Jay: This week’s show guest is Amit Saberwal, the founder and CEO of RedDoorz. RedDoorz is one of Southeast Asia’s leading budget hotel online booking platforms. The company has a presence in Indonesia, Singapore, and the Philippines, and aims to tap into Southeast Asia’s 52-billion-U.S.-dollar travel market, with over 500 properties and servicing over 700,000 stayed-rooms nights thus far in the region. Amit, welcome to the show.

Amit: Thank you so much, Jay.

Jay: For the audience that’s listening in and that hasn’t heard of you or your company, maybe you can give us a little bit of an introduction.

Amit: Okay. We’re in Southeast Asia, as you already mentioned. We’re a budget accommodation player, and you can think of us as a Marriott for two-star and below kind of hotels. The other way to look at us is like an Uber for the small properties, where we do the customer acquisition and branding and the customer service for these small properties. The properties deliver a level of service which is dictated by our brand’s standard.

Jay: Right. Maybe you can give us a little bit of personal background as well, some color for our audience. What was your background? Where are you from? How did you start your career, and what led you down this path to become an entrepreneur?

Amit: I was actually a hotelier by training. I went to hotel school, and then I had a reasonably long career with hotels in India. By 2005, I was director of sales and marketing for a large boutique hotel chain in India called the Park Hotels. They ran designer hotels, designed by people like Hirsch Bedner or Terence Conran.

By 2005 I said, “Okay. This is getting a little boring.” The online travel scene was starting up in India. I joined the company in the very, very early days called MakeMyTrip. MakeMyTrip is India’s leading online travel agency. At that time, of course, a very, very small company, like starting up for building an audience.

In 2010, we were IPO-ed on Nasdaq. It was a billion-dollar IPO. I moved to Singapore to look out for Southeast Asia expansion for MakeMyTrip. Then, after about eight-and-a-half years — that was about three or three-and-a-half years after our IPO — I decided, “Okay, it’s a now or never moment, and I should become an entrepreneur because I’m not getting any younger.” I was actually bored in this now two-billion-dollar enterprise which had grown from small startup into a large corporation. So, I just thought we should relight that fire — I think a combination of many reasons. And I decided to become an entrepreneur, and we launched RedDoorz in Indonesia in July of 2015.

Jay: Very interesting. An interesting story about MakeMyTrip.com. Were you one of the founders there or just on the founding team, leadership team?

Amit: Like chief business officer for the company. I wasn’t one of the founders. I was an early employee. I kind of grew with the company. I found it an incredible experience. By the time I left, I received the Business Officer. I joined to run the hotel business for MakeMyTrip, which I continued to do until I left.

Jay: That’s incredible. So, you must have learned a lot during your time there which probably helped to translate over when you became an entrepreneur. Tell us a little bit about how you came up. You told us a little bit about your journey and when you decided to jump out to be an entrepreneur, but what was it specifically that made you come up with the concept of RedDoorz, and why did you choose Indonesia to launch your company?

Amit: I was in a unique position of being a hotelier by training and an online travel agent by profession. I saw how the online travel agencies really grew and, of course, we built a lot of the business on first principle, but by the time we went a few years and grew MakeMyTrip exponentially, we had figured out this was a science more than an art, and we invested heavily in technology, people, product, and the process. The rest is history, as they say.

I found that these other properties, obviously, had been big, big gap in this kind of technology play. So, we actually started off by saying, “Okay, what if we become the technology enabler for these small properties?” That was our starting point. We said, “Okay.” A single property or 10 properties can’t afford the kind of product management or online technology which has, maybe 400 or 500 properties can afford. Let us be the backend engine that would actually drive business to these properties.

That was the starting point. That was the philosophy with which I started RedDoorz. Actually, as time went by, we figured out one thing very quickly — that the properties were still nameless and therefore could have a problem with getting discovered. So, that brand came in. When the brand came in, we could actually drive more customers into our RedDoorz branded properties and also make sure that they would repeat because the brand stood for a certain set of values.

We chose Indonesia because it was one of the most exciting large markets in Southeast Asia, and also because it has a heavily, already robust domestic-travel ecosystem. What we decided to do that we should focus on Indonesia. I think that was the right decision we took.

