Taster's Choice 2001

By SmallBusinessComputing Staff | Posted August 01, 2001
by Amy H. Blankstein

Writers grab a thesaurus when they're stuck trying to come up with the perfect word. When food aficionados are stumped trying to find the perfect restaurant to suit a particular occasion, they turn to the Zagat Survey Restaurant Guide. If you live in any major metropolitan area in the U.S. and you like to eat, chances are you're probably familiar with these long, thin, burgundy books.

In 1979, Tim and Nina Zagat, the pair of corporate lawyers and avid diners behind those guides, began polling friends and acquaintances for their opinions on New York City restaurants. At the time, the surveys were printed on mimeographed pieces of paper that the Zagats gave away to anyone who participated in the polling process. Once the polling community grew and word began to spread among the city's restaurant-going public, the compiled information became too expensive to print and distribute for free. The couple shopped their concept around to major book publishers. In 1982, after repeated rejections, the couple began self-publishing the survey.

Over the past 21 years, the business has grown steadily. Today the Zagats' empire extends throughout the United States and beyond, and includes surveys of marketplaces, nightlife spots, and other customer service industries, including airlines, hotels, resorts, and spas. Their continued success stems from the ability to introduce their guides to an expanding audience and to involve their customers in contributing to their product. From the start, the Zagats depended primarily on word of mouth to pull in new customers.

"It was viral marketing before people used the term viral marketing," Nina Zagat reflects. "And it was local content when people weren't using that term either. It's interesting, because Tim and I were charting new territory in a way, and we were doing what seemed natural to us," Zagat says. "It was going against the grain at the time we started doing it."

For many years, the Zagats have experimented with emerging technologies to introduce their products to a wider audience. In the past year they've accelerated their efforts, securing funds to expand their technology initiatives beyond Web content, increasing their staff to support those plans, and partnering with other companies to establish a presence in the latest frontier: The wireless arena.

Opinion, Anyone?
Zagat's surveys are essentially compilations of ratings and paragraph-long descriptions that include quotes from surveyors, which aim to accurately describe the atmosphere of the venues. If sales are any indication, the public thinks they have succeeded. With each annual release of a Zagat Restaurant Survey, the book invariably jumps to the top of the list of regional bestsellers. As a privately held company, the owners don't release financial information, but they do acknowledge that annually they sell 650,000 copies of the New York City guide alone.

Putting the guides together is no mean feat. According to the Zagats, more than 200,000 restaurant surveyors participate in the 75 markets that they cover. In the 2001 New York City Restaurant Survey, 31,000 restaurant-goers contributed their opinions. The company estimates that surveyors consumed an average of 1,970 meals at each New York City restaurant profiled. That's quite a few plates to clean and a lot of opinions to sift through for pithy descriptors.

The formula for the reviews hasn't changed since their stapled beginnings. Participating surveyors send their reviews in once a year by filling out extensive questionnaires. In addition to providing descriptive commentary on their experiences and impressions, surveyors rate a restaurant's food, decor, and service on a 30-point scale and provide a cost estimate. The same methodology applies to the other industries they cover. Zagat Survey's editorial staff compiles the numerical results and sifts through reviewer commentary to provide one-paragraph sketches of each restaurant (or hotel, or nightlife spot, etc.). In return for their work, surveyors receive a copy of the survey to which they contributed.

Now, surveyors can vote on line. Although surveyors have been able to sign up and vote through the Web site since 1999, the company only recently began to integrate those votes into its operating processes. The Zagats included Web feedback for the first time in their 2001 restaurant guides (10,677 surveyors submitted votes on line for the New York City Restaurant Guide).

As with the traditional process for tallying votes, Zagat counts Web submissions at the end of a set survey period. Until that period ends on line, however, surveyors can edit their votes to reflect their changing experiences and opinions. After the deadline, Zagat moves the votes to an archive page, then begins editing the results. Instead of receiving a copy of the book for their efforts, Web voters get discounts on Zagat products and previews of new products.

Over the next several months, the Zagats will work to increase online voting and will hone their long-term plan to gather an increasing amount of content electronically. "In addition to being more efficient and more cost-effective, online voting gives the company the ability to reach a larger audience around the world," Zagat notes.

