Six months after Deepinder Goyal, Founder of Zomato, did his first conference call for Info Edge investors, he has done another one. The reasons were remarkably different, and an indication of how quickly the mood can change in the digital space.
The first call (“We have scale on our mind“) was during the heady days of Zomato’s Urbanspoon acquisition in the US, with investors expecting aggression; this one appeared to be to allay investor concerns in the aftermath of a turbulent time for online food ordering companies in India (FoodPanda, TinyOwl), with some of the issues being faced by Zomato’s competitors being reflected on them: the exact opposite of reflected glory. Issues that Goyal had to address were around the layoffs the company has announced in the US, the rollback of its Cashless business, the reaction in the US to the Urbanspoon switchover to Zomato, and also of many senior hires leaving the company over the past six months. Yelp, the market leader in the US, and the benchmark for many investors, has seen its valuation fall.
Details of the Q&A (paraphrased in some instances):
Deepinder Goyal: The last time we spoke, we had just acquired Urbanspoon, and in June we migrated this traffic over to Zomato. Now we are in 23 countries and market leaders in 18. In 12 we have really high levels of traffic. We have recently split our markets into full stack and enterprise. Full stack are where traffic levels are high, and we are looking at monetising them through sales. In case of enterprise we haven’t got enough traffic, and we are looking at a B-to-B-to-C
80 million user sessions across mobile and web. And we are well on course to achieve good revenue growth: we will more than double our revenue this year as well.
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Question: When you look at these 12 markets, can you give colour into market sizes, and how big are they for you guys eventually?
Goyal: 12 markets are countries, and these 12 countries comprise of 23 cities in total. Our business is focused on cities, not countries. We also measure each city relative to the size of Delhi. The 23 cities are around 42 times the size of Delhi-NCR. That’s an idea of the scale of the market. Delhi is 25% of India market. The 12 markets that we’re strong is around 10 times the size of India.
We are going after all segments of the restaurant technology stack: it starts with advertising but it also comprises of enterprise products we have developed, and the online ordering business that we do. When we receive saturation in Delhi, in 2-3 years, we will make around $30 million US in Delhi on a per annum basis.
Question: Secondly, what has led to restructuring? Has Urbanspoon led to rethinking of strategy?
Goyal: We learn a lot of things from various markets. Urbanspoon, when we acquired it, was 3 times of Zomato. We learned a lot from them. The restructuring is the best of our knowledge, and the best of Urbanspoon knowledge. We are taking the best of both worlds, and we’re combining it into a win-win situation with a longer term view.
Q: New products that you have launched: Zomato Book and Whitelabel, are there any new products in the pipeline?
Goyal: Order is 6 months old for us, and I will move into the detail of how it is doing. On Books and Whitelabel, we are in 30 markets, and we’re doing more than a million dollars per year. Very few restaurants have said no to buying the product. The amount of penetration we’re able to achieve with these products, we will figure out over the next 3-6 months. That’s still not clear to us yet. Right now, there is a sizeable opportunity in front of us and we don’t want to miss it.
On the Order business, there’s a history behind order. We thought of Zomato initially as an online ordering business. At that time, it was too early for any such business. We wanted someone else to do the job and educate the market, and our competition did a really good job at that. The biggest unfair advantage we have is that we already have a lot of traffic, which is 10 times all our competitors put together. We just started giving a feature of ordering online next to the call button, and a lot of people who used to call the restaurant – and we weren’t able to monetize this – are shifting to online orders. We have another big advantage: we had zero customer acquisition on this. We don’t have to incentivise the user. We don’t have to pay Google or Facebook, because they’re already on Zomato, and we own a marketing platform.
(Editors note: A reader informs us that Zomato has been running TV advertisements, so the customer acquisition cost cannot be zero. In response, Deepinder Goyal told MediaNama that the advertisement had only been released on Facebook, and not on TV.)
We hit a peak of 10,000 orders per day last week. Our order volume is 40% of the market leaders in terms of volume, but our ticket price is 2.5 times the market leaders. Our business comes at zero discounting. Less than 5% of our orders are discounted, compared to competitors, which is 70%. We might already be the largest player or very very close to the largest. We are growing at 50% month on month, and we’re confident that we’ll be the biggest, if not the only player a few months from now. We’re working on a point of sales system for restaurants, although we have started deploying it at some places. Around 40 odd restaurants are live. We are learning a lot about how the system should operate. By end of January we will be able to go big.
Q: Info edge had said there’s a change in strategy at Zomato. What does this mean for other markets? Does it mean no more entry into newer markets? Why this change in strategy to begin with?
Goyal: The biggest reason why we’re shifting strategy is because the enterprise market has started. Until last month, we didn’t have B2B products. There are some markets where we don’t have adequate level of traffic to monetize ads. We had to invest a lot to increase traffic to monetize. We are thinking that a B2B2C approach, for example table reservation and book. If we are able to achieve sizeable reach in any market with B2B products, we’ll introduce new products. It’s the introduction of new products which lead to the change in strategy. We’ll seed markets as enterprise markets from here on rather than doing marketing activities right up front. You won’t see a lot of investment going into markets. Zomato will become a lower investment business in the longer term. That’s the basic premise behind the shift in strategy.