Jay: I think for those in the audience that aren’t familiar, Indonesia is one of the fastest- and largest-growing economies in Southeast Asia. What I didn’t know, Amit, was what you just mentioned, that there was a large domestic-travel market there. When you talked about properties there, you talked about individual properties. Does that mean like a single hotel or does that actually mean like a house or bed-and-breakfast-type setup?

Amit: Actually, these are commercially-run small hotels. So, you need to look at them like Motel 6 in the United States or thereabouts. These are not B&B accommodations that would be one person or one unit or one apartment. These are like commercially run establishments with between 20 and 90 rooms. These are hotels, but they are just budget hotels.

Jay: I see. Were these hotels, for the most part, profitable on their own?

Amit: Yes, they were. They were profitable in a way that… You know, the property owners were running them. Occupancy was about 50-odd percent and they are mostly family-owned. It’s paid-off, inherited kind of properties. While profit was a definite incentive for property owners — it wasn’t that they were mortgaging their houses if they weren’t making a lot of money. So, they probably were doing okay, were doing well. Then, different properties were in different stages.

What we managed to do was when the properties joined RedDoorz network, the average occupancy for our Jakarta properties is 86%. We kind of bump up the occupancies, and the property owners start earning a lot more money. They’re happy to be a part of a large network or brand which is now very well recognized in the market. So, I think it’s a bit like a franchising model in a way, except that our DNA is technology. We think like a technology company. We execute like a technology company. But, our enabler for growth is real estate and in real estate is hotels and guest housing.

A lot of people can understand this very clearly if we brought that into Uber, that means that Uber makes sure that the property or the asset owner — car owner in that case — gets customers. They do customer service. They vouch for the quality of this service, gives them an incentive. But Uber doesn’t drive the car. Right? The property owner drives the car.

Jay: That’s right.

Amit: That is the premise of our business. Though there are various accommodation combinations, but that is the fundamental premise.

Jay: I see. So, that makes it much clearer now. The Uber model, basically. Tell us a little bit, Amit, about the onboarding process. How do you select properties to come onto the RedDoorz umbrella? What are the criteria? What are the economics like? Are there certain changes that need to be made, fundamentally, to how RedDoorz presents themselves as far as the actual property goes, and the branding, and this sort of thing?

Amit: Sure. I think, this has evolved over a period of time. But I will tell you where the current state is right now. One, we have a very, very good demand forecasting engine. What we do is we first forecast the demand in a particular area, in a place like some cities in Indonesia or Manila, in the Philippines or Singapore. We break down the demand into four-square kilometer basis. That means that we will continue to add properties in each square kilometer till the demand is saturated for our kind of property. So, it’s quite possible that in the mature city, the demands per square kilometer, there are four RedDoorz or even five, for that matter. Therefore, we think a little bit like an airline. That means we first forecast demand, and then we scout for a property, and then we tie up with that property.

So, a typical property process would be, first scout the property which is kind of fits our bill, which is good physically but not doing outstandingly well. So it’s in the kind of kind of a property, something in the middle, and have a commercial arrangement with the property. We explain the concept to them. Of course, now there’s a lot of inconveniences, but initially, it was much tougher.

Once they decide to come onboard as RedDoorz, then there is a huge sign outside that says “RedDoorz.” All the rooms are branded as RedDoorz. All the toiletries are RedDoorz. The hotspot in the property, the WIFI hotspot is the RedDoorz hotspot. So, it’s like any other hotel.

I think the fundamental difference there could also be that our brand promise to our customers is that you will get a clean room, a clean bathroom, absolutely spotless linen, free WIFI, which is good quality, which is controlled by us. You’ll get mineral water to drink, which might not be a big deal in many of the developed countries, but in some countries, it is an essential thing. And, you’ll get 4 Star-quality, branded toiletries of RedDoorz.

The brand promise is simple but clean. You’ll get it at a price which is between $20 and $30 a night. It’s very, very good value for money. So, what happens is that customers, once they experience the RedDoorz-brand experience — and mind you, we don’t promise the Ritz, but we promise a good night’s sleep at a reasonable price. Customers like that. They keep coming back to us again and again. You’d be surprised at our repeat rates. They’re absolutely phenomenal.

