(Answered originally at Quora: Why is Zomato doing better than Yelp in some markets?)
One of the keys to building a good local search product is having a comprehensive place database, i.e. a database which consists of all the restaurants, bars and venues in the city with metadata like cuisines, hours, reviews etc. for all of them. Once you have this database, a sufficiently talented product and engineering team (that both Yelp and Zomato have), can build a decently good local search and discovery app on top of it.
The markets where Zomato is doing better than Yelp are the markets where Zomato has a more comprehensive place database than Yelp. So I believe this question can be answered as “Why does Zomato have a more comprehensive place database than Yelp in some markets?”
To understand the answer to this question, we need to understand how these companies fundamentally go about building this place database and solving the local search & discovery problem.
Let’s start with Yelp. Yelp’s core strategy involves building communities. These communities of passionate Yelpers then go around visiting places, writing reviews and filling in Yelp’s place database.
Building communities from scratch is hard. Yelp started really small, exclusively targeting San Francisco restaurants. Only when they were successful in SF, did they slowly expand to other cities in the US. And after they were successful in the US, they started to slowly expand to other countries.
In short, Yelp’s data generation is, at its core, a social product. Social products suffer from cold-start problems, and Yelp’s strategy to solve the cold-start problem has been to focus on a strategy called Local Network Saturation. This strategy is all about slow, methodical expansion instead of rapid growth, and Yelp has been fairly successful at it.
Zomato has a completely different strategy than Yelp. Zomato’s core strategy involves using manual labor. They started off as a “menu-scanning” service in India. They pay a bunch of contractors to go around and visit all the restaurants, bars and venues in a city. These contractors then scan the menus and fill in place metadata like hours, seating info, accessibility etc.
Zomato was able to build a really comprehensive place database using this strategy in markets like India, Philippines etc.
Why the Zomato model works better in some markets
According to Zomato’s CEO Deepinder Goyal, the markets where Zomato is profitable are India, New Zealand, United Arab Emirates, Philippines, Indonesia, South Africa, Qatar and Lebanon.
Here’s why Zomato works well in these countries and it’s hard for someone like Yelp to beat it:
- Cheap manual labor: The Zomato model needs a lot of paid manual labor. Countries with cheaper labor costs like India are the ones where Zomato has succeeded till now.
- Early mover advantage: The countries where Zomato is popular are the ones where it was the first one to have a comprehensive place coverage. Before Yelp could build its community in these countries, Zomato had already captured the mind-share and market-share there.
- Yelp’s cultural disadvantage: Building a successful community involves understanding the cultural nuances of the community. The techniques that worked well for Yelp in English-speaking, western countries might not be the ones that work well for other cultures. This makes it harder for Yelp to expand to other countries.
- Market-specific offerings: Zomato offers features like cash on home delivery, which is very important in a market like India. This ties in with the point above on understanding deeply the culture of the markets where you want to successful in.
So far every market where Zomato is better than Yelp satisfies these properties.
It’s going to be interesting to see if the Zomato model works for countries with high cost of labor. My guess is at some point they will have to change their strategy in countries like UK and the US if they want to compete with incumbents like Yelp. Their acquisition of Urbanspoon in the US hints that they are thinking along these lines too.