Zagat

Will Google try to fold OpenTable?

September 8, 2011: 12:47 PM ET

Google didn't just buy restaurant reviews with Zagat. It bought restaurant relationships.

Google (GOOG) this morning announced that it has acquired Zagat, a company known for its burgendy-covered compilations of restaurant customer reviews. The search giant's says its plan is to use Zagat as the "cornerstone of our local offering," but that may be a nice way of saying: We're going to compete with OpenTable (OPEN).

OpenTable stock is getting pummeled on the acquisition news, down nearly 9% to $57.19 per share at last check. That's the lowest the company has traded since this time last year.

"Google has been looking to get into the reservation space for a while," says RJ Hottovy, a Morningstar analyst who covers OpenTable. "I don't think the space is necessarily limited to just one system, particularly if restaurants are willing to share their inventory with multiple companies."

Zagat does not currently have a reservations feature, but it has deep relationships with restaurant operators. That, not content, is what Google really paid for today (even though we don't yet know if Google paid close to the $200 million Zagat sought in 2008). Plus, the Zagat brand already attracts people looking for their next meal -- meaning it's a ready-made portal for reservations. Particularly if it gets better search functionality, which Google should be able to provide.

Zagat sold a 33% stake in the company in 2000 for $31 million to venture capital firms General Atlantic, Kleiner Perkins and Allen & Co.

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