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Business News/ Companies / Zomato: India’s first global app
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Zomato: India’s first global app

An acquisition spree gives Zomato a presence across 22 countries and a user base in excess of 1 mn. A look at the rapid growth of the 7-year-old start-up

Gurgaon-based Zomato, which has acquired seven companies in a six-month binge, is currently present in 22 countries.Premium
Gurgaon-based Zomato, which has acquired seven companies in a six-month binge, is currently present in 22 countries.

New Delhi: It was June 2014. It had been 11 months since Zomato Media Pvt. Ltd, which owns the eponymous online restaurant search service, had launched the New Zealand version of the website and founders Deepinder Goyal and Pankaj Chaddah were running somewhat low on gas.

Goyal, who is now 32, and Chaddah, three years younger, had then been hoping to overtake MenuMania, the New Zealand market leader in online restaurant search and discovery service, but it looked like they had to wait a couple of more years before they could pull it off.

The two men had already spent close to four exhausting years in emerging as the leaders in their own home market—India—by taking the lead over Burrp and TimesCity and were impatient for faster growth.

They finally decided to call MenuMania. The discussion was straightforward. Was MenuMania ready to be acquired? After a 15-minute call, the two companies agreed on the basics, including a price. After a month of paperwork, the deal was done and an announcement made, in July 2014. The value of the deal wasn’t disclosed.

“That was the first deal and it really worked for us. We merged the two entities and we got a lot of leverage with the user base. The New Zealand business suddenly jumped about three times," said Goyal.

“This gave us the idea that there must be a lot of large local dominant players in different countries which had not got funded and were running on their own money for a long time. We started to identify companies that might have been looking to exit businesses which they had run for a long time on their own boot-strapping capital."

Gurgaon-based Zomato, which has acquired seven companies in a six-month binge, is currently present in 22 countries. In January, the company, in one of the biggest overseas deals by an Indian start-up, acquired larger rival Urbanspoon, the Seattle-based bar and restaurant guide.

The deal, estimated to be close to $50 million, gave Zomato a toehold in the competitive US market and put the company in direct competition with market leader Yelp Inc., which crowd-sources menus, contact details and pictures. The deal also established Zomato’s presence in Australia and Canada and enhanced its position in the UK and New Zealand, countries where Urbanspoon has a presence.

It helped Zomato expand its presence to 500-plus cities in 22 countries and increased its restaurant coverage from about 300,000 to more than 1 million. According to Zomato, its traffic will more than double—from nearly 35 million visits per month to more than 80 million visits per month—as a result of the acquisition, making it the largest restaurant search company in the world, reinforcing its position as India’s first truly global app, with a valuation of $660 million.

Rapid moves

To be sure, Zomato isn’t sitting back. It plans to invest $50 million more in the US to stay in the game and expects to overtake Yelp within 12 months. The company expects its biggest differentiator to be content.

“We have much better and relevant content and we will continue to follow the model of collecting and publishing the content ourselves rather than crowd-sourcing it," said Chaddah.

Within weeks of the Urbanspoon acquisition, Zomato bought Turkish rival Mekanist for an undisclosed sum, continuing its acquisition spree in international markets. Most of these deals were outbound transactions where Zomato approached competitors in new markets. The company’s strategy here is to move rapidly, without allowing the acquisition target to go out and shop for a better buyer.

The acquisition of Urbanspoon was different. “We would have never reached out to Urbanspoon. They are three times our size in terms of traffic. They reached out to us saying they wanted to sell the business and then there was a bidding process where a lot of companies bid but finally we got the deal," adds Goyal.

In 2015, the company expects to go slow in expanding into newer markets. “The focus in 2015 will be to grow in the markets we are present in. All our bandwidth will go into consolidation and to ramp up our revenue," said Chaddah.

Chaddah’s goal for 2015 is to triple the company’s revenue. “He has done that for last three years and he is hoping to do that for the next three years," explains Goyal.

For the year ended 31 March 2014, Zomato posted a loss of 37.2 crore on revenue of 36.11 crore. For the previous year, the company posted a loss of 10 crore on revenue of 12.30 crore.

Zomato, whose 100% revenues comes from restaurant ads, now plans to experiment with other revenue generation models as well. The company last week introduced a payment option in its mobile app in Dubai. Every time a consumer pays via Zomato, the merchant will pay the company a percentage cut on the overall transaction amount.

