To Pay or Not To Pay: Zagat’s Dilemma
Source: Laudon, KC & Laudon, JP 2013, Essentials of Management Information Systems, 10th Edition, Prentice Hall, New Jersey
Founded by Tim and Nina Zagat, the Zagat Survey has collected and published ratings of restaurants by diners since 1979. Zagat publishes surveys for restaurants, hotels and nightlife in 70 major cities. Today, as more people use their smartphones for information on the go, Zagat is moving its content online and onto the mobile platform. It has been a struggle.
Zagat has come a long way from its roots in the early 1980s when the food loving Zagats started compiling lists of their favourite restaurants for personal use and ...view middle of the document...
Venture capitalists saw that Zagat had a golden opportunity to migrate its content from offline to online, Web and mobile.
Of the many decisions the Zagats faced in bringing their content to the Web, perhaps the most important was how much to charge for various types of content. They ultimately decided to place all of their content behind a pay wall, relying on the Zagat brand to entice customers to purchase full online access. One of the most prominent members of the investment group was Nathan Myhrvold, formerly the chief technology officer at Microsoft. Myhrvold supported the Zagats’ decision to use a pay wall for their content and maintained that putting all of their content online for free would have undermined their book sales.
Although Myhrvold and the Zagats themselves favoured the pay wall, other Zagat investors argued that placing content online for free allows companies like Yelp to get its results on the first page of Google search results, which is critical for maintaining the strength of a brand in today’s advertising environment. By not taking this approach, Zagat left itself open to be surpassed by Yelp, Groupon, Google Places and other similar services offering free content supported by advertising from local businesses.
In 2008, the Zagats tried to sell their company. They failed to do so, partially due to Yelp’s growing popularity. The Zagats’ failure to sell the company in 2008 highlighted their failure to effectively go digital. Food blogs and similar sites abound on the Web, but Zagat was in a unique position to get there first and establish itself as a market leader, and it failed to do so.
For much of 2011, Zagat trailed Yelp and other free review sites in the battle for eyeballs. Yelp drew much greater traffic than Zagat.com. In January 2011, according to comScore, Zagat.com had only 269,000 visitors, while Yelp had 26 million. The Zagat Web site claims it has more users, but the disparity is still significant.
A quick visit to the two sites highlights some of the differences. Zagat.com’s home page is streamlined with a minimal number of search boxes and links immediately available. Restaurant reviews are organised by several major “hub” cities as well as popular lists of the top restaurants of a certain type. Clicking on a restaurant shows visitors only a portion of the data Zagat maintains on that restaurant. For example, the site now shows the percentage of users that “like” the restaurant and several featured reviews. However, individual ratings for food, décor, service and cost are all behind the pay wall. The site also features a store where users can buy any of the Zagat surveys, Zagat-rated wine and even Zagat t-shirts.
Yelp’s front page is much busier and less streamlined than Zagat’s, but has a great deal more content available immediately. The front page has lists of the most popular restaurants, retail outlets, bars and clubs and many other categories, all free to the user. Looking for...