💡The Platformization of Swiggy

Swiggy’s newly launched marketing suite transforms it from just a delivery app to a full-service restaurant platform, signaling a major shift towards platformization.

Aug 01, 2024

Swiggy has launched a comprehensive marketing suite for restaurants, just days after launching data tools for its restaurant partners. Does this signal the beginning of vertical platformization of Indian D2C companies?
ONDC's QR Code Gambit: A Digital Storefront for Every Small Business.

The Platformization of Swiggy

In an interesting development this week, restaurant aggregator giant Swiggy took a significant stride beyond its core marketplace+delivery functions, to launch a comprehensive marketing suite for restaurants to manage influencer collaborations, social media advertising, and WhatsApp marketing📲

📊Just a few days earlier Swiggy launched a data tool for its restaurant partners to gauge their marketing performance against peers.

The launch of Swiggy’s marketing suite is easy to dismiss as just a one-off tangential move to expand revenue streams ahead of its upcoming IPO.

But, if we observe closely it’s a classic case of platformization, and a sign for more things to come.

🛒Learning from platformization of Amazon, Uber, Airbnb

While Amazon’s core business is e-commerce, it offers a plethora of services to sellers, including logistics, fulfillment, and even financial services. This has led to a flywheel effect🔄 where more sellers on Amazon attract more buyers, which in turn attracts more sellers, and so on

Just as Amazon evolved from an online marketplace to a platform for everything, Swiggy with its marketing suite for restaurants, wants to slowly build solutions to become an indispensable operating system for the restaurant industry, and in the process, increase stickiness with all its stakeholders.

“Our new set of marketing services helps brands grow their customer base by combining the reach and engagement of channels like influencer marketing, social media and WhatsApp and the ability to acquire new users through the Swiggy platform,” said Swiggy’s Assistant Vice President Ajit Panigrahi.

Globally, Uber and Airbnb too are platformizing and expanding.

🚗Cab aggregator Uber, has expanded into food delivery, freight, and even urban air mobility. The goal? To become the platform that powers urban life.

🏡Or take Airbnb, which has ventured into experiences and hospitality software.

These companies are realizing that the true value lies not just in the core transaction that happens inside their marketplace, but in the entire customer journey.

Blueprint for deriving value from platform-centric customer journeys

All of these verticalized marketplace examples we see above follow a similar platformization blueprint, catering to the end-to-end needs of their customers, which, in Swiggy’s case, is their restaurant partners.

🛤️A platform-centric customer journey blueprint looks like this: Acquire supply and demand on marketplace → Extend LTV by capturing value in full customer journey (pre- and post- transaction) or capturing adjacencies, like logistics, marketing services, or transaction enablement.

Over the years, Swiggy has built trust as an excellent intermediary connecting all its stakeholders - restaurants (sellers), consumers (buyers), and food delivery partners🚴.

Now that market capture is done, Swiggy is developing adjacencies or value-added solutions like the marketing suite which can increase the LTV of its customers - both restaurant partners and end users.

🦋What drives Swiggy’s Metamorphosis? Marketplace product → Platform

For Swiggy and most consumer facing businesses worldwide, profitability has been a struggle (Swiggy Reported A Loss Of Rs. 1,600 Crore In The First 9 Months Of 2023).

So, Swiggy doesn’t want to be a mere transactional hub anymore; it wants to be a full-fledged strategic growth partner, realizing that its success is intertwined with the success of its restaurant partners.

💡This strategy can help mitigate the high acquisition costs in D2C marketplaces, which tends to cut into margins in a pure marketplace play.

📈Also, the push to profitability and diverse revenue streams comes amidst pressure from investors to show numbers as Swiggy heads to IPO worth $1.2 Bn.

🛡️There is need for building unique moats in a crowded restaurant aggregator landscape where Swiggy sees competition from not only from long-time private competitors like Zomato, but also the government-backed ONDC.

ONDC threat is real for private marketplaces like Swiggy and Zomato

Talking to Zerodha co-founder Nikhil Kamath on a podcast, top restaurateurs Riyaaz Amlani and Zorawar Kalra said that food aggregators like Zomato and Swiggy are eating up around 55 percent of their order values through charges for delivery, discounts, discovery, and that the government-backed Open Network for Digital Commerce (ONDC) is the way forward for restaurants to preserve their bottom lines.

“This is a triple D model. It's not just delivery cost, but also discovery cost which means that you are paying to be visible in a carousel, to be visible in one of those collections. You easily spend about 12 percent more on that. On top of that, your average discounting is at 14-15 percent. If you don't discount, customers don't come to you. That's the way it has been gamed… So, 55 percent of your margin is taken by aggregators,” said Amlani, who has founded food chains like Social, Mocha and Smokehouse Deli.

The ONDC (open network for digital commerce) initiative in India — the first of its kind in the world— was launched to make e-commerce accessible and interoperable, giving sellers like restaurants and kirana stores more control over business decisions.

Launched in April last year, it had a slow start. In the first six months, it could only manage a couple of hundred transactions a day at best. However, retail purchases on the network rose almost 500 times from 1,281 in January to 608,307 in September.

Now, with the high margins charged by restaurant aggregators like Swiggy and Zomato, more and more restaurants are buying into the ONDC ecosystem. ONDC is slowly but surely chipping away orders from private aggregators like Swiggy.

