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ZOMATO™ Gold
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PLATFORM OVERREACH

R SRINIVASAN, SANDEEP LAKSHMIPATHY, AND PRAMOTH JOSEPH

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R Srinivasan, Professor of Strategy, Sandeep Lakshmipathy, Research Scholar, BITS Pilani, Hyderabad and Pramoth Joseph,
Researcher Scholar, IIIT Bangalore, prepared this case for class discussion. This case is not intended to serve as an endorsement,
source of primary data, or to show effective or inefficient handling of decision or business processes.

Copyright © 2020 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted
in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise (including internet) – without the
permission of Indian Institute of Management Bangalore.

This document is authorized for educator review use only by GUILLERMO VAN DER LINDE, Pontificia Universidad Catolica Madre y Maestra until Apr 2020. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860
 Zomato™ Gold: Platform Overreach

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INTRODUCTION

Rashmi had just returned to her restaurant after meeting a corporate client in the city of Bangalore. Rashmi
and her friends had started a niche fine dining restaurant serving exclusive Franconian food, targeted at the

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growing expat German population a few years ago. Her manager alerted her to a series of calls from the
local Zomato account manager offering the Zomato Gold programme for delivery services. Rashmi had
been following up on the NRAI (National Restaurants Association of India) campaign against the Zomato
Gold programme (that she had signed up last year) for dine-in services and wondering if she should also
log out of the programme. She had a decision to make on the dine-in Zomato Gold programme, and now
there was this offer to join the delivery programme. She was left wondering if she could afford the sign-up
costs as well as finance the discounts. She asked herself:

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 Had Zomato bitten off more than they can chew by being over ambitious to monetize the vast user base
with a premium subscription service? Did they misjudge user acceptability by changing the terms of
operations quite frequently? What are the implications of the media and social media coverage on
restaurants signing out of Zomato Gold on her customers?
 When she signed up for the Zomato Gold programme, it was about attracting premium (frequent/non-
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price-sensitive) customers to the restaurant. However, with the widespread adoption of the programme,
is there a risk of increasing price sensitive consumers? More still, will this expansion affect the loyalty
and willingness-to-pay of the premium consumers?

HYPERLOCAL FOOD DELIVERY BUSINESS

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Hyperlocal is defined as “relating to or focusing on matters concerning a small community or geographical

area”. Neighborhood-focused restaurant reviews, news items and event recommendations, food delivery
from nearby restaurants and grocery delivery constituted the scope of hyperlocal business. Advertisers were
interested in hyperlocal more than ever due to its ability to deliver relevant content as close to the patron as
possible. Ability to deliver hyperlocal marketing at scale had puzzled many firms with considerable
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marketing budgets. However, emergence of hyperlocal platforms such as Zomato and Swiggy changed the
dynamics, and they were successful in making impression on the minds of customers through personalized
content that can be delivered in an automated manner. Compared to the past iterations of home delivery
start-ups, more recent incarnations of hyperlocal businesses enjoyed relatively better success as they were
aided by GPS services on smart phones.

Firm’s Origin
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The idea for Zomato occurred to Deepinder Goyal (Goyal) and Pankaj Chaddah (Chaddah) when they
attempted to make available offline the menu of their then employer’s (Bain & Company) cafeteria on the
intranet to ease the employees’ pain of ordering food. The immense welcome the idea received helped them
with the version 1.0 (called Foodiebay) of their offering – making available the menus (as images) of
different restaurants along with the relevant contact number for placing orders. The concept solved a

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 Zomato™ Gold: Platform Overreach

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genuine logistical challenge and revenue started trickling in as restaurants flocked to Foodiebay with
advertisements. It was a win-win situation where the average restaurant goer could have access to menu
details on his smartphone or on a portal while the local restaurant gained a web presence and more footfalls
owing to the efforts of Foodiebay.

