BUSINESSWEEK ONLINE : NOVEMBER 20, 2000 ISSUE
MARKETING

Zagat Zigs Over to the Net
The restaurant guides seek a global readership

For the foodies working at Zagat Survey LLC over the years, sharing their love of a great meal with readers meant more than feeding the bottom line. Sure, by early this year, the New York guidebook company had grown to 40 people since lawyers Tim and Nina Zagat began rating restaurants based on the opinions of their friends in 1979. Although they had one of the most recognized names in leisure information, the Zagats had done little to realize the potential of their self-published brand. Instead, the goal was to create communities of reviewers around food and fun. Advertising was generally limited to word of mouth, and expansion was funded from the couple's pocketbook. With money in the bank and food on the table, the Zagats didn't see much need to pump up sales. ''We've had constant calls from potential investors over the past 10 years, but we weren't interested,'' says Tim, 60, wiping barbecue sauce off his lips after a catered soul food lunch for employees.

That's about to change. In June, 1999, the couple went to Japan to launch a Tokyo guide on NTT DoCoMo Inc.'s wireless i-mode service--a venture initiated by DoCoMo--and they were overwhelmed by the popularity of their guides. Says 58-year-old Nina: ''Suddenly, we saw what a huge opportunity we had to grow a lot faster.''

In the months since, the Zagats have raised $31 million in outside capital, tripled their staff to 130, radically revamped their Web site, wooed powerful partners like Yahoo! Inc. and American Express Co. to distribute content, and upgraded technology to speed expansion to new cities. On Nov.1, they brought in consumer marketing whiz Amy B. McIntosh, 42, to be Zagat's first CEO.

Another first: This year, the couple will invest more money than they'll make--even though book sales are up 70% and Web traffic is soaring. The goal is to expand the franchise to all forms of leisure, put out guides in up to 100 new cities over the next two years, and distribute data across all media, from telephones to television. For Bill Ford of General Atlantic Partners LLC, which led a group of venture capitalists that took an undisclosed stake in February, that means more advertising, marketing, and management talent, as well as a public listing, to ''broaden this brand's reach around the world.''

While the privately held company doesn't disclose sales--except to say that it sells 650,000 copies of the New York guide each year--it's clearly pushing into a radical new stage of development. For the first three years, the couple photocopied ratings and gave them away. Then they bound them into a book, and a profitable venture was born. But Tim, the creative mind, didn't quit his legal job to do the guide full-time until 1987; the more practical Nina followed three years later. Business hummed along, constrained largely by a lack of capital that the Zagats didn't want anyway. Nicholas Negroponte, senior director of the Media Lab at Massachusetts Institute of Technology and a longtime fan of what he calls the Zagat's collective opinion-making model, ''had to beg them to become an investor.'' They finally let him in this year.

AIR HOCKEY. Now, McIntosh is charged with helping turn Zagat into a global force. As the former group president of Verizon Communications' Internet and Data Services Div., who has held senior roles at American Express, McIntosh brings technology and marketing expertise to the job. ''I always thought there was unexploited potential in this brand,'' she says. McIntosh likens the energy to a ''dot-com atmosphere''--there's even an air hockey table for the tech guys--and says her biggest challenge is ''crafting a strategic growth plan that chooses the best of the opportunities.'' High on the list: a marketing scheme to build brand recognition.

Of course, a number of challenges still lie ahead. While the Zagats say their Web site boosts sales of the burgundy books in every market, distributing free content over the Net always carries the risk of cannibalizing an offline brand. Then there's the fact that, as a business built on grassroots input in each market, getting enough reviewers to hit 100 new cities in two years could be tough. What's more, Zagat is hardly alone in trying to tap the market for travel, entertainment, and leisure reviews. Add to that the challenge of persuading two passionate entrepreneurs to let go of key decisions in order to foster growth. ''It's like their baby,'' says Nathan P. Myhrvold, a stakeholder and co-president of Intellectual Ventures LLC, an investment company.

But the Zagats insist they're thrilled to move onto a new stage. For one thing, the duo got several million dollars in the February funding. And as co-chairs, they'll remain involved with strategy. Their son Ted, 25, is also on board in business development and came up with the successful Zagat Survey of New York City Nightlife guide this year. ''We can be more relaxed and more focused,'' says Ted. Meanwhile, the scent of saucy ribs from Sylvia's restaurant in Harlem reminds workers that the Zagats don't intend to stray too far from their roots. For McIntosh, who used to eat out maybe once a week, the overriding goal at the moment is ''success without weight gain.''

By Diane Brady in New York

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