In a Twist, Google Reviews Zagat, and Decides to Bite

Tim and Nina Zagat, who began their restaurant ratings more than three decades ago, will remain at the business.
Michael Falco for The New York Times
Tim and Nina Zagat, who began their restaurant ratings more than three decades ago, will remain with the business.

For years, a wave of online competitors eroded Zagat’s formidable empire of quotation-mark-happy reviews of restaurants and bars around the world.

But on Thursday, Zagat found an ally in the biggest online giant of all, selling itself to Google.

The deal will unite Zagat, whose burgundy-covered guides were among the first examples of user-generated content, and Google, which has made local services one of its highest priorities.

Terms of the deal were not disclosed, but people briefed on the matter said that Google had paid $100 million to $200 million. Tim and Nina Zagat, who began the company by compiling restaurant ratings from friends into slim surveys more than three decades ago, will remain with the business.

The deal will most likely mean a lucrative payout for the Zagats, as well as for the private equity firm General Atlantic, which bought a third of the company in 2000. But it also raises questions about how Google will integrate Zagat, whose main offerings include its popular paper guidebooks and a paid subscription Web site.

Local online advertising is an increasingly lucrative market, one that analysts estimate to be about $140 billion a year. Google estimates that about 20 percent of its daily searches are for things that are nearby, and that percentage is even higher for queries made on mobile phones.

“All of these are users wondering where they should go, where they should spend their time, so to be able to offer accurate information is important, and that’s why we’ve been getting focused on reviews,” Marissa Mayer, Google’s vice president for local, maps and location services, said in an interview.

Ms. Mayer said that Zagat’s reviews would supplement Google’s Places reviews, but that the publisher’s Web home would remain a paid site for now.

“I think Marissa needs a little time to think about it,” Mr. Zagat said, “but the list of things to do here is pretty obvious.”

Google said it would keep publishing the guidebooks for now. Mr. Zagat said that the print books were “very profitable.”

Ms. Mayer said that Google planned to expand Zagat’s team, which now includes sales staff, fact-checkers, hundreds of contractors who conduct the surveys and, most important, the hundreds of thousands of reviewers in more than 100 cities.

Two years ago, Google tried — and failed — to buy Yelp, Zagat’s biggest online competitor, for $500 million. Last year, Google introduced Places, a Yelp-like service for listing local businesses and collecting consumer reviews. But the service has not collected the same volume of reviews as Yelp and others.

“It’s a little bit of a consolation prize,” Greg Sterling, an analyst with Opus Research, said of the Zagat deal. “They went after Yelp, which would have been a bigger prize for them for many reasons, including salespeople and a sexier brand. But this is a pretty strong acquisition.”

The Zagats have tried to sell their company at least once before. In January 2008, they announced that they had hired Goldman Sachs to auction the publisher. But the couple called off the sales process six months later, after several buyers balked at the $200 million asking price.

The Google deal will end several troubles that have restricted the Zagats’ attempt to expand an online business. Because the Zagat Web site is largely behind a subscriber pay wall, Google and other search engines did not rank the company’s reviews high on their pages of results. Instead, the company has turned to a series of alliances with the likes of Facebook, Foursquare and, yes, Google.

The deal sent ripples through other local-focused Internet businesses on Thursday. Shares in OpenTable, the restaurant reservations company that has introduced diner reviews, tumbled more than 8 percent, to $57.50.

Ms. Mayer and the Zagats first met at the TED technology conference in 2008. This year, at a preconference lunch session featuring Ms. Mayer, the Zagats sat in the front row. Afterward, the couple approached her and offered their business cards, jokingly wishing her luck in their competition in the local information sector.

Soon after, the Zagats showed up in the front row for a presentation by Ms. Mayer, this time at the City University of New York Graduate School of Journalism. Mr. Zagat brought brochures for the Zagat wine club.

Ms. Mayer subsequently urged an associate to set up a lunch meeting for the four of them, and the seeds of the deal were planted. The Zagats’ repeated front-row appearances were probably not by chance. Ms. Zagat said that the company had considered Google as a potential buyer in 2008.

“I proposed Google to Goldman Sachs and to other people working with us, and they said that Google wasn’t interested,” she said. (This time, Zagat turned to the Peter J. Solomon Company and Allen & Company as advisers.)

For now, Zagat’s employees will remain at the company’s headquarters in Columbus Circle in Manhattan because of lease constraints. Mr. Zagat said he believed that the area had better restaurants than the Chelsea neighborhood, where Google’s New York offices are located.

He added that Zagat workers would take advantage of Google’s free meals — and that they intended to rate the catering.

{{hash_tags}}

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s