Is Zagat Google’s signature content purchase?

Google‘s purchase of Zagat is a signature deal for the leading web advertising company and has prompted a significant amount of discussion in traditional and digital media circles.

A common first take is that the acquisition is a validation of the value of original content and an implicit acknowledgement by Google of the limitations of a content-neutral media model.

Conversely, observers wonder how Google will handle the challenges of managing a traditional media business that makes money from the sale of print directories.

That conclusion does not take into account the distinctive attributes of Zagat’s content model.

Zagat is a curated consumer-generated content company that combines standardized data — basic information about restaurant locations — with consumer content generated through surveys and indexed content created by Zagat’s editorial staff.

The process is unique and time-tested. In fact, one can argue that Zagat is one of the first companies to create a viable business model from user-generated content. In Zagat’s case, the distinctive value proposition is that the content is presented consistently, both through curation and format, and is presented as “peer reviews” to individuals who are willing to pay for access to the information.

Zagat’s business model is a by-product of the tools available to them during their period of early growth. By publishing a local book, the company was able to keep distribution costs relatively low — small press runs — while charging a premium price that offset the incremental costs of managing and editing the survey tool while allowing for a strong opting margin.

Google has not acquired a business model. Google has acquired a content process that creates value around user-generated content. The actual Zagat business model is secondary to the content process.

The purchase is a creative and low-risk approach to solving a prickly problem in the emerging local media space. With approaches to Yelp and Groupon, Google signaled an understanding that a key challenge to aggregating an engaged audience around local is being able to present a deep and organized content database of relevant local information.

Despite decades of information organization around local content — witness early forays into the digitization of yellow pages listings and newspaper archives — no single entity has been able to corner the market on deep, comprehensive and consistent local content.

There are exceptions to that experience. The most notable are in high-value classified categories, such as Automotive and Rentals. The market leaders in these categories, such as Autotrader, Cars.com, Apartments.com, ApartmentFinder.com and ApartmentGuide.com, have deep databases with rich content, discounting mechanisms and close integration with commerce engines.  The business models of these companies are highly reliant on their advertising sales organizations sourcing content from clients in return for delivering measurable leads.

Most consumer experiences around local content, however, are a mile wide and an inch deep.  The quality is consistently  inconsistent. The category presents a basic problem: if you rely wholly on consumer contributions, you get spotty coverage and quality; if you add traditional content-creation techniques, like editorial staffs, you increase costs beyond the near-term revenue opportunity.

In her blog post announcing the acquisition, Google’s Marissa Mayer signals what the important attributes of Zagat are.  She doesn’t speak to the business model around the Zagat brand. She speaks to its core capability in “consumer based-surveys, recommendations and reviews.”  In this regard, Zagat offers the same kind of tools and process that a tech start-up would.

In Google’s evaluation, paying something close to $100 million for a process and infrastructure that could unlock billions of incremental value is a perfectly rational risk. The traditional Zagat’s business doesn’t need to change; the innovative engineers at Google just need to go under the hood and experiment with what aspects of the process culture and content ethos can be migrated into Google’s local ecosystem.

Why would the Zagats sell? In Google they have found the buyer who will value the core engine in their business without discounting for the diminishing value of their legacy business model and for the execution risk of a digital transition.

While other commentators have made astute observations about the execution risk of the transaction, I find that question less compelling than wondering what Google will be able to do with Zagat’s content system. Will we someday see Google Local plastered with tiny “Powered by Zagat”  buttons just like the “Intel Inside” logos? If we do, then Google likely will have solved the thorniest problem in local. If we don’t then it will signal that this exploration was not as fruitful as the company had hoped, but it’s that willingness to risk valuable resources — intelligence even more than capital — that has made Google so successful and augurs well for their future.