Thinking Outside the Algorythm: The Implications of Google's Zagat Acquisition

This is less about competiton than about rethinking boundaries. Zagat is established. It has been around longer than Google. It's founders are older than Larry and Sergey - and older, even, than Eric Schmidt, the 'adult supervision' Google brought in a few years ago but who has moved on to quieter pursuits.

The web - and its social media hot house - are also getting older. Facebook's fastest growing segment is women over 40. But this is no mere marketing move. As Google grows, it can no longer depend purely on 20 somethings to identify, define and capture the future. It must open its collective mind to other ways of thinking, of gathering data, of organizing and presenting it.

So the Zagat buy is not just about some new market segment. It is about rethinking its strategy as it evolves and as the web does along with it. JL

Joshua Gans comments in Harvard Business Review:

Google's acquisition of Zagat is an important move, more for what it tells us about Google and the evolution of its strategy than it does about the restaurant rating game.

Let's step back and consider the previous narrative on Google and Zagat. Zagat rose to prominence by providing a reliable way of aggregating a large number of customer reviewers and generating an understandable rating. It provided information on restaurant quality where none had existed before. The narrative goes that Google, in its role "sorting the world's information," was supposed to destroy specialized providers like Zagat.
As recently as 2009, Google tried to step it up in the restaurant ratings sector. It rolled out a "Favorite Place on Google" logo for local restaurants as an alternative to the "Zagat Rated" signs. Using mobile technology, users could scan the Google logo to find out more. It turned out that there weren't that many takers and thus ended the experiment.

Google had long tried to integrate information from Yelp, Zagat, and others into its results, until the Federal Trade Commission started asking questions about using intellectual property without payment. The, earlier this year, it was rumored that Google was bidding for Yelp — an online Zagat competitor with a strong crowdsourced appeal. That bid didn't happen. Hence, the Zagat buy. The narrative that algorithmic search will beat other platforms has been quashed.

One take on this would be that Google is admitting failure. The algorithmic approach is a computer scientist's version of neutrality and independence. You write the code and let it speak the results without fear or favor. In acquiring Zagat, Google has vertically integrated into providing information instead of just sorting it. One must wonder whether the arms-length nature of the algorithm will go with it.

But there's more. Searching for facts or news is one thing. Searching for quality information is another. Anyone who has ever tried to find a quality tradesperson using Google knows that a search ranking isn't enough. You have to delve into the search results to find out what you need to know. And then you have compare across other bits of content. It is hard work.

Zagat, Yelp, and others had solved this issue, at least when it came to restaurants. First, they provided ratings — there is nothing like a number to invite comparisons. And according to recent research by Michael Luca from Boston University (pdf here), the numbers matter. On Yelp, on average a one-star rating over your rival appears to give a 9% revenue boost for independent (non-chain) restaurants. No Google search provides that.

Second, review outlets like Yelp or Zagat allow users to easily drill down for recent reviews to get a qualitative perspective. The reviews are in a standard format and are pretty short. It facilitates as much forensic expedition as one can undertake on an empty stomach.

While Google has moved a long way from its previous use of web citations to rank pages, it has always portrayed the algorithm as paramount. With this acquisition, Google signals that it cannot rest on algorithmic search alone. One suspects that the (latest) effort into the social space with Google+ is part of the same signal.

Where is it all this going? Google has acquired travel resources (notably ITA Software), but companies like Tripadvisor, Kayak, and their kin are doing things in presenting information that Google does not. The same can be said for ranking tradespeople (Angie's List), real estate (Zillow), and personnel (LinkedIn). These are search resources that function outside of Google's code. And as I write it, it reads like a Google shopping list.

As Google admits that it needs people and it needs specialized representations of information to fulfill its broader mission, one must wonder whether a company that internally organized around a table of organized information standards and retrieval and data-driven decision-making can integrate with more human and non-standard operations.

Zagat will be a case to watch if only because this time around, Google acquired a company older than itself. Zagat is not some startup. It is an established and respected firm. In that, it reminds me of AOL-Time Warner merger, albeit on a much smaller scale. Fortunately, it is a start and perhaps another Google experiment in gathering data — this time about its own strategy.