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Goyal and Chaddah bootstrapped the venture for the first 2 years and eventually expanded Foodiebay to
include other cities. With continued success, Foodiebay received its first funding in 2010 from InfoEdge
which funded other companies such as Naukri.com and 99acres.com. Foodiebay, then rebranded as
Zomato, rapidly expanded to other cities in India and launched a companion mobile app that made it
convenient for end customers to interact with their favorite restaurants to place orders and track them (refer
to Exhibit 1). As the app led from the front in onboarding users, InfoEdge led the subsequent funding of

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$3 million in 2011 and $2.3 million in 2012. The lure of larger ticket sizes in the United Arab Emirates
prompted Goyal to expand overseas rather than expanding vertically to other businesses. The founder’s
conviction was upheld when the UAE operations broke even in just 4 months. While Zomato continued to
expand to other countries such as the United Kingdom, New Zealand, Portugal, Turkey, and Brazil among
others, funding continued to swell led by InfoEdge and Sequoia Capital. It acquired a string of companies
(competitors) in various countries leading an expansion led by acquisitions as well. However, as funding
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tightened in 2015, Zomato quickly moved to cut its losses, exited or scaled back operations in a few
countries focusing on shoring up revenues. Zomato became profitable in 2016–2017 and continued with
key and critical acquisitions on a need basis.1

Its revenue for 2015-2016 was pegged at $28.2 million, FY17 at $51 million and FY18 at $74 million while
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EBITDA 2015-2016 losses were at $75 million.2 Losses from FY18 were at $11 million and FY17 were at
$15 million.3 By March 2019, the losses had catapulted to $ 295 million while revenues were significantly
up at $ 206 million.4 Advertising contributed to around 60% of its revenues, food delivery about 30%, and
Zomato Gold about 12%.

Zomato’s Gold Programme

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Looking at adjacencies and a possible new revenue stream, Zomato launched its premium subscription
service Zomato Gold in March 2017 in Lisbon (Portugal), Dubai, and Abu Dhabi.5 Zomato Gold quickly

1
Thomas, A. S. (2017, October 8). “Batting It Out Of The Park: Zomato Founder And CEO Deepinder Goyal”, Entrepreneur.com. Available at:
https://www.entrepreneur.com/article/302209 (Accessed: August 30, 2019)
2
KJ, Shashidhar (2016, May 25) “Zomato reports EBITDA losses of Rs 492 Cr; revenues of Rs 185 Cr in FY16”, Medianama.com. Available at:
https://www.medianama.com/2016/05/223-zomato-earnings-march-2016 (Accessed: August 31, 2019)
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3
OfficeChai Team. (2018, April 2) “This Is Where Zomato Now Earns Its Revenue From”, OfficeChai.com. Available at:
https://officechai.com/startups/zomato-revenue-split/ (Accessed: September 1, 2019)
4
PTI (2019, April 5) “Zomato posts USD 294 mn loss for FY19; revenue up 3-fold to USD 206 mn”, Economic Times. Available at:
https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/zomato-posts-usd-294-mn-loss-for-fy19-revenue-up-3-fold-to-usd-206-
mn/articleshow/68743020.cms?from=mdr (Accessed: September 1, 2019)
5
KJ, Shashidhar (2017, March 16) “Zomato launches a subscription service in Dubai and Abu Dhabi,” Medianama.com. Available at:
https://www.medianama.com/2017/03/223-zomato-gold/ (Accessed: August 31, 2019)

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 Zomato™ Gold: Platform Overreach

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moved up to 700K subscribers by 2017-2018 and in August 2019 stood at $ 1-1.3 million. 6,7 Zomato Gold
had about 150,000 subscribers and a 500,000 long waiting list as of April 2018. Zomato launched its Gold
subscription service in India in November 2017.8,9 Immediately after this popular debut, it was purported
to be an ‘Invite Only’ service. In late 2018, Zomato altered the terms and conditions of its offerings bringing

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in user-limit: reducing the number of unlocks that users could choose at a table with additional restrictions
on the count of diners. Zomato offered variants of its Gold pack – called as ‘Starter’ and ‘Medium’ with
lesser benefits in early 2019.10,11

Zomato Gold Design: A unique “loyalty” programme

When Zomato sensed demand for the Zomato Gold service in India, the firm began with a smaller service

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offering called Zomato Treat: a free dessert with every meal ordered for an annual subscription of ₹249.12
Operational in April 2017, Zomato Treat attracted over 21,500 subscribers (and over 100,000 desserts
served) in 4 months and was expected to further grow faster.13 However, after running it as a standalone
offer for about 18 months, Zomato decided to shut it down in November 2018.14

