Scale is on Zomato CEO Deepinder Goyal‘s mind. The Delhi based company, in which Info Edge India owns 50.1% stake, recently acquired UrbanSpoon for $52 million to enter markets like US, Australia. Today, it announced the acquisition of Turkey’s restaurant search service Mekanist. It is now in 22 countries, and is a global Internet business built out of India.
Last week, Goyal held a concall to discuss what Zomato plans to do, the Urbanspoon acquisition and plans for the markets it has now entered, product plans, how the company views acquisitions, how it integrates acquisitions (after having acquired five companies then), revenue model, and the long term vision for the company.
– Should have paid less: “I think we should have paid less for the deal, but see I think companies are valued a lot on their growth, in terms of what kind of team they have, what kind of product they have, what is the kind of complicated scenario in these markets. With Urbanspoon, the founders had left a couple of years ago, (and) it was a management run company, and I think for the last one year, IAC was trying to really take the company to stage to where they could sell the company. This was a competitive process, there were quite a few people who looked and put in a bid for this deal”
– Will the Urbanspoon brand be phased out? “The jury is still out I think. I would want to phase-out the Urbanspoon brand in the longer-term but we have to think really where, short-term versus the long-term. I think over the next couple of weeks we will decide what to do.”
– Acquired for Australia and Canada: “where it is actually the number one player in both these markets. (In the) US it is not the number one player, and so we have to look at all these markets differently.”
– Product changes with Urbanspoon + Zomato: “We will actually be looking at the best of Urbanspoon and the best of Zomato. We will rethink everything and we will come up with the new product maybe by the end of March.
– Australia and Canada would require $2 million-$10 million investment: “We have a scale on our mind. I think Australia could take anywhere between $2 million and $10 million. $2 million, if our sales execution really kicks off right upfront, and $10 million if we do not do as in sales upfront. It can be anything but we are going to pilot it out for the next three months, figure out how the maths looks like for us and then we will get into the finer details of how much we will spend in these markets”…”Canada and Australia are almost identical in size (of investment).”
“…when it comes to Australia and Canada, I think we will focus on monetization first.” In these markets, Zomato will switch gradually from Google ads for Urbanspoon to a direct sales team, which is “much better than Google ads.” In the short term, because of the size of the Urbanspoon traffic, they will monetize through Google ads. In the US, they’re going to focus on the traffic strategy, and won’t yet rush towards monetization. “Over the longer-term we will be setting up direct sales team across all these markets, and will be replicating our organic business model everywhere.”
– Going slow in the US: “The US I do not think is going to be a big focus area for us over the next few months. There is a lot of work to do in Australia and Canada we will essentially pickup a couple of cities in the US and start learning at the expense of those cities and maybe like six to twelve months down the line when we know what we need to do, we will go big on the US. But right now we are just going to pilot out a few things.”
“US is not why we really bought the asset (Urbanspoon), but of course we are going to pay some kind of attention to the US as well, and that in the short-term will definitely be traffic.” In terms of data (and collecting menus) it is “a very drastically different market. There are a lot of companies which really do the leg work which we do in all of these other markets, and we can source a lot of information from them, but in all the other markets apart from US we will have to deploy the resource intensive model and get all that information for ourselves.”
– No new countries for a while: “In terms of more countries, I think for the next six to nine months we are not going to launch in any new markets because after the Urbanspoon deal, we are pretty much sort of tripled in terms of traffic, and I think there is a lot of work to be done on an organizational level to really make all these markets work. We signed up for a lot of work, and I think we have to make sure that we get that done first, maybe like one year down the line, when we will have more bandwidth, we will look at more countries.”
Integration of acquisitions
– Migration of users: “We have already migrated all five of the acquisitions that we made before Urbanspoon. We have not seen much loss of traffic. (There was) some short-term loss of 10% traffic, and but then quickly, we used to get back to normal levels again. I think the product that we have, compared to all these companies that we acquired, is really good, and we just force the users to migrate to the new product, so far it has been working.”
– Local teams: “So when it comes to local versus remote, we were in 19 countries before the Urbanspoon acquisition, and we have local teams everywhere. We have some part of that work being done remotely in Delhi as well. So we get the same model everywhere, and acquisition or an organic launch nothing is different from that point of view for us.”
– Cost advantages? “We do not really have any advantage when it comes to the cost structure, except for the fact that the product and engineering team is shared across all markets, and that our product is actually much more superior, because we have been doing this for long period of time, and we have access to capital which a lot of these local players do not have.”
