Tag Archives: Daily Deals

Google’s Acquisition of Zagat Feeds Push to “Local”

14 Sep

Zagat posted this cheeky review upon the Announcement of the acquisition

The rest of us might be keeping a tight grip on the purse strings as we weather the storms of this epic recession, but not Google. The search giant has been on a spending spree as of late, and its latest two acquisitions of Motorola Mobility and Zagat show its commitment to growth and innovation regardless of the economic environment. I think that it will be particularly interesting to see how Google integrates Zagat, a company that will give Google another foot in the door of the “local” services market, because Google is so well positioned to compete against other B2B restaurant service providers such as OpenTable.

Zagat put itself up for sale in 2008, when it was said to be valued at $200 million, but Google acquired the company for considerably less (many commentators have noted Google must have paid less than $66 million because there was no automatic FTC antitrust review).  The restaurant grading service was one of the most influential tastemakers in the world of haute cuisine long before the advent of user-generated content on online platforms such as Yelp (which, coincidentally, Google tried to acquire in 2009 for ~$500 million), but has since ceded popularity to competitors.

A Zagat guide in a hungry consumer’s hands can drive dining decisions, but what about a Zagat business in the hands of Google? Upon the announcement of the acquisition, OpenTable’s stock tumbled 8%; clearly the market anticipates that Google might expand into the restaurant reservation services with the acquisition. OpenTable’s restaurant management solution is a combination of software and hardware that requires a significant upfront investment. The service helps restaurants to manage demand and market their businesses, but the breadth of services pales in comparison to those that Google could offer. With the Zagat acquisition, Google could develop a software restaurant management solution, and derive revenues from the sales its other B2B services.

Additionally, Zagat will strengthen Google’s foray into the world of location-based services and daily deal offerings, and one can imagine a mobile solution that would be a mash-up of all the above, a la Living Social’s Instant Deals.

Google made a name for itself by aggregating information and returning information sought out by users in the form of search results; will the company leverage Its acquisition of Zagat to move from aggregation to recommendations based not only on user’s searches, but also their location and prior consumption history? Time will tell. In the meantime, I’ll whet my appetite for innovation in the food services industry with a healthy serving of Willie Nelson and Chipotle in this brilliantly animated video.

50% Off – Overvalued Business Model

21 Jul

Another day, another daily deals site.  At the DC launch party for Atlanta-based Scoutmob last week, I found it almost comical how hard these start-ups try to differentiate themselves. Much like the Williambsurg-bound hipster who scours vintage markets high and low in an effort to craft an identity wholly his own, only to emerge as a mustache-bearing, prescription-less glasses wearing caricature of a stereotype, Scoutmob cannot escape the fact that at its core, the company is just another coupon peddler.

Scoutmob launch party in DC

The formula is simple: line up local restaurants and service providers to offer one-off, loss-leading deals promising savings of 40-90%; hire copywriters to craft quirky and witty descriptions of said local businesses; fund aggressive and expensive digital marketing campaigns with revenues from prior deal sales; parade growth charts in front of VC firms to attract tens of millions of dollars in additional investments; expand to other cities by hiring local sales staff and launching expensive marketing campaign.

“But we’re different,” they say.  The hundreds of daily deals sites might be able to create unique brands and tweak the underlying business model (i.e. don’t pay for the coupon until you use it, or $5 from every deal sold goes to a charity), but the consumer doesn’t care who his drug dealer is, he just wants to get high. There is absolutely zero brand attachment to a daily deals site, because 50% off your local sushi joint saves you the same amount of money regardless of the company paying the liberal arts grad who wrote the cutesy email or designed the banner ad that inspired you to “buy now”.

The fact that Living Social and Groupon are expected to reach valuations of up to $15 billion and $30 billion, respectively, after IPOs this year is completely irrational. It will be especially interesting to see how the traders on Wall Street and in hedge funds react to the IPOs; I’m sure the “greater fool” theory will be as easy for analysts to explain to their portfolio managers now as it was 12 years ago.

An interesting Business Insider interview with a former LivingSocial salesman made me breathe a sigh of relief, as the commentariat and the interviewee shared my point of view regarding the insanity around the daily deal model.  Daily deals will continue to flood our inboxes as long as VCs keep throwing money at them and salesman convince restaurateurs to give up weeks of profitability for a little bit of cash up front.

It’s impossible to predict when exactly the proliferation of daily deal sites will end, or at least reach a sustainable equilibrium, but you can mark my words that some point in the future, we’ll see the following headline in the Wall Street Journal:  “50%-off Daily Deal Stock: Investors Flee as Bubble Bursts”

(See more about the daily deals bubble on the Motiv blog: http://motv.st/pl6KX5)