Watch CBSN Live

Google Buys Publisher Zagat to Kill Off Yelp

For years, Google (GOOG) insisted it wasn't a publisher. All it did was collect information and make it available online... like a publisher. But now that Google bought restaurant rating publisher Zagat, it shows that it wants its own content network, and all of the advantages that will afford.

Although Zagat is primarily known for publishing what consumers think about restaurants, Google made it clear that its plans are likely much larger:

With Zagat, we gain a world-class team that has more experience in consumer based-surveys, recommendations and reviews than anyone else in the industry.... Today, Zagat provides people with a democratized, authentic and comprehensive view of where to eat, drink, stay, shop and play worldwide based on millions of reviews and ratings.
In other words, Google plans to use Zagat's operations to power a Yelp-like service ... to try clobbering Yelp and others in the hyperlocal recommendation space.

Pushing data is publishing
Google denied being a publisher because it didn't want to appear to compete with the very sources that provided much of the information it used to make money. It's actually no different in that way from many traditional publishers. Such companies gathered information and turned it into directories, guide books, compendiums, and other names for getting paid to point people to things that exist.

However, Google does have a problem with its business model. When you already suck in as much data from the Internet and then automatically publish it as Google does, you quickly brush up against maturity. Google already has an estimated billion users, and as I mentioned in a piece earlier today on Facebook, there are about 2 billion Internet users worldwide.

Running out of room
With 50 percent penetration, Google can't expect to keep expanding search, its mainstay business, through its existing global focus. The company needs to publish more information for niches, which is why hyperlocal material is of such interest. Not only do people want that data for wherever they are, but hyperlocal represents ways to strengthen the core business as well, as Columbia Business School associate professor of business Brett Gordon said in an interview with BNET:

People go online very often to search for a restaurant, and they will go to a site that they know has that kind of information. While they're there, they will look at other services. It would allow [Google] to learn more about the people and offer more ads on a long term basis.I think this is part of them trying to build a basic content network that touches many aspects of someone's work and personal lives and would endear them to Google as a brand and a basic host of services. All of this is to say, the more people I have on my site, the more I can keep on serving ads to them. And the more I see them in different contexts, the better targeted the ads will be. The better targeted the ads, the more I can charge for them.
Whether Google's effort will succeed or not is another matter. Yelp is already well-established and a couple of years ago felt confident enough to walk away from a $500 million acquisition deal offered by none other than... Google.

Then again, today's announcement apparently hammered the stock price of OpenTable (OPEN), which provides online restaurant reservation services and has restaurant reviews. Many companies -- not the least including a lot of Yelp competitors -- are undoubtedly nervous about the move.


Image: morgueFile user karlalopez
View CBS News In