– Most of Zomato’s traffic is organic: “We spent very, very little on marketing, so you can say that less than 2% of our traffic is acquired everything has resolved organic.”
– 70% of Zomato’s traffic is mobile: 45% of it is via the mobile app, 25% via the Mobile web.
– In India, monetizing 10% of the listed base.
– Total employees: 1,100, half of them in sales and marketing.
– At the time of the Urbanspoon acquisition, Zomato + Urbanspoon got 80 million visits per month.
– 35% of Zomato’s traffic comes from Google.
Monetization & Monetization plans
– Transaction businesses planned: looking at “delivery, online delivery and we are also getting into payment.”..”Having said that all of these three products are like pilot stage right now, so we are not really sure when the product will roll out and when we will actually see tangible revenue coming from this segment.”
– Changed mind about transaction businesses: “Three years ago, when we said that this is not the business we want to do, we were dealing with a very unorganized sector and that changed drastically over the last few years. We are dealing with a much more professional community of restaurant owners who will not risk a brand for any short-term margin. The other thing is that a brand value of Zomato and the traffic that Zomato drives to all these businesses has also gone up. We are at the heavier end of bargaining scale, so now merchants cannot really afford to not service our customers well. I think that is also what has changed.”
– Payment launching in Dubai on Feb 1st 2015: “The pilots have gone really well, so we are really bullish on the payments product but we really have no idea on how our users will start using, and how much volume we will get from that. I think the next quarter or maybe the next six months will tell us what is going to happen to the payments product.”
– Will Zomato do delivery or partner for it? “I think we will have to do both these things. We cannot rule out partners because partners have significant volume and to complete the user experience we will have to bring in all partners as well, and but we also cannot even deny the fact that Zomato can actually do this very well on its own. So I think we will do the both things.”
– Delivery not expensive: “Most of the capital need comes from customer acquisition cost. If you look at any of the online delivery player, a large part of their cost is marketing expense. We will not need to do that because we have a large part of the population which visits Zomato every day, so customer acquisition cost will be close to zero. I know it is capital intensive for everybody else but I do not think it will be capital intensive for us.”
– On Table Reservations: “We are still contemplating whether we will get into the table reservations business or not”…”I think the biggest constraint is essentially having enough bandwidth in our team, in our product team, in our ops team, to actually execute all these things at the same time. If we are able to build out a team which is able to do this quickly, we will do it.”
– Advertising: Zomato sells the same SKU across all the platforms (Desktop, Mobile App, Mobile Web). “So we have the same ads, getting the same amount of click-through and mail-it from both mobile and desktop properties.”…”we do not do preferential search results, but within a search result you will see ads which are clearly marked differently, and organic search results and those are more of an image based ads, all the organic listings are text. On the category we have on the home screen of the app all the restaurants are actually not paid, only the first three restaurants at most that you see within a category are paid, and those are clearly marked as featured or sponsored.”
– Two years for a city to become profitable: “Any major city which has been under operation for more than two years is profitable for us and we have been scaling well in terms of revenue in all the cities over the last few months, and they are profitable. We are not really worried about the long-term financial health of the business. Every city, I think, should be able to get to a profitable state in two to four years time given the level of competition in that particular market. ”
On content and advertisers
“Our sales guys are not really allowed to talk about reviews with any of our clients. Our content team is not really permitted to talk to the sales team. We are happy to walk out of any sales meeting if it becomes a meeting about reviews, and the restaurant’s reputation on Zomato. The restaurants really have to accept any review and feedback, and pay us for incremental traffic, that is how the business works for us.”
What a restaurant gets
“We give them a dashboard, where they can track the number of page views they get on Zomato, they can track the number of calls being made through Zomato, they can check the number of map views they got, the number of menu views they got. They can actually take a lot of metrics. Overall, I think we are able to give them a fair estimate of the ROI that we drive to them.”
– Advertisements: “So our revenue model is a fixed fee. We actually charge on a quarterly basis and all the money is actually prepaid for that quarter, and in next quarter we will go to that business owner and we need that contract preferably for a higher price than the last quarter. That is how the business model works. So we do not have any click through commitments because we are in the business of leasing out advertising space to people, what they do with that advertising space is entirely their problem so that is how we view our business.”…”We have different SKUs ranging from Rs 2,000 a month, to maybe a lakh a month as well”…”Most of our advertisers are local advertisers, mainly like the premium restaurants, like business owner who own maybe one, two, three maybe up to ten restaurants. We do not have a large amount of brand advertising revenue coming in.”
