Rating the Zagat Deal

When first I heard that Google had acquired Zagat Guides, I thought I would need some time to ponder the merits of this acquisition. I've changed my mind. A deal this patently harebrained doesn't require deep reflection. A few thoughts for your consideration:

• Let's start with the optics. Google, long tagged with the cutesy "frenemy" label by content providers, has maintained peaceful co-existence with the content industry by repeatedly claiming it had no desire to become a content provider itself. What's the best way to shatter this convenient fiction? How about a nine-figure acquisition of a high profile content company?
• There's no scale in the Zagat content set. Zagat doesn't even have coverage of all major cities. The only way to fix this is with a huge investment in editorial (anathema to Google's "untouched by human hands" model) or to go heavy on user-generated content for Zagat, killing its distinctive voice and curated content in the process. Face it, Google should have paid up and bought Yelp. That is a deal that would have made sense.
• Zagat has a paid content model, not exactly a core competency at Google. More significantly, Zagat hasn't even figured out this model itself, having recently re-launched itself because too much was behind the firewall. El predicto: Zagat becomes a free site sooner rather than later. If Google does choose to stay with the paid model, the temptation to favor Zagat in search results will be overwhelming, and that's a direction Google goes at its own peril.
• Zagat (little birdies tell us), makes a big chunk of its profit from selling its print guides with corporate logos on them for gift-giving. Yes, Google appears to have paid a stiff premium for a print publisher.
• The Zagat model is extensible. Consider Zagat's move into rating physicians. Well, that's unfortunate timing for Google, which just recently quietly shuttered its Google Health initiative.
• There's an e-commerce play here. Sure there is. And it's not a new idea. Zagat actually made a minority investment in OpenTable way back in 2000. But Google claimed in its much larger deal with airline schedule data company ITA that it wouldn't be selling tickets. So why would it now want to book restaurant reservations? And, as noted above, once you start looking for transactional revenues, you will inevitably start favoring your own listings, and there's just no hope for a biased search engine.
• Zagat will help Google finally crack the local business market. This is intriguing since Zagat doesn't have a field sales force, which makes sense since Zagat doesn't sell its listings to local businesses. Of course, Google could leverage the Zagat brand with its own local sales force ... if only it had one.
• Keep in mind too that Google runs Google Places, a giant user-generated reviews site. It seems inevitable that Zagat will ultimately and uncomfortably reside here ... free restaurant reviews alongside paid restaurant reviews ... now that's compelling merchandising, and more reason for me to suspect that Zagat will ultimately be made free and dumped into Google Places to augment its content.

I could continue to pile on, noting Google's stellar track record with its acquisitions, all of which had more compatible corporate cultures than Zagat. Humorously and perhaps ominously, Marissa Meyer of Google is quoted as referring to the Zagat editing process as "snippetizing." Perhaps there's an app for that?

 

And in perhaps the most telling quote of all, Tim Zagat, when asked of Google's plans for the Zagat business said, "I think Marissa needs a little time to think about it."

Comments

[Bill]

Nine-figure acquisition? Where'd you get that? Tim and Nina have tried to sell the business for years even as its value continued to drop in the face of competition from Yelp and others. It's an unexpected and intriguing deal to be sure, but I'd be surprised if the price exceeded $50 million.

[Russell Perkins]

Bill,
With no inside knowledge, I went with the New York Times: "Terms of the deal were not disclosed, but people briefed on the matter said that Google had paid $100 million to $200 million."

http://dealbook.nytimes.com/2011/09/08/google-to-buy-zagat/?scp=1&sq=zagat&st=cse

[Joshuamking]

Watch for a Hart-Scott-Rodino filing. If the deal closes without one, the price will have been less than $66 million (that's the threshold for being required to report the transaction to the DOJ or FTC).