Google’s Zagat Buy Makes Local Market Waves

by Tom Taulli | September 8, 2011 1:28 pm

At a dinner party in 1979, Nina and Tim Zagat struck up a conversation about restaurant reviews. They realized that people weren’t impressed with what newspapers were doing.

Might this be an opportunity for a new business? It definitely was. Over the years, the Zagat review service has become a trusted brand, with coverage in over 100 countries. The company also has a thriving business for customized offerings, with clients including Coca-Cola (NYSE:KO[1]), Visa (NYSE:V[2]) and Toyota (NYSE:TM[3]).

Interestingly enough, Zagat may also be a powerful weapon in the fight for the dominance of the lucrative local online market. To this end, Google (Nasdaq:GOOG[4]) agreed Thursday to purchase the company (the price tag was not disclosed).

Perhaps Zagat’s most valuable asset is its 350,000+ surveyors. It’s a group that certainly understands how to rate restaurants, and it’s the kind of thing that is extremely difficult to replicate.

Zagat should be a great fit for Google. The online giant can populate the service across its wide distribution footprint – both on the desktop and on mobile devices. What’s more, Google could make all of Zagat’s content free.

The deal will also be a big problem for companies like Yelp. Ironically enough, Google tried to buy that company two years ago for $500 million.

Yet the biggest loser could be OpenTable (Nasdaq:OPEN[5]), which saw its shares tumble nearly 9% on the news. Once trading at $118, this former Wall Street darling has slumped 35% in the past six months.

True, OpenTable has a great online reservation system and prolific reviews. But the company has seen a slowdown in its growth ramp. At the same time, OpenTable’s CEO, Jeffrey Jordan, departed to become a venture capitalist.

And even with the falloff in the stock price, OpenTable is still valued at a whopping 74 times earnings. It looks like a good idea for investors stay away from this one.

Tom Taulli is the author of various books, including “All About Commodities[6].” He does not own a position in any of the stocks named here.

 

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.

Endnotes:

  1. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  2. V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
  3. TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM
  4. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  5. OPEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=OPEN
  6. All About Commodities: http://goo.gl/6Q4x5

Source URL: https://investorplace.com/2011/09/googles-zagat-buy-makes-local-market-waves/