– Subscription product: “We have a subscription app for restaurants, lot of restaurants pay us $50 a month per outlet for that app and through that app they can put up real time deals on Zomato and we have seen a good uptake in terms of volumes in terms of the things.” “They can manage their page, not the reviews but all the other information on their page.”
– FY14 split: about 70% was India, about 30% was Dubai.
– FY15 (expected): India and UAE together should be about 75% to 80%, and “for the foreseeable future India and UAE will always command like the lion’s share of overall revenue because they just have the advantage of the time behind them”, and “they are the largest markets and they are also growing as fast as all the other markets.”
– Three years from now: India and UAE should be down to 50% of total.
– Indonesia, Philippines, South Africa and New Zealand will be profitable in 3-6 months: “There are four markets where we are doing very well already in terms of sales: Indonesia, Philippines, South Africa and New Zeeland. So these four countries we are actually hoping to break-even in the countries like in the next three to six months, we will be profitable in these markets in the next three to six months.”
– Only monetizing bigger cities in India so far: “I think we are only monetizing the bigger cities we are not monetizing the smaller ones, and I think about eight cities are being monetized.”
Key takeaways from International expansion
“To understand the local landscape of the market. We need to build local teams to execute in every country, and we learnt this about two years ago. Since then, all our markets have been doing pretty well, of course some markets grow faster because there is no competition at all, some markets grow slower because of competition, but overall I think we are pretty happy with the growth and progress in all of our markets.”
“In terms of organic versus inorganic, we are pretty much open to both these options in any given market but if we are going into a competitive market, let us say, like Australia and we are going organic in Australia we really have to wait out for three-four years just to be in that market. Three-four years is a long time, and if we spot an opportunity where we can really buy the largest player, and we are getting a good deal, we would definitely do that. It is a more of ad-hoc approach, it is not something that we think of as a strategy.”
“When we grew in India, we tried a hundred things some of them worked, some of them did not work and in hindsight we have no idea about What might work and not work. So we have a list of these hundred things, we actually do all of these things in all our markets. Some things work, some things do not work, and eventually we end up winning the market.”
On Competition: Not really worried
“Our strength in India does not give us any leverage in UK or like any part of the world. So we have to really rebuild every market from here. We have gone into competitive markets, we have gone into non-competitive markets, and competitive markets takes more time to build out.”
“I think our biggest advantage compared to any of our competitors is that we have a field sales force. We actually meet business owners and then sell the ad space so even if somebody is not educated and savvy enough about tech and the Internet, we are able to educate them about these things.”
“Actually, for us, we are not really worried about any of the competitors, especially in the markets that we are strong because we have the advantage of a large sales team, and we have a lot of the clients, and we can just get these tie-ups over a phone call.”
“(On) the supply side of the business we can really go ahead quickly. On the demand side of the business, we already have a lot of users who use our app, so even on that front we have it covered, so I think in any such business they have always a chicken and egg equation being played out and I think we have both sides sorted. I think pace at which we can ramp up this business is going to be much, much faster than any of the other player outside of Zomato. We are not worried about the competition.”
It’s a winner takes all market
“Wherever we are number one, we are a distant number one. The number two player is maybe one-third, or even less, our size. So there is no point buying the number two player because we do not see those players existing during over a longer period of time because most of the pricing leverage will exist with us, and most of the traffic exists with us, and this is the network effect business. The largest player grows, the smaller one does not grow. The smaller players could really persist for a longer period of time, and beat us, and that is what we are trying to do in UK, and lot of competitive markets, but it is essentially winner takes all market.” (In India) there was a winner and we started at pretty much 1% of their size. I think there are ways to really move the momentum from the number two player, and really become the number one player and that is what we are going to do in these matured markets.”
Long term vision for Zomato
“The long-term vision for the company and for us as a product is that, as a user if you want to communicate with a restaurant, be it like finding out which restaurant you want to go to, calling a restaurant, booking a table, ordering online payments, maybe like even ordering food while you are dining out at the restaurant, you should be using Zomato to do it. We really want to own the communication channel between the consumer and the businesses here, and this is not going to be easy to build. I think it will take years to build this, and you have to do it market-by-market as well. This has to be long and patient story. Having said that, this is going to need a lot of money as well, so I think we will need another round of funding having spent almost the entire last round of funding, but we have not decided when and how much.”
Photo via Deepinder Goyal’s twitter profile
Parts of the Q&A have been edited for clarity