More is More
Dr. Raghu Garud, associate professor of management and organizational behavior at New York University's Stern School of Business, describes the Zagats' dependence on their audience for their opinions as a particularly savvy way to produce a product.

"Pooling a large number of opinions to provide a judgement is a powerful means of establishing credibility with an audience," Garud says. "Consider the movie reviewers Siskel and Ebert. I have not enjoyed many of the movies they have awarded two thumbs up. I've come to the conclusion that their aesthetic conclusions don't match mine."

What attracts consumers to the Zagat guides over a Fodor's travel guide or an individual critic's review, he says, is the fact that they don't have to rely on an individual. As time goes on, and more people become familiar with the guides, more people become surveyors, which adds to the perception of reliability. "We've leveraged other abilities and other relationships," Zagat muses, "but certainly we never did it with the idea in advance that we were leveraging their experiences into anything else. The whole basis of the business is people sharing their experiences and the strength of that bond among people. And that had no profit motive in it at all when we started."

A Potluck Affair
When they began their business in the early 1980s, the prevailing wisdom was for a business to own all of the assets necessary to produce its product or service. Today, as companies strive to be lean profit-producers, they depend on partners to supply pieces of the production, service, and delivery processes. Garud describes this environment as a system of network externalities. The Zagats' business embodies this concept: They've essentially formed partnerships with outside surveyors to provide opinions and ratings that form the basis of the product.

That willingness to look outside the company for expertise has served the Zagats well in other areas, particularly in their recent push to provide their content in the wireless arena. "The business model for the wireless space is not yet evolved," says Garud. "It'll take a couple of years or more, but in order to understand it, you have to be a player."

While the Zagats knew little about the intricacies of taking their content wireless, they knew they needed to be early and active participants in the emerging medium. They began working to develop their content for U.S.-based wireless services in early 2000. In part to fund that initiative, the Zagats secured $31 million of equity funding from General Atlantic Partners; Kleiner, Perkins, Caufield & Byers; and Allen & Company -- all companies that had extensive experience with Internet and information technology companies.

"We wanted to have financial partners who had expertise in technology," Zagat says. "If we had raised money to do that [bring technology in-house] but didn't have partners who would help us develop that part of our growth, it would have been a mistake, because that wasn't really a core competency of our business at that point."

The Zagats had funneled part of the funding into hiring a larger IT staff, one that could support their increasingly complex and busy Web site and wireless activities. San Diego-based Wireless Knowledge worked with the company to reformat their existing database and Web site platform for wireless use. "They had great engineers, but they don't have wireless backgrounds," says Jeff Ross, director of business development for Wireless Knowledge. "They needed our expertise to take their very feature-rich content and properly display it on a mobile device."

Zagat's content is now available through AT&T Digital Pocket Net, Nextel Online, Oracle Mobile, and Verizon Wireless. The company also has a partnership with Vindigo, a mobile application which allows users to get updated nightlife, shopping, and dining information by periodically synchronizing their personal digital assistants (PDAs) to the Web. Each service has a slightly different set of standards and interfaces, which made it necessary for the Zagats to create as many Web sites as they had partnerships. "Zagat was really aggressive; they were one of the first ones out," Ross says. "They are one of the only content providers in North America that can be found on almost every wireless Web service from different carriers."

Zagat had already made one foray into wireless in 1999, prompted by an invitation from leading Japanese wireless provider, NTT DoCoMo, who wanted to have Zagat Survey content for the launch of their wireless Web service, iMode. Zagat recalls, "NTT DoCoMo knew that its technology would only be powerful to people if it had content that people really wanted."

The deal pushed the Zagats to forge ahead in a technology medium they'd only just begun to consider. In the process, they branched out into a new geographic market as well. "They asked us if we would be willing to create a Tokyo guide," Zagat says. "We wanted to go to Tokyo ultimately but weren't really ready at the time -- they pushed us over the edge!" It took the company a year to compile and edit the first printing of the English and Japanese versions of the Tokyo guide.

