Strategic Thinking: Google buys Zagat to vie with OpenTable and Yelp

For me, strategic thinking involves, among other things, the ability to think at a systemic level (the proverbial “big picture”) as well as to see that picture dynamically over time, much like 3-dimensional chess where one envisions moves, counter-moves and counter-moves to the counter-moves, what I term the “chess board of moves.” Not only must one see these waves of nth-order effects, one must picture the many possible branches, while at the same time begin to prune some off as less likely or less attractive. Only time will tell whether Google’s recent purchase of Zagat will work, but the entire game board of the online, mobile information world is ripe for strategic thinking.

Google recently bought the dining ratings authority Zagat, to add a valuable brand to its content offerings and bolster its push into the growing local commerce market.

Local commerce offers services such as finding a discount from a nearby store, or a review of a neighborhood eatery, and the world’s No. 1 search engine plans to compete in this market against Yelp and OpenTable.

The deal gives Google valuable content about restaurants, hotels and nightclubs that can be paired with its popular online maps and mobile search services.

Google needs to provide more than just directions to consumers seeking information about restaurants and other local businesses, said Marissa Mayer, Google’s VP of Local, Maps and Location services, in an interview with Reuters on Thursday. “It’s also (about) getting them a sense of the place. A sense of what to expect,” said Mayer. “Zagat reviews, in a few short lines and a few scores, give you a great sense of a place very quickly when you’re on the go.”

Zagat, arguably, is also seen as providing a higher-quality set of reviews because editors distill user feedback into a single trusted review, much in the same way Robert Parker provides a consistent, albeit subjective, rating system. Even though it is subjective, once you know the sensibility of the editors, you can fairly accurately anticipate what you’ll find when you go to the restaurant (or drink the wine).

The move is part of Google’s push to adapt its online services for a world in which consumers increasingly access the Web on mobile phones such as Apple’s iPhone and rely on social networking services such as Facebook to get information from friends.

Last month, Google announced plans to acquire mobile phone manufacturer Motorola Mobility for $12.5 billion. The deal, if approved by regulators, will allow Google to produce its own line of smartphones based on its Android software.

“A reasonable person would say that Google may never beat Apple in product design by itself, at least not for a sustainable period of time. But Google could better integrate content and have that become another reason to buy those devices,” said Stifel Nicolaus analyst Jordan Rohan.

The 32-year-old Zagat, which polls consumers and compiles reviews about restaurants around the world, will become a cornerstone of Google’s “local offering”, Google said.

“This underscores Google’s local and mobile initiatives,” said Brian Pitz, an analyst at UBS, who expected the acquisition to provide a boost to Google Maps as customers look for restaurants. Last year, Google moved Mayer, a top search executive, to head its local initiatives.

Google needs reviews and other content for its “Google Places” websites, in part to fend off criticism. It has been accused of using comments from review sites such as Yelp, essentially siphoning off their readers and, more importantly, their clicks. Google has toned down its borrowing of comments recently, Pitz said.

The move raises the question of whether the search giant will start its own restaurant reservation service, building on existing ties with restaurants that advertise on it. The shares of restaurant-booking service OpenTable, which also publishes reviews and ratings, closed down more than 8 percent at $57.50 on Thursday.

Pitz said expanding into reservations would require extra steps such as building out reservation software and getting restaurants to install it, as well as building different relationships with the restaurants.

“It’s apples and oranges,” he said.

While much of Zagat’s content is free and available to anyone, some content remains behind a paywall and it was unclear if Google would remove it.

Founded by Tim and Nina Zagat, the service provides the familiar burgundy pocket-sized guides to restaurants in more than 100 cities. It may be one of the earliest forms of user-generated content, Google Vice President Marissa Mayer said in a blog post on Thursday.

Zagat gave Google a tongue-in-cheek rating on its home page on Thursday, awarding the Internet company a maximum 30-point rating for its “local, social, mobile and usefulness” categories. Industry analysts regard the local, social and mobile markets as some of the fastest-growing areas of the technology sector.

“We are thrilled to see our baby placed in such good hands and to start today as official ‘Googlers,'” the founders said in a joint statement.



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