Assignment 3

Gunjan Choure
Roll no. :

Case Study of Zoomo’s Financial Failure

Introduction :

Zoomo was a Bangalore-based company that started with the goal of building trust in
the Indian used cars market. Unlike many car portals, Zoomo did not open up their
marketplace to other car dealers. Instead, it decided to only list cars after thoroughly
inspecting them.The car would then be sold through peer-to-peer transactions. Zoomo’s
aim was to offer a reliable and trustworthy platform where customers would be assured
of the quality of the cars and that they would be given a fair, standardized price. The
startup caught the attention of some savvy investors and was able to raise over $7
million through venture capital.
Reason of Failure :

What killed Zoomo wasn’t lack of funding. In fact, the three Indian founders decided to
close shop and return the money to investors when they still had half of the raised
capital in the bank. They also seemed to have a great team of talented and committed
people.

The problem the venture had was more related to the Indian market itself. The
buy-and-sell automobile market was relatively young in India and many of the people
that would come to Zoomo’s site would often be first time buyers or sellers who had
close to no experience in the car transaction market. Customers, in particular, would
often like a certain model but when they checked the price for a similar model on other
marketplaces they would discover that it would often be lower, not realizing that there
might have been hidden reasons for the slashed price tags. They weren’t able to assign
standardized prices to cars based on their conditions, model and features and the
haggling was deeply rooted in Indian culture. So, their estimation was that for every 100
cars they inspected they sold only 20, which would not have been sustainable. They
changed their strategy and decided to have a base price for the car and have
inspections performed as an added service for an additional cost. The modification
allowed them to sell slightly more cars but not enough.

Zoomo’s team concluded that the Indian market was not ready and that they needed a
more mature environment to be able to pull off a similar model and make it scalable.
After considering a merger or an acquisition for a brief period, they decided to cut their
journey short and return the rest of the remaining capital.