"We're thrilled that we did it and that we had a chance to see this new technology," Zagat adds. "It was a really exciting partnership for us." The company is now expanding the Japanese market, creating guides for Osaka, Kobe, and Kyoto.

According to Zagat, the company hasn't developed a rigid set of criteria to determine the partnerships they accept. "Obviously you want to get proper value for whatever you're doing," Zagat says. "When you license content, as we do, it's a question of what kinds of things they want to license from you, what their business is, how you feel about them and what they're doing, and what kind of synergy you feel there is between the companies. As you work on a relationship with people, there are always issues that arise, and you want to be working those through with people that you trust, that you feel good about, and that you think appreciate what you have to offer. There are a lot of intangibles."

While some of these deals have become a source of revenue for the company, the Zagats evaluate the success of each partnership on more than the amount of cash it brings in. "In our deal with NTT DoCoMo," Zagat says, "it was just as important that we learned about a new technology, were on the cutting edge of what was happening in the wireless arena, and worked with people who were really enthusiastic about charting new ways."

Bringing it In-House
The Zagats have had plenty of time to develop a sense for what makes a good technology partner. They began putting content from their restaurant surveys onto services including Prodigy and Compuserve in the late 1980s, a practice they continue today. For several years, their own Web site served merely as a basic branding tool.

"We started out thinking that businesses that were primarily technology companies would be able to do a better job," Zagat says. "Then we realized that we'd be able to do a better job than they could."

It wasn't until 1999 that www.zagat.com was relaunched as a searchable, interactive site. According to Zagat, the response to the revamped site was immediate. "From the beginning, we've gotten a lot more traffic than we expected," Zagat says. "When we put up the site, we immediately had to start upgrading our back end."

In 2000, the company tripled in size, growing from 40 to 130 employees. Much of that growth was in the IT department, which had to expand to support the Web site and other technology products.

Today, visitors can use www.zagat.com to search for restaurant surveys, submit votes, or purchase Zagat products. For now, the company has limited its searchable content to the restaurant guides, although it offers its products for sale on the site. In addition to searching by restaurant name, neighborhood, or cuisine, visitors can also e-mail reviews of prospective spots to a friend, make a reservation, and locate a restaurant on a map.

The content that's available on the site is essentially the same information from the latest version of the printed Zagat Guide. When a new regional survey comes out in book form, the online content for that whole city gets changed and updated simultaneously on the site. The company does make corrections to individual restaurant reviews, however, if it comes across factual errors in the course of doing new printings throughout a given year. The Zagats have no plans to begin making more frequent updates based on incoming votes. They do plan to add a news section to the site, which will cover openings and significant events in the restaurant industry.

According to Garud, by not incorporating new votes into their online ratings more frequently, the Zagats may be missing out on an opportunity to use technology to maintain credibility with their audience. "Assume they rate a restaurant very highly, but someone goes to the restaurant and the chief chef has left; the whole restaurant changes," Garud says. "That review is old news. As experiences become more fluid, and as our ability to access information becomes more fluid and much more interactive, you can make instantaneous polls and judgements, and they can be continuously updated. On Amazon.com, for instance, you can read a book and put your review on the site directly. Why should Zagat only update the information once a year?"

"Marshall McLuhan wrote that the medium is the message," Garud adds. "The new media is interactive. It's got certain properties that old media didn't have, and as a consequence of that, information changes dramatically and the way we use it changes dramatically."

Never ones to shy away from trying a new restaurant or new technology, you can bet that if the Zagats see real value in updating Web content daily, they'll try it. "We always try to keep our eyes open for innovations and new ways of doing things," Zagat says. "We hope that we never fall into the rigid mindset of publishers to whom we initially presented our idea. We would have never been able to create the business we have if we hadn't been roundly rejected by every established business in New York. You always have to be flexible and not just do things the same way you've done them over and over again."

That's the mark of a successful business in today's rapidly evolving market. "You'll make mistakes, but through those mistakes you will learn, and you will make some right choices as well," Garud says. "In the process you'll also give your input on how to create the new space, which might better benefit your core competence. If you just wait and watch, someone else is going to eat into that space, and then they'll eat into your business, too."

For their part, the Zagats are not about to get eaten.

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