vast market, ahead of its expected public offering.

Partnering with Oyo will also help diversify Airbnb’s market by giving the latter exposure to the price-conscious traveler, a new market segment in India, and where the bulk of the hotel market is for any company looking for growth. Since Oyo is already experienced in managing vacation rental apartments, it could also help remove some of the fright factor that Indian homeowners may have of signing up with a foreign booking service.

The shift to focus on hotels and overseas markets makes sense given the headwind Airbnb is facing in mature markets like the United States, where many cities want to limit the firm’s activities in the face of housing shortages, or tax overnight guests in the same way hotels are taxed for the city services used by tourists, says Steve Unger, an Oregon innkeeper who runs an insightful blog on Airbnb called the Airbnb Analyst.

“Airbnb ‘talks the talk’ about working cooperatively with cities, but does not ‘walk the walk,’” said Unger in response to questions from Karma. “For example, many cities limit the number of nights a year a property can be rented with the host absent. Airbnb could easily build this into their software, limiting the number of nights in a calendar year that a listing could be rented as an “entire place”. Airbnb simply refuses to do so,” said Unger.

He adds: “My sense is Airbnb is casting about to find other ways to increase revenues – moving up-market with Airbnb Plus, adding ‘experiences’, and opening up new markets like China and India, which, if successful, would represent significant growth.”

Peter Green is an award-winning business and investigative journalist based in New York.