In the past decade, startups have focused upending traditional business models by innovating in sharing economy and by enabling digital platform for gig workers. AirBnb created an entire online marketplace to enable small players to offer lodging, homestays and tourism experiences to visitors from around the world. Likewise, Uber, Lyft and other ride-share platforms are upending taxi and transit services around the world.

The gig economy is made up of three main components:

Companies and startups with app-based technology platforms that connect worker or service provider to consumers. Platform range from purely digital ones like fivrr and upwork, to eCommerce like Amazon and eBay that connect sellers with buyers, and emerging platforms like Uber that connect gig workers to consumers

Consumers who need a service or a product delivered to them. The success of Gig economy hinges on consumer buy-in for such services like ordering a book online or meal from a local restaurant to be delivered home

Independent workers who join the gig platforms to offer their services or skills. Digital platforms succeed when they have a large and active community of independent service providers and gig workers willing to offer their services. Such competition adds to the vibrance of the gig platform.

The confluence of digital platforms and innovative business models have enabled startups and small businesses to innovate and seek new opportunities in these platforms. Individuals are buying houses, flats and other property and renting it on AirBnb and other platforms. Likewise, individuals are driving their cars to either make some additional cash or just to be their own boss instead of taking up traditional jobs.

An Indian startup unicorn going South?

A recent article in New York Times chronicles the saga of an Indian startup unicorn that is struggling with unique challenges (At SoftBank’s Jewel in India: ‘Toxic’ Culture and Troubling Incidents). About a year ago, the Japanese investment and venture giant SoftBank invested in OYO, an Indian startup with an innovative gig economy business model. The NYT article highlights a few fundamental issues and questionable practices at Oyo that aims to be the world’s biggest hotel chain:

Oyo offers rooms from unavailable hotels, such as those that have left its service. That has the effect of inflating the number of rooms listed on Oyo’s site.

Many hotels lacked required licenses, leaving them vulnerable to the occasional government raid. Thousands of the rooms are from unlicensed hotels and guesthouses, its executives have acknowledged.

To deter trouble from the authorities over the illegal rooms, Oyo sometimes gives free lodging to the police and other officials

Oyo has imposed extra fees on hotels and declined to pay the hotels the full amounts they claimed they were owed

Oyo’s oversight of its workers was also sometimes so lax that employees brazenly stole from it. Because Oyo hotels are popular with unmarried couples looking for places for their trysts, one scheme involved workers at properties run directly by the start-up colluding to keep the guests checked in after they left. The workers then cleaned and resold the rooms for cash to other guests and pocketed the money, the people said.

Oyo, is a shortform of ‘On Your Own’ Rooms was founded about 7 years ago by Ritesh Agarwal who is also its CEO. The company is currently valued at $10 billion dollars as per the last round of Series F funding of $1.5 billion led by SoftBank Group, Lightspeed Venture Partners and Sequoia India.

Not surprisingly, OYO has disputed the NYT report. “We are committed to growing Oyo the right way — by meeting the needs of property owners and of the guests we serve together. We work hard every day to ensure that our values are upheld by thousands of committed employees around the world, and we are subject to regular external audits to ensure proper compliance and adherence to our Code of Conduct,” an Oyo spokesperson said in the statement.

Shortly on the heels of the NYT article comes a Bloomberg report that highlights large-scale layoffs at OYO “Oyo Hotels is firing thousands of staff across China and India, adding to growing signs of trouble at one of the largest startups in SoftBank Group Corp.’s portfolio. The company has let go of 5% of its 12,000 employees in China partly due to non-performance, while dismissing 12% of its 10,000 staff in India, one of the people said.”

All eyes on OYO

Startups, entrepreneurs and investors are closely watching the developments at OYO. Many in the industry were already evaluating SoftBank investment strategy and startup portfolio after its WeWork fiasco last year. (Ref: SoftBank’s next big crisis may be brewing in India)

If OYO were to tank, it will not only dent SoftBank’s investment portfolio but also have wider implications on the Indian startup ecosystem. Investors will be vary of Indian startups, and emerging ventures will find it harder to attract talented workers who may also be risk averse.