Rating the Zagat Deal
When first I heard that Google had acquired Zagat Guides, I thought I would need some time to ponder the merits of this acquisition. I've changed my mind. A deal this patently harebrained doesn't require deep reflection. A few thoughts for your consideration:
- Let's start with the optics. Google, long tagged with the cutesy "frenemy" label by content providers, has maintained peaceful co-existence with the content industry by repeatedly claiming it had no desire to become a content provider itself. What's the best way to shatter this convenient fiction? How about a nine-figure acquisition of a high profile content company?
- There's no scale in the Zagat content set. Zagat doesn't even have coverage of all major cities. The only way to fix this is with a huge investment in editorial (anathema to Google's "untouched by human hands" model) or to go heavy on user-generated content for Zagat, killing its distinctive voice and curated content in the process. Face it, Google should have paid up and bought Yelp. That is a deal that would have made sense.
- Zagat has a paid content model, not exactly a core competency at Google. More significantly, Zagat hasn't even figured out this model itself, having recently re-launched itself because too much was behind the firewall. El predicto: Zagat becomes a free site sooner rather than later. If Google does choose to stay with the paid model, the temptation to favor Zagat in search results will be overwhelming, and that's a direction Google goes at its own peril.
- Zagat (little birdies tell us), makes a big chunk of its profit from selling its print guides with corporate logos on them for gift-giving. Yes, Google appears to have paid a stiff premium for a print publisher.
- The Zagat model is extensible. Consider Zagat's move into rating physicians. Well, that's unfortunate timing for Google, which just recently quietly shuttered its Google Health initiative.
- There's an e-commerce play here. Sure there is. And it's not a new idea. Zagat actually made a minority investment in OpenTable way back in 2000. But Google claimed in its much larger deal with airline schedule data company ITA that it wouldn't be selling tickets. So why would it now want to book restaurant reservations? And, as noted above, once you start looking for transactional revenues, you will inevitably start favoring your own listings, and there's just no hope for a biased search engine.
- Zagat will help Google finally crack the local business market. This is intriguing since Zagat doesn't have a field sales force, which makes sense since Zagat doesn't sell its listings to local businesses. Of course, Google could leverage the Zagat brand with its own local sales force ... if only it had one.
- Keep in mind too that Google runs Google Places, a giant user-generated reviews site. It seems inevitable that Zagat will ultimately and uncomfortably reside here ... free restaurant reviews alongside paid restaurant reviews ... now that's compelling merchandising, and more reason for me to suspect that Zagat will ultimately be made free and dumped into Google Places to augment its content.
I could continue to pile on, noting Google's stellar track record with its acquisitions, all of which had more compatible corporate cultures than Zagat. Humorously and perhaps ominously, Marissa Meyer of Google is quoted as referring to the Zagat editing process as "snippetizing." Perhaps there's an app for that?
And in perhaps the most telling quote of all, Tim Zagat, when asked of Google's plans for the Zagat business said, "I think Marissa needs a little time to think about it."
Influence Peddling
I am working on a white paper that describes how
subscription-based information publishers have responded to the Internet, and
what the future is likely to hold. And guess what (spoiler alert):
subscription-based information publishers charged for their content in the
past, charge for it now, and will charge for it in the future. So why is there
so much angst about charging for content online?
Consider all the ink and pixels that have been expended
discussing the New York Times and its new paywall. The New York Times provides
original, timely and valuable reporting on important topics. Why should it give
that information away for free? Charge for it (it was never free in print) and
be done with it. But, of course, it's more complicated than that.
For the many big media companies that put previously paid
content online for free in the early, innocent days of the web, trying to
charge now is akin to getting the genie back in the bottle. These companies are
now dependent on online advertising, which only generates real money if you
have huge traffic to your site. And these media companies get that traffic by
piling on even more free online content. Putting up a paywall means fewer
eyeballs, meaning less advertising revenue, coupled with great uncertainty as
to how many people will actually pay for online access.
But beyond the revenue aspect of paywalls, there is another
less-discussed issue lurking: almost as much as losing revenue, these media
outlets risk losing their influence. I read the New York Times because it is
influential; the stories it reports drive the national debate. What makes the
New York Times influential is that a lot of people read it. Damage that dynamic
and the publication quickly spirals into irrelevancy. That's why, whenever a
big media outlet breaks a story, it can't give it away fast enough. When
Rolling Stone published its expensively-produced take-down of Goldman Sachs,
for example, it didn't hold the story behind a paywall for the benefit of its
paid subscribers. Instead, it put the author on a media tour to discuss every
aspect of the article, while posting the full-text of the article on its
website for free. Rolling Stone wants paid subscribers, but it needs visibility
and influence to stay relevant and viable. This is a tough, possibly unwinnable
set of circumstances.
Interestingly and thankfully, subscription information
products function differently. In the majority of cases, they aren't chasing
the mass market, but rather a specific niche market. Often, they are the sole
source of information on a specific topic. Most subscription-based products
never carried much if any advertising, so audience size was never a
consideration. Perhaps most importantly, while many subscription information
products are influential, few actually seek to be influential.