Zomato Gold was launched as a loyalty programme by Zomato in November 2017 to increase diners’ multi-
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homing costs (across competing apps). Zomato Gold gave diners a buy-one-get-one offer on food and buy-
two-get-two offer on drinks. Zomato Gold came in with two offers for diners – at ₹300 for a starter pack
that offered three uses per year, or ₹1050 for an unlimited pack that offered unlimited usage for up to one
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6
Payal Ganguly. (2019, February 21) “Zomato eyes $25 million in revenues from subscription programme,” TechCircle.in. Available at:
https://www.techcircle.in/2019/02/21/zomato-eyes-25-million-in-revenues-from-subscription-programme (Accessed: September 1, 2019)
7
Financial Express Online. (2019, August 30) “As Zomato Gold numbers swelled, restaurants had to foot the bill for higher valuation,” Online,
Financial Express. Available at: https://www.financialexpress.com/industry/as-zomato-gold-numbers-swelled-restaurants-had-to-foot-the-bill-for-
higher-valuation/1691000/ (Accessed: September 1, 2019)
8
Franchise India Bureau. (2017, November 16) “Online Food ordering Zomato Launches Zomato Gold In India”, RestaurantIndia.in. Available
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at: https://www.restaurantindia.in/news/Online-Food-ordering-Zomato-Launches-Zomato-Gold-In-India.n15029 (Accessed: September 1, 2019)

9
Sindhu Kashyaap. (2017, November 15) “Zomato brings ‘Gold’ its premium subscription offering to India”, YourStory.in. Available at:
https://yourstory.com/2017/11/zomato-brings-gold-premium-subscription-offering-india (Accessed: September 1, 2019)
10
Anwesha Madhukalya. (2018, September 17) “Zomato Gold users say they’ve been ‘cheated’ as user-limit restricted,” Business Today.
Available at: https://www.businesstoday.in/current/corporate/zomato-gold-users-say-they-ve-been-cheated-user-limit-
restricted/story/282497.html (Accessed: August 31, 2019)
11
News18 (2019, February 22) “First Bite: Zomato Now Has New Gold Membership Powerpacks With No Validity Limits And Lower Prices,”
News18.com, February. Available at: https://www.news18.com/news/tech/first-bite-zomato-now-has-new-gold-membership-powerpacks-with-
no-validity-limits-and-lower-prices-2045023.html (Accessed: August 31, 2019)
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12
Mukund Kulashekaran (2017, April 11). “Introducing Zomato Treats”, Zomato.com. Available at: https://www.zomato.com/blog/introducing-
zomato-treats (Accessed: August 31, 2019)
13
Taslima Khan (2017, August 22). “Zomato Treats crosses 21,500 subscriptions in 4 months”, ET Bureau. Available At:
https://economictimes.indiatimes.com/small-biz/startups/zomato-treats-crosses-21500-subscriptions-in-four-months/articleshow/60168369.cms
(Accessed: August 30, 2019)
14
Jai Vardhan (2018, November 12). “Exclusive: Zomato suspends its first paid subscription service Zomato Treats”, Entrackr.com. Available at:
https://entrackr.com/2018/11/exclusive-zomato-treats-suspend/ (Accessed: August 30, 2019)

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 Zomato™ Gold: Platform Overreach

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year.15 The starter pack was subsequently discontinued, and the subscription rate was revised to ₹1800 per
year.16 As on March 2018, Zomato Gold and Zomato Treats had over 280,000 subscribers;17 grew to
700,000 by end of 2018, and to 800,000 by February 2019. These programmes facilitated $20-25 million
in revenue by the end of 2019.18 Zomato Gold had been one of Zomato’s crown jewels, and that was when
Zomato sold its delivery business in the United Arab Emirates to the German firm Delivery Hero in March

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2019, but decided to retain the Gold business. Although the number of subscribers for Zomato Gold was
rising five-fold, the revenues only increased two-fold (April 2018 - March 2019).19 The average revenue
realizations were falling, but Zomato responded by launching Zomato Infinity in July 2019. Infinity allowed
Gold members unlimited food and drinks for a fixed price! Though only available for high-rated restaurants,
it reduced the value available for restaurants.

