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Budget hotel aggregator Tinggal shut down its service last week. Facing thinning margins in Southeast Asia’s heated online hotel booking space, it decided to pivot to a new business model, the startup’s CEO Arjun Chopra told Tech in Asia.

The company will now focus on developing management software for hotels, aiming to launch this new product under the name PrimeOptimax in about two to three months.

As part of the pivot, Tinggal has had to let go if the majority of its staff. The new business is very different from the old model, explains Chopra, which is why he will only retain a few employees with specific IT skills.

The main reason for the pivot, he says, is dwindling profit margins. Up to 80 percent of the potential profits are soaked up by big online travel aggregators like Traveloka, PegiPegi, and Booking.com, who also market Tinggal’s rooms.

“One and a half years ago, we started this business targeting about 20 percent profit from each hotel room booking. But now a large part of that just gets turned into commission at larger online travel sites,” says Chopra.“We realized this business is no longer promising in terms of its unit economics, comparing the expenditures and money gained.”

Oyo’s shadow

Tinggal launched in Indonesia in early 2016 in an already competitive market.

It raised US$1 million in an investment round led by the founder and CEO of Tinggal’s Indian sister site WudStay. Mangrove Capital Partners, Simile Venture Partners, and Vikas Saxena also participated.

While Tinggal competitors Zenrooms and Nida Rooms appear to be sticking to the budget hotel booking model in Southeast Asia for now, Tinggal is not the only budget hotel aggregator looking for alternative revenue opportunities. Reddoorz and Zuzu Hotels have also developed management software for the hotels they work with. AiryRooms started to sell airplane tickets.

“This is also happening in India,” says Chopra. “Big startups like Oyo Rooms are starting to see that there is potential in hotel software development.”

Oyo just picked up US$250 million in funding from SoftBank and others last month. It already operates in Malaysia, and said it will use the new funds to fuel further growth in Southeast Asia.

This article first appeared in Indonesian, written by Aditya Hadi Pratama. Information was translated and edited for this version.

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