Google Inc. took its biggest step yet in creating original content for its millions of users worldwide, snapping up the restaurant ratings guide Zagat to push into the growing market of online review services that attract major advertising dollars.
The Mountain View, Calif., search giant is hoping Zagat's ratings and reviews will help it crack local commerce, a market in which it has struggled to find the right strategy. The acquisition announced Thursday gives Google instant access to reviews, competing against popular websites such as Yelp, TripAdvisor and CitySearch.
With the acquisition of Zagat, Google can tap into millions of small neighborhood businesses to generate adverting revenue. It's looking to bring more local information to its search results and believes it found the perfect partner in Zagat, whose burgundy-colored pocket guides have been a restaurant-industry staple for the last 29 years.
"Google is increasingly trying to bridge the online and offline world," said Greg Sterling, a senior analyst at Opus Research. "Consumers use the Internet to guide their purchase decisions in the real world. Google sees that opportunity as larger than e-commerce. And reviews are an essential part of that."
Tim and Nina Zagat, the husband-and-wife team behind the New York company, kicked off the notion that ordinary people could be expert reviewers three decades ago. The Internet ushered in a new era of user-generated content with popular websites such as Yelp, which draws more than 50 million users a month who have written more than 20 million reviews.
Zagat — which has expanded from restaurants to other categories such as golf courses, shops and nightclubs — will supply a wellspring of trusted reviews to Google, which has not been able to generate the reviews on its own and has drawn criticism for lifting snippets from other websites.
Whereas Yelp accepts reviews from anyone, Zagat takes user feedback and distills it into one review. In late 2009, Google attempted to buy Yelp, Zagat's leading online competitor, for $500 million, but the deal collapsed.
Terms of the Zagat acquisition, including the deal's price, were not disclosed. It was reported at the time that the company might fetch as much as $200 million.
"Google is getting Yelp on the cheap," BGC Partners analyst Colin Gillis said.
Marissa Mayer, a Google executive in charge of the company's local strategy, said Zagat's millions of readers and reviewers would become a cornerstone of their strategy. Google has been angling to become the go-to guide for consumers who do research on the Web before booking a hotel room, hitting the golf course or checking out a museum exhibit.
"Zagat is something where the Google spirit, format and process of reviews come together," Mayer said. "I just love the user-generated content nature of it."
Zagat reviews — short, concise, punchy — easily made the transition from printed page to Web page and now fit neatly on mobile screens, Tim Zagat said. Now Zagat will get a boost from Google's massive audience: Roughly 1 in 7 people in the world visit Google every month.
The Zagat acquisition is one in a series of bold steps Google is taking to keep competitors such as Facebook from swiping Web surfers and advertising dollars from its search engine, which based on algorithms has propelled the company to be one of technology's most valuable. Search advertising still accounts for the vast majority of Google's nearly $30 billion in annual revenue.
Like other major Internet players, Google has been trying to crack the local business market for years. Small businesses spend an estimated $140 billion on local advertising.
In July, Google Chief Executive Larry Page said local was one of his top priorities. Consumers who use Google's maps and other products to find restaurants and shops on their mobile phones have become increasingly more lucrative.
Google is pushing to extend that dominance by tapping into how consumers spend their money and time offline, said Paul Saffo, the veteran Silicon Valley technology forecaster.
"More and more, I feel like this is Google's world and we just live in it," said Saffo, a managing director of Discern Analytics who owns Google shares. "If I want to look at a map, I click on the pull-down menu on the Google home page. If I want to tell my friends something, I click on Google Plus. I find that I have the Google page open more and more of the day. Now when I am looking up a restaurant, I will check out Zagat reviews."
Google has rolled out a number of local initiatives such as daily deals for local businesses in some cities and Google Wallet to make payments with mobile phones. Google also displays in shopping search results when local businesses carry an item.
Last year Google introduced "Places," which has millions of pages for local businesses. It has tried to encourage consumers to write reviews but could not compete with the popularity of competitors such as Yelp.
Zagat got its start as a guide to New York eateries with opinions from Tim and Nina Zagat's friends. In 2000 they sold about a third of the company to investors including private equity group General Atlantic for $31 million.
In 2008 as the economy fell into a deep recession, Zagat put itself up for sale and hired Goldman Sachs as an advisor. It was reported at the time that the company might fetch as much as $200 million. In June the Zagats abandoned the effort and said they would instead look to expand with new investments to grow its Internet business.