Tim and Nina Zagat have warm memories of 1982. That's the year they began dropping off their quirky, quote-filled guides at New York bookstores from the back of their brown Toyota Corolla station wagon. Says Tim, a former lawyer who is now 62: "It started out as a hobby."
No more. The founders of Zagat Survey LLC are pushing out the edges of their empire, built on consumer surveys. Zagat's restaurant guides, which retail for $10.95 to $14.95, now cover 70 cities worldwide. Lately, the publisher has branched out into guides for movies, hotels, airlines, car rentals, and nightlife. In November, it even launched a guide for U.S. golf courses. Music and New York shopping could be next. "We are tapping into people's passions," says Nina, 60, also an ex-lawyer. "They'll always have something to say."
The Zagats are also trying to tap deeper into customers' wallets. In October, the company began charging consumers $14.95 a month for access to the once-free zagat.com. And it is making a big push to sign up corporate clients, such as Toyota (TM) and Merck (MRK), that are willing to pay big bucks for customized guides and advertisement tie-ins. Both new tacks, though, are risky. Few online-content companies have ever made money charging those who visit their sites. And the corporate tie-in strategy could weaken the Zagat guides' reputation for independence.
Still, taking smart risks has transformed the Zagats into a five-star couple. They live on Manhattan's ritzy Central Park West, not far from one of their favorite restaurants, Jean Georges. Privately held Zagat, with 110 employees, is adamant about not disclosing its revenues or earnings, but sources in the industry say revenues easily exceed $20 million. Tim says he expects revenues to grow by 25% in 2003. Its New York restaurant guide alone sells 650,000 copies a year.
Of course, the Zagat empire would not be possible without the more than 200,000 people selected by Zagat to be in the network of reviewers. They can be wine society members, the ad exec who dines out a lot, or just average folks. All agree to submit their reviews online, without pay. Thousands of surveys are sent in each day. The seven-person research team is kept busy all year tabulating the results into numerical ratings, city by city. From there, the data are sent to the 20-person editorial staff, to be distilled into pithy reviews. "It's all about the idea of listening to other people, a consumer democracy," says Tim.
Publishing those viewpoints has helped Zagat become a powerful brand, so much so that corporations increasingly want tie-ins. Zagat currently has agreements with 3,000 corporations. Some just want to put their logo on the cover of a guide they use as a giveaway. Others, like Toyota Motor Corp., want something more customized. The carmaker has worked with Zagat to create a guide to the Top 50 "Feel Good" movies, inserted in print ads that extol "the feeling" of driving a Toyota. Zagat also has wireless licensing deals with AT&T (T), Verizon (VZ), Nextel (NXTL), and others.
Will those growing corporate connections risk sullying Zagat's reputation for being the voice of real people? Tim and Nina don't think so. In fact, they've used a $32 million investment from outside investors to help develop the $14.95 a month online subscription service. Will diners and moviegoers really fork over that kind of dough? The Zagats claim they have sold 100,000 subscriptions. But only a handful of publications, such as Consumer Reports, and The Wall Street Journal, have been able to make a go of charging for online content. And not everyone shares the Zagats' optimism. "If you're going to pay up for the Internet, why in the world would you pay for a book that will sit on your shelf?" asks one publishing exec.
Still, Tim and Nina Zagat have momentum in their favor. And they're not ruling out taking the business public in the future. But for now, these tiny publishers-turned-multimedia-hotshots have plenty to keep them busy.
Corrections and Clarifications
In "The Zagat guide to just about everything" (News: Analysis & Commentary, Dec. 9), the charge to access zagat.com should be $14.95 per year, not $14.95 per month.
By Tom Lowry in New York