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Positive Network Effects for Restaurants

Zomato Gold was a programme that premium restaurants could not ignore. Since it was launched as an
exclusive premium service for diners who were willing to pay, the expectation was that it would attract the
fine diners. That segment of diners who were less price sensitive and those who valued a fine dining
experience were those it was supposed to attract. It would not make sense for a restaurant to let go of this
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opportunity to affiliate with Zomato Gold, and risk losing these fine diners to competitors. The best
restaurants signed up soon.

Negative Network Effects

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The terms and conditions of Zomato Gold subscription service kept evolving. What started as an open-to-
all service (anyone can buy the subscription) in November 2017, became invitation-only in April 2018. By
September 2018, it restricted the unlocking to one per group of three persons at a restaurant table instead
of one unlock per person. This meant, when you dine as a group of three people, only one of the three could
use their Zomato Gold subscription. In February 2019, it introduced Zomato Gold Powerpacks for people
who ate out less frequently – at ₹300 for 3 unlocks and ₹700 for 10 unlocks. These changes enraged a lot
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of users as well (refer to Exhibit 2) – as more and more subscribers signed-up for the Zomato Gold

15
Pradip Kumar Saha (2019, March 5). “Zomato’s Gold Millions”. Available at: https://the-ken.com/story/zomato-gold-loyalty/ (Accessed:
August 30, 2019)
16
Zomato’s Terms & Conditions. Available at:
https://www.zomato.com/conditions?country_id=1&page_type=SUBSCRIPTION&gold_plan_page=1 (Accessed: August 30, 2019)
17
Deepinder Goyal (2018, April 2). “Zomato – ‘Short Form’ Annual Report FY18”. Available at: https://www.zomato.com/blog/annual-report-
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fy18 (Accessed: August 30, 2019)

18
Biswarup Gooptu (2019, February 21). “Zomato Gold to bring in $20-25M in revenue by the end of 2019”. Available at:
https://tech.economictimes.indiatimes.com/news/startups/zomato-gold-to-bring-in-20-25-million-in-revenue-by-the-end-of-2019/68085537
(Accessed: August 31, 2019)
19
Abhinaya Vijayaraghavan (2019, August 21). “Restaurants take control as Zomato Gold loses Midas touch”. Available at: https://the-
ken.com/story/restaurants-take-control-as-zomato-gold-loses-midas-touch/ (Accessed: August 30, 2019)

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 Zomato™ Gold: Platform Overreach

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subscription, the less valuable it became for the existing subscribers! The really high volumes forced
Zomato to squeeze subscription benefits, and the growth of subscribers also stalled.

The restaurants who had signed up with the platforms were already pressurized on three counts – the
commissions charged by the platforms were increasing; the ranking algorithms used by the platforms in a

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user search was increasingly becoming opaque; and the platforms had stopped sharing customer data with
the restaurants citing customer safety and privacy issues. Additionally, the platforms were expanding their
capacity by setting up cloud kitchens in popular geographies.20

The indiscriminate growth in number of diners actually turned the tables for the restaurants. The Zomato
Gold programme began attracting bargain hunters, quite a different segment than the fine diners as

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originally intended by the Zomato Gold programme. The restaurants began losing money servicing the
Zomato Gold customers. Sahil Sambhi a partner at three restaurants in Delhi, including the microbrewery
– The Drunken Botanist, said that while Gold would bring in more diners, it did not necessarily translate
into higher sales.

Last month, I made certain parts of my menu inaccessible to Gold and my sales went down
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by ₹10-12 lakh ($13,924-16,709) a month. That shows the customer is very Gold loyal. So,
more diners are coming in, but my sales are going down.21

Given that the loyalty programme only increased loyalty to the Zomato App, but not the specific restaurants,
restaurant partners were unwilling to indiscriminately service these bargain hunters. Thomas Fenn, a partner
at Mahabelly, a restaurant in Delhi said:
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We saw that they were not premium customers because the entry barrier was lowered.
There is no stickiness, the day I am not on Gold, they might not come.22

