Google Offers Adds Zagat’s Ratings and Recognition to Local Deals Business

Google’s (NASDAQ:GOOG) purchase of Zagat – a 32 year old restaurant reviews company – clearly suggests that the company is aggressively pursuing growth in its local merchant based offerings i.e. Google Offers. ^[1] Lately, some companies have been wary of the long-term viability of the daily deals business such as Facebook which recently shut down Facebook Deals, ^[2] as well as Yelp which recently scaled down its operations significantly. ^[3] However, with Zagat’s acquisition Google has made it clear that its well armed to counter other big names in the local deals business such as Groupon and Living Social. The acquisition would also help Google compete with restaurant reservation sites such as OpenTable (NASDAQ:OPEN).

We currently have a price estimate near $600 for Google’s stock, which is roughly 10% above the current market price.

Zagat’s Reputation and Reach Is a Threat To Competitors

Zagat is a well thought out strategic acquisition that should help Google Offers counter competition in 2 big ways:

1. Zagat has a solid three decade old reputation with “Zagat Ratings” considered as industry standards for restaurant reviews. With Zagat reviews now appearing alongside local offers by Google, users can be rest assured that they have a credible source of information on the restaurant deal they are purchasing. This has been a problem for a company like Groupon, that has to spend a lot of money, man-power and time to ascertain the veracity and credibility of their merchants. Additionally, sites like OpenTable have to be wary if Google starts its own real time restaurant reservation service, as the accompanying Zagat reviews would be highly preferable to users.
2. While Zagat’s roots lie in the pre-web era (the company was founded in 1979), ^[4] the company has re-invented itself both to the web as well as in the form of mobile apps. If Google manages to successfully integrate Zagat’s extensive (and credible) database of restaurants with its own location-based tools such as Google Maps, it can give other location-based deal locators such as Groupon NOW and Living Social Instant a run for their money.

See our complete analysis for Google

1. Reuters: Google Buys Zagat to vie with OpenTable, Yelp [↩]
2. Bloomberg: Facebook to Shut Deals Feature After Four Month Test of Web-Coupon Service [↩]
3. Business Insider: Another One Bites the Dust: Yelp Scaling Down Its Groupon Killer [↩]
4. Zagat Website: About Us [↩]