Amlani says, “We are working very closely with ONDC. We are going to build channels and competencies. We have nothing against aggregators. We appreciate that they have helped build demand. While they have done that, they have taken away any hope of margins. We are all running just to stay in the same place,”

Competing on margins with ONDC is impossible for private marketplaces like Swiggy which have already spent millions on customer acquisition. So Swiggy, instead of lowering its margins, is taking on competition from ONDC by offering value-added solutions to restaurant partners.

Swiggy’s platformization through their recetly launched marketplace suite is something that is beyond the immediate scope of the relatively new, government-backed open platform.

🚧The Challenges of Platformization for product leaders

For product and tech teams, the trend of marketplaces turning into platforms offering end-to-end value-added solutions, presents both challenges and opportunities.

Let’s look at some of the challenges for marketplace products, taking the example of Swiggy’s foray into integrating marketing solutions:

Product Complexity🧩: Building a full-service marketing platform for restaurants requires a significant expansion of product capabilities. In Swiggy, for instance, features for influencer management, ad campaign creation, and analytics will need to be integrated seamlessly into the existing platform.
Data and Analytics📈: To effectively support marketing efforts, product teams will need to delve deeper into data analytics. Understanding user behavior, influencer performance, and ad campaign effectiveness will be crucial.
Technology Infrastructure🛠️: The platform will incur increased infrastructure costs to handle increased data volume and processing requirements. Investments in cloud computing, data warehousing, and real-time analytics will be essential.
User Experience🌟: Ensuring a seamless user experience for both merchants and end-users will be critical, more than ever. The platform should provide intuitive interfaces for managing the extra functionalities of marketing campaigns and accessing insights without cluttering the existing interface.
Talent Acquisition🧠: A team with the necessary skills to develop and manage marketing tools will be essential. This includes data scientists, marketing automation experts, and product managers with a deep understanding of the marketing ecosystem and not just the food delivery business.

Frankly, the platformization of marketplaces requires an external team of product experts who can work with the in-house to simplify and deliver the asks without disturbing regular operations🤝

The Future of Marketplaces: A Platform Play

Swiggy's platformization strategy will intensify competition with rivals like Zomato and it will also be interesting to see how the ONDC ecosystem evolves from here.

If Swiggy’s platformization experiment shows promise, its main rival Zomato and other Indian marketplaces, such as e-commerce platforms and ride-sharing services, might emulate this strategy. We could see platforms offering financial services, logistics solutions, and even insurance products for their merchants.

The aim would be to create a closed-loop ecosystem where customers and businesses are incentivized to stay within the platform's orbit🔄

We will soon be witnessing an interesting metamorphosis of Indian platforms racing to offer a wider range of value-added solutions, features, and services to their merchants. This could lead to increased investments in technology, partnerships, and acquisitions.

ONDC's QR Code Gambit: A Digital Storefront for Every Small Business

The QR code is getting a makeover. For years, it's been the digital equivalent of a business card, a static, one-dimensional link to information. But ONDC, India's government-backed experiment in open digital commerce, is betting big on this seemingly simple technology to bridge the chasm between India's vast unorganized retail sector and the digital world.

The Problem with Digital India

India has a billion-plus population, a burgeoning middle class, and a smartphone penetration rate that rivals many developed nations. Yet, digital commerce has been a patchy affair. While e-commerce giants have carved out significant niches, the vast majority of India's retail landscape remains offline. The reasons are manifold:

Digital Divide: A significant portion of India's population lacks the digital literacy and infrastructure to participate in online commerce.
Trust Deficit: Many consumers, especially in rural and semi-urban areas, are wary of online payments and transactions.
Logistics Challenges: The last-mile delivery infrastructure is still developing in many parts of the country.

The ONDC Solution: QR Code as the Digital Storefront

ONDC's QR code initiative is a bold attempt to address these challenges head-on. Think about it. For the first time, every small business – from the corner chaiwallah to the local artisan – can have a digital presence without the tech overhead.

A simple QR code, slapped onto a product, a storefront, or a social media post, can become a window into their entire inventory, their brand story, and their customer interactions.

This is a game-changer for several reasons.

Democratization of e-commerce: ONDC has been on a mission to level the playing field for small businesses. The QR code is a powerful tool in that arsenal. It's a low-cost, low-barrier entry point to the digital world.
Offline-to-online convergence: The beauty of this move is that it bridges the gap between physical and digital commerce. A customer can discover a product offline, scan the QR code, and complete the purchase online, or vice versa.
Data goldmine: Every scan is a data point. ONDC can use this data to understand consumer behavior, product preferences, and geographical trends. This information can be invaluable for both sellers and platform providers.

But there are challenges.

People need to understand the value proposition of scanning a QR code. It's not just about making a purchase; it's about discovering new products, engaging with brands, and enjoying a more convenient shopping experience.

Protecting user data and preventing fraud will also be paramount, as QR code scans are already a major source of worry in India.

That said, these challenges are not barriers.

India is a land of small businesses. These enterprises are the backbone of the economy, employing millions. Bringing them online can have a multiplier effect, creating jobs, boosting incomes, and driving economic growth. ONDC's QR code initiative is a crucial step in this direction.

So we must consider ONDC's QR code initiative as more than just a tech upgrade. It's a strategic move to reshape India's digital commerce landscape. If executed well, it could be a blueprint for other emerging markets looking to empower small businesses.

What are your thoughts on ONDC's QR code initiative? Share your thoughts and predictions by replying to this mail.

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Cheers!
Khuze Siam
Founder: Siam Computing & ProdWrks