Success

How one man transformed South Korea's sordid 'love hotels' into a billion-dollar business

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The rise of the love hotel — Korea's latest $1 billion business

To be a successful entrepreneur, they say you've got to have passion.

That's something Su Jin Lee had in spades when he started his business. After all, he was going after an industry built on the stuff.

Lee is the founder of Yanolja, an online accommodation bookings platform that has reinvigorated South Korea's once dying love hotel industry and given birth to the country's latest billion-dollar start-up.

Love hotels are a type of short-term, pay-per-hour accommodation famed across the global for their exotic — and indeed erotic — stylings.

In the Korean language, Yanolja means "Hey, let's play." The Korean entrepreneur started the company in Seoul in 2007 in a bid to modernize what he saw as a misrepresented market. It has since grown it into a multifaceted hospitality business with 32 million downloads and a major millennial following.

Reinvigorating the love hotel

Originating in Japan, the amorous accommodations rose to prominence in South Korea in the late 1980s during an era of growing sexual liberalization. But in the decades since, they have marred the conservative country's hotel industry, due to their seedy associations as breeding grounds for illicit activities and extramarital affairs.

For Lee, however, love hotels had always been a source of sanctuary. Orphaned at a young age, he gained work as a janitor at a love hotel when he was 23, thankful for a place to stay and a steady wage.

"I think such kind of experience is very, very, very helpful to understand the nature of the industry," Yanolja's CEO Jong Yoon Kim told CNBC Make It in Seoul.

So, when an anti-prostitution law passed in 2004 threatened to kill the industry, he saw it as an opportunity.

Su Jin Lee, founder of South Korean accommodation platform Yanolja.
Yanolja

Lee started by creating an online advertising platform so hotel-owners could attract new guests, before he launched Yanolja as a full-fledged bookings site in 2007.

He also rolled out Yanolja renovation services to help love hotels clean up their image and target new customers. Chief among those were two major segments: Young couples and budget travelers seeking short-term accommodation.

In South Korea, it's typical for young people to live at home until marriage, making love hotels an appealing escape from the prying eyes of parents. Meanwhile, a booming travel industry had made the country one of Asia's largest tourism markets.

"(Lee) was thinking what are the pain points nobody understands or nobody finds out," Kim continued.

A South Korean 'unicorn'

Lee's observations appeared to be on the money.

After gaining traction as one of the country's leading hotel bookings sites, he expanded into regular hotels and guest houses, as well as Yanolja's own line of branded accommodation.

Today, the platform, which makes its money off commission, has an annual growth rate of 70% and hosts more than 20,000 partner accommodations across South Korea. That's almost half of the country's approximately 46,000 registered inns and guesthouses, with annual revenues that exceed $3.6 billion.

That growth has proved appealing to investors, too.

So far, the company has raised close to $242 million from investors including Singapore sovereign wealth fund GIC and Booking Holdings, the U.S. firm behind travel sites like Booking.com.

Its latest funding round in June 2019 gave the company a valuation of $1 billion, making it South Korea's eighth "unicorn" and the latest travel tech platform to join the likes of Airbnb, OYO and Klook.

"I think the reason why we can be a unicorn is because Yanolja is (the) number one hotel in Korea. But it's just the beginning, I think. So we are trying to be a number one globally," said Kim.

That means expanding into other hospitality services, including leisure bookings and experiences. The business has also developed its own range of software services to help partner hotels automate their check-in processes and other services.

"The hotel is one of the items, but we are pursuing to realize a total package for the users," said Kim. "Yanolja is providing restaurant and activity, leisure tickets, transportation, and the others."

But, in its mission to reinvent the love hotel, there's one more goal Yanolja has its heart set on: An initial public offering. That public accolade, the company says, would mark the full transformation of an industry once shrouded in secrecy.

"I don't know what's the best timing, because we need to consider the market situation etc., but we need to be ready anytime for IPO," said Kim.

Don't miss: How 3 friends turned their unwanted items into a $550 million business

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