The table reservation product is the key product when it comes to B2B2C. Order needs a lot of traffic on Zomato (before it launches). We shouldn’t be paying a lot of customer acquisition cost for online orders. That is the biggest problem for our competitors.
In a lot of our key markets, where we have a lot of competition, we already have high levels of traffic. From a competitive threat point of view, we are pretty okay. In all the other markets, where we are taking a table reservation approach to building traffic, we will launch online ordering in other markets a year from now, once traffic hits adequate levels.
Q: In terms of doubling revenues in FY16 over FY15, you did Rs 1 billion (Rs 100 crore) in FY15, and you’ll do Rs 2 billion (Rs 200 crore) in FY16?
Goyal: If all goes well and we do well, yes, or maybe more. Everyone tries to do a lot more than what they expect. We look at it on a city by city level, and we haven’t started monetizing most of the 23 cities I was talking about. In the current year you won’t see contribution from lot of these markets. Even in Delhi, we’ve just skimmed the surface when it comes to monetization. We have 50x growth in front of us, but it depends on how we execute.
Q: How much would the India business grow by?
Goyal: I can’t disclose that for now.
Data points:
– 80 million user sessions across mobile and web per month
– Delhi is 25% of the Indian market
– Zomato claims to be market leader in 18 of its 23 countries
– Delhi-NCR expected to be a $30 million market for Zomato in 2-3 years.
– Books and White labeled business is doing around $1 million per year
– Hit a peak of 10,000 orders per day last week.
– Zomato’s current order volume (in India) is 40% of the market leaders, the company claims
– Current orders are around Rs 600 ticket price, while competitors are believed to be around Rs 250.
– Less than 5% of orders discounted; competition is believed to be discounting 70%
– Growth is at 50% month on month.
– 80,000 restaurants in India, 12000 restaurants in online ordering, adding 500 per week
– Paid customer base (advertising) is 6% of total listings
– 35% of traffic is on desktop, 65% mobile. Mobile is growing a percentage point in share every month.
Q: How many restaurants are online on ordering?
Goyal: We have 12,000 restaurants online in online ordering, and we’re bringing in 500 per week. Most of these do not deliver on their own yet. There will be restaurants online next week or the week after, which will be the first time in the world that they’ll be delivering to anyone. Our tie ups with logistics partners are enabling this to happen. Our average ticket price is Rs 600 per order. For our competitors, It’s around Rs 225, I’ve heard.
Q: What percentage of listing is paying restaurants in listings? It was 10% in January, in the last call.
Goyal: Our paid customer base is around 6% of total listings in India. We added a lot of cities in India, so the denominator has gone up. Even in Delhi and Mumbai, the market has grown significantly. It’s not just about adding the number of cities.
Since we were focusing on the online ordering business over the last six months. Our internal ad sales goals were not a priority for us in India. We have around 80,000 restaurants in India.
Q: The shift to the mobile model: What’s the breakup of the split between ad and B2B?
Goyal: On mobile and desktop: around 35% of traffic is desktop. Mobile is gaining a percentage point in share every month. Desktop is still growing too.
Q: How do you target split between online order vs B2B and advertising?
Goyal: If the market pans out the way we want: 40% will be ad revenue, 30% will be order revenue, and the rest (30%) will be SAAS enterprise product
Q: Are the ads also shifting to mobile?
Goyal: We have ads both on mobile and web, and we sell a single SKU across platforms. Even if everyone goes back to web, we will be fine…and I think everybody will go to apps.
Q: Revenue breakup between India and mature markets?
Goyal: India and UAE, we are no longer profitable after we started ordering business. Ad sales business in these markets is profitable.
In 6 other countries are expected to break even this month, or in the first week of December. We are very very close to breaking even in six countries. This is primarily driven by ad sales. All the other models are very very new.
Q: What are your thoughts on the US market? Is this an opportunity for your to monetize more?
Goyal: The Urbanspoon acquisition was done for Australia and Canada, and we’re looking to monetize both these markets through ads and B2B. We don’t have high traffic in US, and we have sufficient levels to monetize through ads, but we want it to grow so the churn is less. We’re taking a B2B2C approach to the market. We’re looking at US on a city by city basis. We are going after cities in the US where the competitive intensity is the lowest.
We’ve never build a business assuming another round will come it. It’s how we’re approaching it even now. We have a break even plan. We should be able to break even in some time with a significant amount of money left in the bank. If and when we decide to raise capital, it will be to go after opportunities.
We’ve never gone out and raise money for ourselves. We’ve had investors call us, and that’s the best kind of conversation to have with people. We’ve never thought that raising capital is the only way to do this. The thing that I tell people internally, is that running a company is like driving a car: You don’t do it from one station to the next. we always want to go for the longer drive. If the market is good and if investors have appetite for the growth story, and we have to find capital at the right price.
Q: Is it becoming difficult for the industry?
Goyal: I would not want to comment on how our peers are doing, but I would say one line: the biggest problem that our peers have is customer acquisition cost, and that throws the economic model out of whack. That’s the biggest unfair advantage that we have.
Part 2 will be up shortly
(editing by Sneha Johari)
(Updates: an earlier version of this post incorrectly referred to Rs 1 billion as Rs 10 crore instead of Rs 100 crore. Thanks for correcting @Shashikant)
