Zomato shifts global strategy and halts in-app payments because it’s ‘not financially viable’

Restaurant search service Zomato has announced that it’s making “important changes” to its operations around the world, re-focusing its efforts on markets where it already has significant traction.

Founded out of India in 2008, Zomato offers online and mobile search service for 30 million restaurant-seekers in 22 countries, providing information such as menus, photos, and locations, with users able to submit reviews and ratings. It has been branching out into other related offerings too, including online ordering, table reservations, and cashless payments.

Indeed, Zomato first launched online ordering in its native India a few months back, as an addition to its existing telephone-based delivery offering, and it’s an area that Deepinder Goyal, CEO and founder of Zomato, sees as having huge potential for growth.

“92 percent of our users who use Zomato to search for restaurants that deliver haven’t even started ordering online on Zomato as yet,” he said in a blog post. “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 a product they already love Zomato for.”

Though Zomato has largely been absent from the U.S. market, it did acquire Urbanspoon in January, and closed the service shortly after having integrated its competitor’s data. It also snapped up U.S.-based Nextable for table reservations a few months later.

But things aren’t looking great for Zomato outside its core markets, as rumors emerged last week that it was laying off employees across the U.S, particularly on the “content” side of the business. This has now been confirmed by Goyal.

“The time has come for us to focus deeply on transactions in countries where it matters,” he said. “We are also going to have to make important changes to our business and make sure we put every dollar and every Zoman [Zomato employee] behind the things that matter the most.”

The upshot of this shift in strategy will be Zomato “getting smarter” about where it focuses its resources — the restaurants, advertisements, and accompanying data on the Zomato platform. According to Goyal, 40 percent of restaurants on Zomato account for 92 percent of its traffic. “We will rethink our processes to make sure that the frequency of our data updates goes up in multiples for the top 40 percent of restaurants,” he said.

In other words, the best-performing restaurants in its best markets will receive more focus from Zomato. Elsewhere, the company’s own Zomato for Business app will be pushed to outlet-owners to manage their own listings.

Without any specific reference to the reported U.S. layoffs, Goyal did note that the service isn’t performing as well in some recent markets as it would’ve liked.

“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 and implemented,” he said. “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.”

Goyal may not have referenced the U.S. market specifically, but it’s clear through his mention of Urbanspoon that things weren’t as ripe for growth as he perhaps first expected. And this is why Zomato is splitting its active markets into two types — “full stack,” and “enterprise.”

Half and half

“Full Stack” are four broad regions where Zomato has hitherto seen significant traction — big markets that are still growing fast, and where the company is already the “strongest player in its space.” These are the Middle East, Southeast Asia (Philippines and Indonesia), Australia and New Zealand, and — of course — its native India. All products will still be available in these regions.

Zomato’s so-called “Enterprise” regions are markets that are either small, slow-growth economies, or in which Zomato already faces stiff competition — such as the U.S., where companies such as Yelp, OpenTable, and Foursquare have considerable traction. As such, Zomato says it won’t be looking to sell ads in these markets, and will “focus mostly on transaction businesses,” with a chunk of its efforts going into its table-reservations engine, called Book.

So while Zomato isn’t pulling the plug on its American dream, it’s acknowledging the obstacles and, rather than engaging in what would likely be an impossible fight to gain mind share, is trying to put specific products “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,” said Goyal. “Most Enterprise regions will see all of these changes take effect starting immediately. All these things will also significantly bring down our burn rate and, as we go along, make our businesses in these markets much stronger.”

This more or less confirms the rumor of layoffs in the U.S. from last week. But it also appears Zomato has moved fast to stop the rot — it only acquired Urbanspoon nine months ago. It sounds like the company was burning through a lot of cash, so dividing the company’s focus into two segments might help it flourish in the long term.

Cashless-less

In related news, Zomato also revealed today that it is ceasing its cashless payments product, after launching it in Dubai back in February. The tool allowed users to pay in-app in restaurants, and the plan was to roll the product out further afield. But the company said it couldn’t find a “product-market fit,” adding that the customer acquisition cost was too high in its current form. “It wasn’t financially viable for us to keep the business running, as the operational costs of running it exceeded the commissions the product was generating for us,” said Goyal.

He added that the company will focus more on getting its table-reservation and point-of-sale (POS) systems into more restaurants, after which the “Cashless flow will become a natural part of a user’s journey on Zomato.” So Zomato hasn’t pulled the plug permanently on the product, merely paused it until it’s managed to push further into the restaurant ecosystem.

Today’s news comes a little over a month after Zomato announced a fresh $60 million in funding, and a new white-label service to help businesses “go online” by creating their own customized mobile apps — completely outside the Zomato ecosystem.