The properties are then onboarded as RedDoorz after a training program or three training program models are delivered to the property staff. Then thereafter onward, there is an ongoing check which happens. There, we can control the quality of service through third guardrails and a system is tracking all the behavior which a property staff is supposed to do, and overlaps it with the reviews which are coming from the property, from the guests who are checking out of the property and gives merit and demerit points to a particular property.

What happens is that within a few weeks, we get to know what are the improvements required at the property or whether a good property is starting to deliver bad service. Then our property operations team actually goes and intervenes at that property to make sure the service standards come right back up. We don’t actually deliver the service, like Uber doesn’t hire the drivers to deliver the service, but we make sure that the service delivery quality is kept under check.

Jay: Right. That’s an important aspect of it. I mean, especially because you want anything under the RedDoorz brand needs to be of at least similar quality. I think that you mentioned earlier free WIFI — I think a lot of us take it for granted — in developed countries, mineral water, something as simple as clean water, and clean sheets, and toiletries. These are all things, basic essentials, that we take for granted, but for a lot of people that haven’t traveled to more emerging-type markets, they don’t actually realize how difficult it is to get a reasonably-priced hotel that actually provides all of this stuff. So, the price point that you talked about at around $30 U.S., was it?

Amit: Yes. Between $20 and $30. You can get it for $20 also.

Jay: Yeah, that’s extremely economical. Usually, what I find is that when I travel to some of the more emerging cities in Southeast Asia, the capital city will have one or two 5-Star type hotel rooms and that’s where everyone — all the business travelers and tourists — will just go to those because that’s the only option that they really have. Then there’s a huge drop-off in quality and everything else after that. So, it sounds like RedDoorz is trying to close that gap.

You say that you provide the WIFI hotspot and the linens and this sort of thing. Is that the franchising model then, now? Does that hotel pay a franchising fee to RedDoorz?

Amit: Yes. The linen quality is dictated by us. The property owner buys that linen.

Jay: I see.

Amit: The hotspot vendor is controlled by us. The hotspot delivery happens by us, but the monthly bill is paid by the property owner. It’s that kind of model where we have these guard rails, but eventually, whatever happened at the property and the payment for whatever happened at the property is paid by the property owner with the exception of our signage, which is our branding outside the property, which is something that we are very particular about. It is something which we want to pay because we can control the quality across various sites. That’s the only thing we actually really invest in the property. Apart from that, it’s only technology, know-how, training, and similar soft points.

Jay: I see. Then, as far as the revenue model that RedDoorz collects, how does that work? After a property is onboarded to the RedDoorz platform, do you just take a percentage there of all future bookings?

Amit: Yes, that could be one of the options, but basically, it’s like a revenue-share option with the property and it’s kind of split. It could also be like a base revenue, beyond which RedDoorz starts making money, and before that, we don’t make money. So, there are various accommodation combinations, but they’re all geared up for scaling quickly.

The typical franchise model is like $20,000 brand fee, $30,000 marketing fee, and so on and so forth, and 4% GOP or GOP percent of room revenue, and that kind of stuff. So it’s too complicated.

We keep it simple. We tell the guy, “You’re going to make X-amount of money. That’s our protection, and if you don’t make that amount of money, we don’t make anything. But once you get to that threshold, we keep a majority of that money, and you keep a little bit of the profit-share.” So, what happens is he’s highly motivated because he has, literally, nothing to lose. We quickly onboard the property without getting into this huge discussion around pricing and all of that. We control the pricing. We control everything then beyond that.

Jay: That’s fantastic. As far as the user experience, now it goes. I’m looking at your website right now. As you mentioned, at the core, you guys are a technology company. For the user experience, I suppose if you are a traveler and you just want to find a room for the night or for a long stay, it’s just like any other of those travel websites. You can just do a search for it and you’ll come up with selections. And I’m assuming there’s like a social element with reviews that are associated with each property?

Amit: Yes. I think I want to take a step back here. In Indonesia, 70% of our customers will book on RedDoorz.com. 30% would book through third-party affiliates, so on and so forth, travel agencies, etc. 70% will book through RedDoorz.com. Out of that 70% of bookings from RedDoorz.com, 80% of them would come through an Android app. All our focus is on the Android app. That’s the first part of it.

