Google Buys Zagat: It's All About Local

With Deal, Internet Giant Is Starting to Look a Little More Like a Media Company

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Google has acquired Zagat, a high-end restaurant and shopping reviews publisher, to bolster its local business content.

"Moving forward, Zagat will be a cornerstone of our local offering," wrote Marissa Mayer, Google VP-local, maps and location services, in a blog post announcing the deal.

Until now, the search giant has populated its Google Places pages with aggregated content from outside sources, which until recently included Yelp reviews. However, Yelp, a user-generated reviews site for local businesses, found Google Places to be in direct competition to its business. With Zagat publishing arguably some of the most respected restaurant reviews and ratings , Google now has its own store of highly respected local content. The restaurant and shopping reviews publisher has been in the business more than 30 years and covers 13 categories in more than 100 cities.

Local has proven to be a tough nut for Google to crack because its search products are sometimes too expensive for small businesses. But Google has been steadily rolling out new products to address the large market. Total local U.S. online ad spending for 2011 is projected to hit $13.5 billion with paid search accounting for only $4.8 billion, according to research firm Borrell Associates. Overall local online spending is projected to balloon to $25.4 billion by 2016 with paid search decreasing to $4.3 billion. Part of that is attributed to shifts in spending to targeted display ads on social networks such as Facebook.

To build on local ad products outside of search, Google revamped its local business directory into what is now called Google Places last spring and later moved star search exec Marissa Mayer to helm local services. It has also launched its own daily deals product, Google Offers.

"When [Zagat content] is integrated into search and its daily deals service, [Google is ] going to have a larger ad base to look at," said Peter Conti, exec-VP and partner for Borrell Associates.

This deal comes nearly two years after Google tried to buy Yelp for a reported $500 million. The deal fell apart and the consensus was that Yelp ultimately balked; however, another report claimed Google pulled back because Yelp was thought to have leaked details of the negotiations to drive up its purchase price.

An innovator in consumer-written reviews, Zagat erected a paywall to its website in the late '90s and soon saw its niche swamped with a host of competitors that got better distribution through Google search results. In 2008, Zagat hired Goldman Sachs to seek a buyer for the company, but the asking price of $200 million proved steep and no deal came of it.

Now the company is owned by the dominant force in search and, increasingly, local advertising.

"Google understands that partnering is the business model for internet and mobile success," Mr. Conti said. "This really puts traditional and local media in a tough position, too -- newspapers and TV stations don't typically partner up and Google properly exploits the network capabilities of the internet."

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Contributing: Cotton Delo.

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