Wednesday, March 11, 2009

The Zagats' accidental empire

I attended an interview with Tim and Nina Zagat, founders of the eponymous Zagat's guide. Sharing a passion for food, beginning in 1979, as a hobby, this lawyerly couple mailed annual restaurant surveys to friends and tabulated results on mimeographed sheets of paper available to all comers. Today, nearly 40,000 people annually review restaurants, hotels, and shopping locales.

As popularity soared, they incorporated for the simple reason of wanting to fund their hobby with pre-tax dollars (Nina's the tax attorney). Their guiding principle was that 'reviews by many people provide a far better indication of a restaurant's quality and value, than the opinion of one person'. No matter how well trained, or how well they write, one reviewer always comes with a bias that you may not share. Moreover, the role of a critic is to write a critical essay. The Zagats' view their guide(s) purpose is to provide necessary information to help people make wise, and personal decisions.

Much has evolved in the 30 years since founding; especially from the days when no self-respecting publisher would publish their guide as the universal rejection was that 'no one cares what ordinary people have to say'. The Company now employees 115 full-time people, publishes internationally, and has branched into guides far beyond restaurants. Though the founding principle of aggregating data from 'ordinary people', not the fortunate few remains the same.

They have embraced the internet experience as a way to speed ratings, assemble more surveys and lower costs. They view individual food bloggers as a latter generation of food critics and non-specific internet portal review sites such as Yelp and Urban Spoon, as not having sufficient credibility to compete effectively in their domain. Interesting perspective when viewing the traffic chart below:




They offer some free capabilities on Zagat.com, however, the key ratings are only accessible via paid subscription and that probably accounts for the low traffic numbers and loss of internet market share (I suspect they have vigorous debates circling around market share build vs current income). Nonetheless, it is a refreshing story and a wonderful way to reflect on seeing yet another entrepreneurial, low capital intensive company building serious equity value through passion and filling a non-obvious, long-standing market vacuum.

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