The second part of it is 95% of the total business will come on the mobile app. That means the balance of 15% will come either through the mobile website, which is the majority, and 5% of that group comes through the IOS app which is emerging, but Indonesia is an Android country.

That’s the first part of it. It looks like any other website, similar, our app, however with several differences, and I wanted to take you through the nuances.

One, based on your identity or your history, good history, you can pay the property without any credit card. In Indonesia, 12% of the people have credit cards. A lot of other people use bank transfers, ATM transfers, and similar stuff to make the payments, but it isn’t irritant. Because the only inventory is if the person is by-and-large likely to show up, why are we going to put these irritants in the system? If you have a good track record then just go ahead and book and pay the property, no questions asked.

And then we have a loyalty program called RedCash. One in two of our customers uses RedCash in any given booking and on any given day. The rest of them keep it for the future.

If you become a no-show, then not only do you lose your RedCash, but you also cannot make a [Inaudible] hotel booking until you’ve made a couple of pay-now bookings.

Jay: Oh, I see.

Amit: So, we won at that level, and the other thing is, a lot of our customers in the last 72 hours, we know where 85% of the bookings will happen. It’s very, very last minute. Many emerging markets are, and Indonesia is also one of them. So, if I have four or five properties in one square kilometer, and if I have all of my bookings come in the last 72 hours, and my starting price is $9.90, we advertise as $9.90 like Jetstar or AirAsia does, then, I will make sure that my last four rooms are selling at $39.90. Right.

We have a machine-learning, or self-learning, AI algorithm which prices the properties, all four of them, relative to each other’s occupancy and makes sure that the prices keep going up to the level that gives the maximum to all four properties.

One of the most interesting insights we’ve found is that most booking engine sites would close reservations for the same night at 12:00 midnight. But we would have 30, 40 rooms, customers, wanting to book past midnight. So we then allow them to book till 4:00 a.m. for the same night. So, we kept going deeper and deeper in our cities and our analysis to figure out what is the use-case that we want to solve.

If you are 150 meters from our property and you have our app so we kind of geofence you, our property will know that you’re reaching our properties in two minutes, that Mr. Jay is two minutes away or five minutes away. The property can never say, “Oh, Mr. Jay never came to our property,” and pocket the cash. These are the kinds of small, small stuff which we did in the early days to nail down the use cases so that when we started expanding into the region and into other places… We have a business model which is like very loyal and we understand exactly what happens. This whole — from the pricing to SAP implementation, which is the banking financial software, a fully automated process, no human intervention.

Jay: Wow. That’s incredible. I’m learning a whole lot here right now about Indonesia, specifically. You mentioned three separate things that really caught my attention. The first was the fact that the majority of people are Android users. This is something that is very country-specific, region specific, and obviously, you need to do some pretty deep research, which it sounds like you have been doing.

The second thing that was interesting to me was that the credit card and payments setup that you have, so a very low percentage of people actually book online with credit cards. Then, I really like the way that you have almost a reward system or an incentive system that if, say, you no-show, then you get penalized by having to pay a time of booking for your next two or three bookings. I think that’s very clever.

Finally, I think the last thing is basically, again like you said, every country is very, very nuanced in how the customer basically executes or uses your service. Something as simple as your check-in time or checkout time and that sort of thing, it makes perfect sense that it needs to be sort of country-specific based on the demographic and how the pattern…basically the human patterns of that country.

I think it’s fascinating because I think that a lot of companies that are trying to expand globally and they try to take one model that worked in one country that, usually it’s a western country, and they think that they could just replicate that, but obviously, as you just explained, it’s extremely nuanced. I’m fascinated, and it sounds like you guys have done a lot of deep analysis and deep work in Indonesia and it’s been very, very successful for you. So, congratulations on that.

I also read that you have recently raised a little bit more money, and you did you’re A round, and so you are kind of between A and B. What are your plans for that? What’s your expansion plans? It sounds like you have Indonesia pretty much on lockdown and figured out. Where else are you guys thinking about expanding to?

Amit: Yeah. I think Philippines, they already are, Singapore, the next country. Maybe also double down and increase a lot of our inventory. If you’ve probably noticed in this round of funding, we also raised money from some very seasoned investors who have a deep understanding of the China market. F&H is one of them. They were interested investors. China Lodging Group – I think there were Indian investors there. One of our current investors was an Indian investor in the Orange Hotel Group, which also got acquired recently. Hendale Hong Kong was another of our investors in the last round.

