Zomato’s $52 million (Rs330 crore) purchase of US-based restaurant search guide Urbanspoon has set the tongues wagging.
The deal is one of the largest-ever foreign acquisitions by any Indian start-up, and catapults the Gurgaon-based restaurant discovery service into the global big leagues.
Zomato will now compete directly in the mature American, Canadian and Australian restaurant review markets—and take on prominent players like Yelp, Foursquare, OpenTable, Seamless, and even Google Maps (where a restaurant search result also gives ratings and reviews) in the already crowded food discovery space.
That’s a far cry from Zomato’s previous strategy, where it sought to enter underdeveloped markets and dominate the online restaurant search segment quickly. “These are not easy markets to crack. It will take investments and time,” Zomato co-founder Pankaj Chaddah told Quartz.
Here is what the company is willing to say about its plans so far:
One brand, big traffic
First, Zomato will not let go of its brand name. Seattle-based Urbanspoon, which was previously acquired by the American internet giant InterActiveCorp in 2009, will be completely integrated with Zomato’s platform over the next three months. All Urbanspoon users will be transfered to Zomato’s website and application, and the final entity in all three markets will be called Zomato.
“We have to make a long-term versus short-term decision,” Zomato CEO Deepinder Goyal told Mashable. “In the longer term, it should all be one brand.” Zomato told Quartz the deal wouldn’t lead to any layoffs, either among its 1,000 employees or Urbanspoon’s 50 staff.
Urbanspoon covers restaurants in the US, Canada, the UK, Ireland, New Zealand and Australia. With its latest acquisition, Zomato will gain access to Urbanspoon’s extensive library of restaurants and triple its database to over one million establishments. That, Zomato claims, will more than double its traffic from 35 million visits per month currently to over 80 million.
Both of these together should help bolster Zomato’s revenues, which depend on hyper-local advertising. Revenues will soon also include a cashless payment system, which is due to be launched in Dubai next month. Cashless mobile payments will allow users to pay their restaurant bills through the app and, for each transaction, Zomato will get a share of the bill from the restaurant.
Still, Yelp has a staggering 139 million unique monthly visitors—four times Zomato’s existing traffic.
Here, too, Zomato claims it has a strategy.
What does Zomato have that Yelp doesn’t?
Both Yelp and Zomato are go-to destinations for online restaurant reviews, locations and cuisine preferences. On the surface, the difference between the two may not seem significant. But the Indian start-up believes it has an edge over the American company because of its “curated content”—a complete library of menus, lists of restaurants and photos of food and restaurant interiors and exteriors that is carefully collected and posted by Zomato employees.
While Yelp has plenty of photos of users’ food, and, of course, user reviews, other information is hit or miss depending on what has been submitted.
“Yelp is user-generated content…it’s user reviews. For Zomato, it is both user reviews and content curated by Zomato,” Chaddah said. “That content is much more powerful. That’s something customers don’t have access to.”
The Indian start-up also is so focused, Chaddah claims, that in areas that it covers, there will never be “a new restaurant that exists—and that is not on Zomato.”
This is how it works: Zomato follows a “feet-on-the street” approach, where it has a team going around a city to collect data firsthand from cafes, restaurants and bars, without relying on a secondary source. Data collectors then share the information with the data processing teams, who run quality checks. Finally, a content team uploads the data and ensures that the information is relevant, fresh and presentable. All information is updated every three months.
However, Yelp carefully monitors its content, too. In 2012, the online reviews website launched a sting operation to catch businesses manipulating reviews. The defaulters were slapped with “a badge of shame” that served as a warning for consumers. Yelp also uses automated software to recommend reviews, and maintains what it calls the elite squad: a community of trusted, named, reviewers.
Zomato also edits out fake reviews. It uses algorithms to identify the frequency and objectivity of a review and spot fabricated posts, along with manually moderating reviews.
The other major difference between the two is Yelp has online reviews and photos on everything—from dentists to salons to restaurants. Zomato, on the other hand, is focused solely on food and restaurants, so it can throw all its resources into one spot.
No more shopping
With the Urbanspoon acquisition, Zomato, now valued at around $660 million, has made another decision: After six purchases in six months, it’s going to stop buying up more companies. For now.
“We pretty much had to spend all our last round of funding ($60 million) on this, and it’s sort of a big deal for us,” Goyal said.
But it’s still on the hunt for more cash. In fact, Zomato is looking to raise $100 million in a fresh round of funding, although not for acquisitions. “We will be spending the next few quarters focusing on breaking even, marketing and generating revenues,” Chaddah told Quartz.
At the moment, Zomato is profitable only in India and the UAE. But within the next three months, it is looking to break even in South Africa, New Zealand, Indonesia and Portugal. And in its bigger international markets, it will take much longer.
Time for Zomato to ignore the wagging tongues, and instead grit its teeth and get down to business.