This is the trouble with instant analysis. On Thursday, Google (NASDAQ:GOOG) announced that it would buy Zagat, the “quote happy” publisher of thumbnail “restaurant reviews” with a rating system prone to “grade inflation.” Although Zagat had “struggled” in the smartphone era, an instantaneous consensus emerged that the deal would “crush” the prospects of online-reservation pioneer, OpenTable (NASDAQ:OPEN).
Investors responded by giving OpenTable the kind of bleak rating normally reserved for greasy spoons. By noon, the stock was down 12% from Wednesday’s close, but by day’s end investors seemed to think that was a little overdone. The stock still closed down 8% at $57.50 on six times its average daily volume, and there’s reason to think OpenTable will recover further in the short term.
That’s because, as the day wore on, clearer minds began to look at the deal and see it might not be all it was cracked up to be. Reuters’ Felix Salmon, noting that “Zagat is mainly useful as a source of phone numbers and opening hours” also owns “a massive global print-publishing business; I can’t for the life of me imagine why that’s something that Google wants to get into.”
Google is probably interested in building out a platform where people rate and review restaurants. It’s tried to build its own platform and seed it with users of Gmail and its other services, but that didn’t work. Yelp also rebuffed Google’s attempt at a buyout.
But Zagat offers a global brand and an audience of diners who have been crowd-sourcing Zagat reviews for decades. Google is clearly hoping to plug those readers into the online platform it’s been building.
The trouble is, most Zagat reviewers seem to be loyal to the printed guides. When it comes to online reviews, people are increasingly heading over to Yelp. A story on marketing-news site ClickZ quoted comScore data showing Yelp’s unique users rose 42% to 33.3 million this July from the same month in 2010, while Zagat’s unique visitors dropped 20% to 238,000. So Zagat’s online audience is not only 1/138th as big as Yelp’s, it’s also shrinking.
Shrinking so fast, in fact, that Google appears to have paid less than a third of what Zagat thought it was worth three years ago. In 2008, the Zagat family tried to sell the publisher for $200 million. But TechCrunch’s Erick Schonfeld did some clever math to deduce that Google probably paid less than $66 million for the company.