Some belt tightening underway at Zomato, the $1 billion+ restaurant discovery portal based out of India that is now active in 22 countries. TechCrunch has learned, and has now confirmed with the company, that Zomato is laying off around 300 staff, or just under 10% of its current workforce of 3,000, as it looks to cut costs in weaker parts of its business and shift more focus into revenue-generating areas like reservations.
Significantly, the cuts are signalling a shift in the company’s strategy. A bulk of those layoffs will be in the U.S. and focused on “content” teams. These are the people (‘Zomans’ as they are called internally) who collect data from restaurants listed on the Zomato platform, and were the core of its original “feet on the street” business model that set it apart from the likes of Yelp with staff-curated information.
As part of the shift, the company will be dividing its business into two areas, “Enterprise” and “Full-Stack”.
The full-stack operations are markets where Zomato has determined that it is a market leader, and there it will continue to invest in a full range of services including live content collection and ad sales. Those markets will be India, the Middle East, South East Asia (the Philippines and Indonesia), and ANZ (Australia and New Zealand).
The rest of the countries where Zomato operates will now be treated as “enterprise” markets. As CEO and co-founder Deepinder Goyal describes it in an internal memo obtained by TechCrunch, “Enterprise regions are the ones where any of the following is true: a) relatively small markets b) slow growth economies c) Zomato is not the dominant player.”
In these enterprise markets, the company will now focus mainly on transactional businesses such as its Zomato Book reservations engine, with less focus on “on-the-ground community building and marketing activities,” Goyal wrote in the memo. “This means that in these regions, our operations will need fewer people to run the show compared to the past. This will also help bring our burn rate down and, as we go along, make our businesses in these countries much stronger.”
We have embedded the full internal memo at the bottom of this post, but here is our between-the-lines rundown of what is actually going on:
The layoffs will specifically target the company’s “content” teams — people who physically visit restaurants to amass data for the Zomato platform. This includes opening hours, menus, pictures and other information about the food, and so on.
While Zomato has made eight acquisitions to date, including well-known sites like Urbanspoon, a spokesperson tells me that these cuts are of Zomato staff that were grown organically — not targeting those who joined as a result of M&A.
“The cuts are not a result of Zomato’s acquisitions,” she said. “Most of these people were hired after the completion of the acquisitions. However, over the last few months, we have been working hard to make sure that we prioritise our efforts, and the recent cuts are a step towards that direction.”
The cuts have been described to TechCrunch by a spokesperson as global and affecting all markets, but in practice they will be concentrated in regions where there are more staff focused on collecting content. This will translate to more job cuts in the U.S. than elsewhere because the U.S. accounts for 700,000 of the 1.4 million restaurants listed the Zomato platform. (In comparison, India only has 70,000 listings, Australia has 60,000 and the UK has 20,000 listings.)
“The cuts in other countries will be not be a large number given the size of those markets, and have already happened or will happen early next week,” the spokesperson said. “The U.S. will see a higher impact because the number of restaurants there is larger than in other countries.”
The challenge for the company has been thus: some 40% of the restaurants on Zomato’s platform account for 92% of its traffic, meaning that the data collection for the long tail of businesses in Zomato’s database is unprofitable.To date, Zomato has raised over $223 million in funding, and in April the company disclosed that it had passed a $1 billion valuation. Now Zomato is trying to focus on bringing down its burn rate to grow in a more careful way.
The company started in 2008 as a supercharged portal for restaurant search that went beyond basic names and addresses. Zomato staff would visit venues, collecting menus and photos that would be scanned and input into Zomato’s larger database (think Google Maps’ roving cars but for restaurants) which in turn would be used to power searches not only for certain restaurants but places where consumers could go for very specific dishes, for example.
This filled a niche: smaller and independent venues are not always up to date with their online presence (many don’t even have websites today) and this provided a way to find them on the web.
It also helped differentiate Zomato from the likes of Yelp and others that looped in crowdsourced information, which can be hard to verify as not being biased and more generally keep up to date.
Initially Zomato relied on partners to fulfil any subsequent features beyond search, but, in a hunt for better margins, over time the company has moved to run more of those services itself. In other words, while Zomato originally built itself as an alternative to Yelp in its information, ultimately it followed a strategy taken by others in the space, putting it into more direct competition also with the likes of Groupon, Opentable and many more.