The Fear-Of-Missing-Out (FOMO) effect kept the restaurants going with the Gold programme for some
time, but when the costs were higher than what they could bear, they began protesting.
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Restaurants’ Reactions

At 1.3 million subscribers and 4,570 restaurants on the Zomato Gold programme, the number of bargain
hunters landing up at restaurant tables was growing substantially. Given that the revenues from the Zomato
Gold subscription went directly into Zomato’s bottom line, and all the discounts were funded by the
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20
Kuwar Singh (2019, August 27). “How India’s restaurateurs united on WhatsApp in five hours to fight food delivery apps”. Interview with
Anurag Katriar, NRAI Mumbai Chapter. Available at https://qz.com/india/1695796/why-some-indian-restaurants-are-fighting-zomato-swiggy-
ubereats/ (Accessed: August 30, 2019)
21
Abhinaya Vijayaraghavan (2019, August 21). “Restaurants take control as Zomato Gold loses Midas touch”. Available at: https://the-
ken.com/story/restaurants-take-control-as-zomato-gold-loses-midas-touch/ (Accessed: August 30, 2019)
22
Abhinaya Vijayaraghavan (2019, August 21). “Restaurants take control as Zomato Gold loses Midas touch”. Available at: https://the-
ken.com/story/restaurants-take-control-as-zomato-gold-loses-midas-touch/ (Accessed: August 30, 2019)

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 Zomato™ Gold: Platform Overreach

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restaurants,23 the burden became too much for the restaurant-partners to bear. In August 2019, the hitherto
unorganized restaurants under the aegis of NRAI (https://nrai.org), collectively began protesting against
deep discounting by Zomato (and other platforms) using the #logout campaign. Zomato responded by
restricting the number of Zomato Gold unlocks per table to two, one unlock per day for every user, and

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providing ad credits to restaurants that managed more than 1000 unlocks a quarter (restaurants with over
600 unlocks would get video content). The NRAI labeled these changes as cosmetic and not addressing the
core problem – one of deep discounting.24 As Zomato continued expanding the number of subscribers, both
the subscribers (fine diners) and the restaurants lost value. The FOMO kept the restaurants going for some
time until NRAI started the Twitter campaign. Then one by one, the frustrated restaurants owners began
leaving the Gold programme. The one-time fee the restaurants paid (₹40,000) was not much to lose, but the
45-day notice period to leave the service was what kept the restaurants logged in.

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THE WAY FORWARD

When Rashmi received another call on her mobile phone from the local Zomato manager, she knew she
had to answer her either way about joining the Zomato Gold delivery programme. She had also received an
email from Zomato’s CEO Deepinder Goyal asking restaurateurs to share their pain points (see Appendix
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3). She was wondering what she should do now: should she join this organized rebellion (#logout campaign)
that involved leaving not just the Zomato Gold programme, but the platform itself?
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23
Kuwar Singh (2019, August 27). “How India’s restaurateurs united on WhatsApp in five hours to fight food delivery apps”. Interview with
Anurag Katriar, NRAI Mumbai Chapter. Available at https://qz.com/india/1695796/why-some-indian-restaurants-are-fighting-zomato-swiggy-
ubereats/ (Accessed: August 30, 2019)
24
Abhinaya Vijayaraghavan (2019, August 21). “Restaurants take control as Zomato Gold loses Midas touch”. Available at: https://the-
ken.com/story/restaurants-take-control-as-zomato-gold-loses-midas-touch/ (Accessed: August 30, 2019)

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 Zomato™ Gold: Platform Overreach

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Exhibit 1
Order flow through the Zomato’s ecosystem

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Source: Authors’ representation
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Exhibit 2
An enraged Zomato Gold user venting frustration on Twitter
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Source: https://twitter.com/deep__sanghvi/status/1038764352835383296, accessed from the Internet on December 13, 2019

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 Zomato™ Gold: Platform Overreach

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Exhibit 3
Zomato CEO Deepinder Goyal’s email to restaurants

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Source: Abhinaya Vijayaraghavan (2019, August 21). “Restaurants take control as Zomato Gold loses Midas touch”. Available at: https://the-
ken.com/story/restaurants-take-control-as-zomato-gold-loses-midas-touch/ (Accessed: August 30, 2019)

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