The beginnings

Goyal and Chaddah started Zomato, then known as Foodiebay, in 2008. The idea originated when they saw their colleagues at consultancy firm Bain & Co. queuing at the cafeteria every day to go through a file of restaurant menu cards to order food.

“We had a rule that no one will take these menu cards at their desk because if you lose them no one will be able to order food. So it was always crowded around the menu cards," recalls Goyal.

One day he decided to scan them and put them online. “It started from there essentially and a lot of people at Bain started using the service and then we eventually expanded it to Delhi NCR (national capital region). It was a very slow growth curve in early years," adds Goyal.

Foodiebay was re-branded to Zomato in November 2010 because of a conflict with e-commerce marketplace eBay Inc. over use of the word ebay in its name.

“We were also unsure if we would just stick to food at that time so we wanted a more neutral name," said Chaddah. A year ago, Zomato tried to sell event tickets too. The idea did not click and was rolled back.

During the first year, Goyal and Chaddah ran the business alongside their jobs and it was in late 2009 when they quit Bain to make Foodiebay a full-time calling. Families were worried and even Goyal and Chaddah were unsure if the risk they were taking was worth it. “Our parents did not want us to quit Bain. It was a stable job…many people aspired to work at Bain," said Chaddah.

For the initial few months after quitting Bain, the duo got monetary help from their brothers and a couple of friends at Bain. In mid-2010, the company was struggling to convince investors to write them their first cheque.

“It was a time when e-commerce was taking the entire mind share so nobody had the time to look at us. It is only now that food tech is hotter than anything else," smiles Goyal.

Soon after they received an email from one of their customers, Sanjeev Bikhchandani, who was also the founder of Info Edge (India) Ltd, an online classifieds company that runs job portal Naukri.com

“The day we went to meet him, he asked if we were looking for money. We told him yes and within 15 minutes he promised a $1 million cheque for a 33% stake in the company," said Goyal.

Since then Info Edge has done most follow-up rounds of funding and currently holds a more than 50% stake in Zomato.

According to Bikhchandani of Info Edge, it was the team and the business idea that made him bet on Zomato in its early days. “We wrote them a small cheque to see how they would grow the company further and they kept taking the business further which was impressive," he adds.

India is yet to produce a global consumer Internet business and Zomato could well be the first big global consumer Internet company out of India, said Bikhchandani.

“When it comes to US market, I think they will proceed cautiously and slowly," he said.

Vy Capital and Sequoia Capital are some of the other investors who have backed the company. Zomato, which has thus far raised $113 million, might need to raise fresh capital as the company spent close to $50 million on the Urbanspoon acquisition out of the $60 million it raised in its last round.

The future

But, according to Goyal, the company is in no hurry to raise more capital. “The next round will give us fuel to grow faster but there is no timeline…it could happen tomorrow, it could take six months. Right now the focus is on integration."

The company is also looking to double its headcount in the next 12 months. It employs more than 1,000 people across the globe. The firm this year will focus on growing its sales team in markets such as Australia, Canada, Turkey and the US.

“I think the next year will go into building the organization and really building the foundation of the scale that we have taken up. The most difficult task here is integrating the teams in other geographies while maintaining its culture," said Goyal.

Though for the founders the goals of the company change almost every day, there is a long-term vision of Zomato becoming a full-fledged communications platform between restaurants and consumers.

“You should be able to search and discover platforms, you should be able to interact with restaurants for placing an order, to book a table or even to communicate with the waiter when you are sitting at a table," said Goyal. “But it is going to take us a lot of years to get there. So achieving this in this particular vertical is not easy."

The company already provides table booking services in markets such as the UK where it has partnered with online restaurant real-time reservation service OpenTable and Book a Table.

In India and other markets, the company is taking a wait-and-watch approach. “There are no acquisitions to make in India at this moment. There are no strong players so either we will have to wait for someone to do this or we will have to do it on our own," said Goyal.

According to Goyal, Zomato in seven years has grown from a plain vanilla pile of menu cards in blue HTML links, the JPEG files, to a restaurant discovery portal and app which rates and reviews restaurants.

“Back then we did not even have a search option on Zomato. One had to use the browser search option for it. Today as a product Zomato is very very different… it was only 1% of what it is right now. And the focus of what we are trying to do actually changes every day."

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Published: 06 Feb 2015, 12:40 AM IST
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