(2017-04-06) Why Distribution Still Matters In The Internet Age Backchannel

Abhishek Madhavan: Why Distribution Still Matters in the Internet Age | Backchannel

The most valuable public consumer internet companies in the world are all Aggregators.

What made these specific companies rise above their competition boils down to one thing: user experience

User experience is not just about having a beautiful app, or a high-functioning platform, or the biggest array of suppliers. In fact, the clash of two Indian startups — the now-multinational Zomato and a local rival — shows that the simple version of Thompson’s aggregation theory omits some very important details

Sometimes, it turns out, distribution still matters. A lot.

Zomato. Since its launch in 2008, it has risen to become a premier restaurant search platform in some of the most world’s most populous cities: London, Melbourne, Dubai, Manila, Istanbul, and Jakarta. In 2015 it entered the US by acquiring Seattle-based UrbanSpoon (which it shut down later that year).

With users now self-reporting exactly what they liked, where they ate, and with whom they went out, Zomato could personalize the service even more. And because customers now had a public place to rate their experiences, restaurants had more incentive to provide better service, improving the entire network’s experience

Zomato now set its sights on an even bigger market: food delivery. That’s when things started to change.

In spite of the powerful network effects of aggregation theory—in spite of locking up two ends of the marketplace (restaurants and hungry people) — Zomato Order is today second in overall volume of orders to the real winner: Swiggy.

Swiggy started in late 2014, initially offering services in one neighborhood — Koramangala, India’s startup hub in Bengaluru. Where Zomato got off the ground after founder Goyal noticed the need for menus among people ordering take-out, Swiggy founder Sriharsha Majety tackled food ordering from an entirely different angle, by thinking of it as a hyperlocal delivery problem.

If you’re in the internet business, it’s easy to assume that a better user experience boils down to a better user interface. But for food delivery, just like for any other transaction business, the look and feel of an app — where Zomato Order vastly outshines its competitors — is in fact superficial. What customers really care about are faster delivery and lower prices

By offering faster delivery than Zomato, Swiggy grew rapidly via word of mouth

The Zomato-Swiggy war has much in common with the battle Amazon waged more than a decade ago against eBay.

Tightly controlling distribution allowed the company to optimize deliveries and make specific promises to customers on when to expect their purchases to arrive, giving it a competitive edge over rivals, especially eBay, which had avoided this part of the business altogether.

In the near future, on-demand marketplaces like Swiggy, with its powerful customer base and nationwide delivery network, could spare emerging chefs the hassle and high upfront investment of launching a physical restaurant. This could open up a whole new market, drastically lowering the price of food via delivery versus food from a true restaurant.


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