Subscription information publishers may have limited
opportunity because of relatively small markets, but in this case, what limits
also protects. That's why they've ridden peacefully through so much of the
turmoil wrought by the Internet: there is simply far less pressure on their
business model.
The Hard Way
The first piece of news I saw this morning is that Angie's
List has filed to go public to raise up to $75 million. This is a big moment
for the company, which started in business in 1995, and has raised over $100
million to date. The result of that investment: over 820,000 paid memberships
in 170 markets nationwide. 2011 revenue likely to push $80 million. Over 2.2
million reviews of local contractors, service businesses and more recently,
healthcare providers. Yes, the company is still losing money, but this is
primarily due to a huge marketing expenditure to drive its rapid growth.
What has long intrigued me about Angie's List is its deep
and expensive commitment to build and maintain a human face, the critical key to
building a true community of subscribers. And this has consistently meant
taking a longer, harder path.
Angie's List could just as easily could have been built as a
Web 2.0 site with a totally automated system that allowed anyone to anonymously
enter reviews, with everything free and an advertising-supported business
model. Instead, Angie's List built itself on a subscription model, despite
long-standing consumer antipathy to paid information products.
But Angie's List didn't stop there. The company's eponymous
founder, Angie Hicks, understood from the start that she needed to deliver more
than the ordinary and often unhelpful reviews one encounters on review sites.
Instead, she needed to deliver reviews that provide depth, color and real insight.
This necessitates a substantial, ongoing, expensive effort to develop reviews
that meet this high bar, and that's where this sense of community becomes
essential, because the content it sells to subscribers is sourced from its
subscribers. Consider the complexity (and delicacy) required to extract a large
quantity of high quality reviews from a limited pool of people who you don't
want to annoy because they are paying you money!
As it has grown, Angie's List has been a trail-blazer on
many fronts. It launched a print magazine for its subscribers, both to maintain
visibility and further develop a sense of community among members. Since trust
is everything to a company that sells reviews as a product, Angie's List has
its policies and processes audited by BPA each year. It maintains a policy of
"no anonymous reviews" in a world where anonymity is the norm. It has
been a pioneer in variable pricing, allowing it to charge less when it enters
new markets and has fewer reviews initially. And the strong sense of integrity
it has built has allowed it to generate substantial advertising revenue from
the very companies its subscribers are reviewing -- a neat trick few in the
reviews business have mastered.
A big chunk of the success of Angie's List has to be attributed
to its founder, Angie Hicks. When Angie spoke at Data Content 2008, the
audience was transfixed by her energy and excitement, wrapped in an "aw
shucks" persona that belies sharp entrepreneurial drive (and a Harvard
MBA).
The model Angie's List adopted is a tough one, making its
resulting success story both durable and well-earned.
(For those of you interested in the nuances of the ratings
and reviews business, please download our recent, free white paper on this
topic: http://www.infocommercegroup.com/whitepapers/ICGDP_Ratings_8.11.pdf)
Data, Data Everywhere
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I don't know exactly when it started, but the volume is growing every day. I am referring to emails, emanating from such well known companies as: E-Market Expert, Acquired Businesses, Sale-Perform and Application Users. And what are these companies selling? Data. Lots of it. And at bargain prices. Within the last 48 hours, I learned that I could obtain contact information on individuals in almost any industry, all with revenue data and SIC/NAICS codes, all with verified emails addresses and all of them opt-in names. And not to worry about legitimacy because "All data obtained legally from optin channels," as Stevenson Trina assured me in an email. That Stevenson's return email address is a metal stamping company in Germany should, I presume, not be cause for concern. What's going on? I am not sure. While the senders of these emails will often describe themselves as "a leading player in the list vending industry," and suchlike, the only commonality I have discovered so far is that none of them have working websites. Phone numbers, when offered, go directly to voicemail. And email addresses tend to be with the big providers of free email accounts. What's remarkable is that databases and lists have become such a mainstream business tool that they are now becoming the subject of scams. Because for scammers, there is nothing better than a product that everybody needs, but few really understand. Unfortunately, none of this does any good for the legitimate data industry, because these dubious data offers -- even if the recipient doesn't respond -- create a sense of commodity in the eyes of potential buyers: data is commonly available, data is cheap, industry coding and revenues should be available on 100% of records, etc. How exactly do these presumed scams work? I can't say I know for sure, but one person I talked to believes that these operators are not really out to sell data as much as they are out to collectdata. Every email open becomes a "verified" email address. Every opt-out request becomes a "responsive name." And for those who might actually send in 50 or more sample names as part of the company's offer to demonstrate its data appending skills, well that's 50 more names acquired for nothing. Crazy? Or just a crazy twist on user-generated content? These days, it's hard to say!
PS -- Just a quick note to mention that the generous early-bird discount price for DataContent 2011 expires imminently, so take a moment and register now! |
Social Media Do-Over?
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