For Zomato, additions have included individually adding point of sale payment processing products, online ordering, delivery, and eventually a larger white-label service for restaurants to create and manage all of their online operations, from marketing and ordering through to payments and more.
Now, it looks like Zomato wants to shift more of its data collection for the less-trafficked venues into something that the restaurants will be able to maintain themselves.
CEO’s memo below.
Seven years ago, we started out as a pure-play restaurant directory for foodies in India. Now, we are in 22 countries across the world; we have organically launched and grown our business in 15 of them. In the other seven, we acquired the local leaders in our space to eventually move all their traffic over to Zomato, becoming the #1 player in those markets in the process. Today, foodies use us to look for great places to eat about 90 million times in a month. More than three quarters of these foodies visit us from outside of India.
We made an important move in India a few months ago – launching our online ordering service. And we really kicked our competition’s ass in this business with less than 0.1% of their marketing budgets. Why we were able to win? Because we have millions of users who already use us for ordering food over the phone. Now, they have started doing it online using our app. And there is a lot of growth still left, 92% of our users who search for delivery options on Zomato haven’t even started ordering online onZomato yet. Our ticket sizes are more than double our competitors’ – because our users are not using us for the discounts. They are using us for the convenience, and the product they already love Zomato for.
Our users hold tremendous potential for transaction-based businesses. Getting into transactions was always the natural next step for our business. Online ordering is a natural and logical alternative for our users who, until now, used to call restaurants to place their orders for delivery. Table reservations fit into Zomato as easily as online ordering did. The time has come for us to focus deeply on transactions in countries where it matters.
We are also going to have to make important changes to our business and make sure we put every dollar and every Zoman behind the things that matter the most. Here are two most important things you can expect.
- Content 2.0 – we will be getting smarter with the effort that we put into content. 40% of the restaurants on Zomato account for 92% of our traffic. We will rethink our processes to make sure that the frequency of our data updates goes up in multiples for the top 40% of restaurants.
- In the meantime, we should push our app for business owners as much as possible, so that more business owners start managing their listings themselves.
- The countries we entered in the recent past have not been working with our existing model of collecting content and building community relations – alternate models will need to be identified. We have a few ideas we will be piloting in a select few regions right away.
- We need to make some fundamental changes to the product to ensure more stickiness and growth. Most of these changes are based on what we have learned from Urbanspoon.
- Over time, as we fully transition to Content 2.0, we will need leaner content teams across the world.
- We will split our countries into two types – Full Stack and Enterprise.
- Full Stack are the four regions where all of the following are true: a) large markets b) growing very fast c) Zomato is the strongest player in its space.
- These four regions are India, the Middle East, South East Asia (the Philippines and Indonesia), and ANZ (Australia and New Zealand).
- We will be selling our full suite of products in these four regions, since we have very high levels of traffic here.
- Our focus on ad sales will continue to be strong, along with all the other transaction-based businesses. Ad sales has been a very profitable business for us, and will continue to be so.
- Enterprise regions are the ones where any of the following is true: a) relatively small markets b) slow growth economies c) Zomato is not the dominant player. All the remaining markets belong to this category.
- In these regions, we will not look at ad sales. We will focus mostly on transactions businesses, with a lion’s share of our effort going into selling Book – our table reservations engine.
- Less focus on on-the-ground community building and marketing activities. Most of the people in our teams in these regions should be sales people, to help us put Zomato Book in as many restaurants as possible. This means that in these regions, our operations will need fewer people to run the show compared to the past. This will also help bring our burn rate down and, as we go along, make our businesses in these countries much stronger.
- Most Enterprise regions will see these changes take effect almost immediately, up until the end of this month after our global country manager offsite in Delhi next week.
- I’ve already had conversations with some of our country managers about this, and will be reaching out to the rest soon to discuss future plans.
- All these things will also significantly bring down our burn rate and improve our margins in some countries.
The next few months are going to be hard for all of us. But sticking together, hustling, and not spending time overthinking or being unnecessarily creative should get us to where we want to be.
Please email me if you have any questions, or catch me anytime at the OHC office tomorrow – happy to explain and go deeper into the whys of what we are doing.