The basic idea for us was to try and get as much expertise. It’s just cross-country, cross-functional, and also emerging markets, but we just scaled up to the level of China. To kind of continue to fuel our growth.

Our current expansion plans for this year continue to be these three countries, but you never know. We are fairly opportunistic by nature, and we’ve been also called scrappy by a few folks. Maybe we can—anything can happen, but the plans are to double down on these three markets and then to continue to focus, to kind of dominate or at least to in the pole position in each of these markets.

Jay: Absolutely. The fact that you’re focusing on Indonesia, Singapore, and Philippines, you’ve obviously done, again, extensive research there and see the opportunities and the growth there. What do you see as the 5, 10-year picture in Southeast Asia, specifically to the industry and the sector that you’re in right now?

Amit: I’m sorry. Are you saying the five-year picture?

Jay: Yeah. I mean, the 5-year picture, 5 to 10-year picture in the travel leisure space. Are there any big trends that you see that are just jumping out at you that you’re trying to get that pole positioning for?

Amit: Yeah, sure. A couple of things. When you are very, very focused on the domestic traveler in emerging markets, so your typical emerging domestic traveler is young. He or she is between 24 and 30 years old and has a propensity to travel a lot because these are not the people who will stay for their 60th. They want to travel. They want to backpack. They want to see the world. In a city like Jakarta, it rains a lot, and there’s a traffic jam, there’s a spike in occupancy. So, that means that people do value their comfort over money, and they would rather stay and go back to their office the next day rather than get stuck in a traffic jam for three or four hours.

What we’ve also noticed is that these customers — and we’ve been reading more of this in several similar-ish kind of models which have happened in a few countries, even China. These customers do get wealthy over a period of time, and the brand has to continue to cater to their aspirations as they grow older and wealthier in their journey. I think the way we look at it is there’s a large domestic-travel market. 92% of our customers are domestic. Then they continue to become more successful in their careers. We will be offering them products which are commensurate to their status.

The thing which we find very, very fascinating is that they’re extremely social. Therefore, a social engagement with them has to be absolutely phenomenal. Just to quote a couple of numbers… I was meeting with a Facebook Southeast Asia head in the travel team today. In Philippines, social media consumption is 4.5 hours a day. In Indonesia, an average person opens Instagram 28 times a day. So, these are like mind-blowing trends. It reinforces the fact that they’re local and social, and we have to be an intersection and keep up with the trends of what the local folks are doing.

Travel market is absolutely exploding in the region. There, the youngsters are traveling more and more. It is one of the fastest growing markets worldwide. In fact, Indonesia hotel market is almost as big as the India hotels market and nobody really knows this, by research.

I think it’s a great opportunity. It’s undercapitalized, but things are changing rapidly in that sphere. A lot of Chinese investment is coming into the region. So, I think it’s going to be good. There’s no macro issues that’s happened. All these countries are growing steadily, quarter on quarter, over last several quarters. We’ve seen Indonesia is good; the Philippines is good. I think the future is quite bright.

Jay: Absolutely. I 100% agree with you. It’s not just because I’m also based in Asia. I’m sitting in Hong Kong, but just looking from sort of a top-down perspective, Asia, EM particularly, just looks like it has a long runway ahead of it. I think you’re well positioned in a very good space to capture a lot of this growth. So, we’re definitely going to be looking forward to seeing your progress.

Amit, thank you so much for your time. It was such a pleasure catching up with you and learning a lot about your business and about Indonesia and how things in Southeast Asia work. Thank you, again. What is the best place that our listeners can find you, or follow you, or connect with you? I’m not sure if you’re on social media personally or anything like that, but if they want to learn a little bit more about what you do?

Amit: The company is on social media everywhere. I’m personally on both Twitter and on LinkedIn. My handle is AmitSaberwal, my full name. Yeah, I’m always available there.

Jay: Fantastic. Well, we wish you the best of luck, Amit, and again, we’re looking forward to following your company and your story closely to see your success in the future. Thank you so much.

Amit: Thank you so much, Jay, for your time, too, and maybe see you soon sometime.

Jay: Absolutely. Take care.

Amit: Bye-bye.