Views from Phanfare CEO and Co-founder Andrew Erlichson

Link I just cancelled my Zagat subscription. Those guys got Yelped.

I have been a subscriber to Zagat.com for about 10 years. It costs $24.95/year. They provide online access to the information that is in the books. As New Yorkers know, where the guide got its start, The Zagat survey was for a long time the goto book for figuring out where to eat in NYC.

They put the ratings together through an annual survey that diners completed.

They charged for the book and when they went online, they charged for online access to the same data. Why? Because they did not want to cannibalize the sales of the book.

Well, they don’t need to worry about that anymore because I am sure book sales are close to zero. And as for online, Yelp does a better job with their free ad-supported review site.

Online reviews is a natural online business. There are huge network effects. You want to review a restaurant where people are reading and you want to read reviews where there are lots of reviewers and reviews.

Yelp also has lower costs than Zagats. They don’t run a customer service team to take calls from people cancelling and they dont need to run the annual survey. The survey is ongoing and automated.

Yelp has more data too.

In just about every way, Yelp is better than Zagats now. And its free to use. So even though Zagat.com is cheap, even one penny is too much because the free product is actually better.

How did this happen to them? They were clearly the leader in 1998 when they started moving online. But their fatal mistake was an unwillingness to cannabalize the books sales when they went online. And by doing so, they left an opportunity for someone to do it to them.

I think a lot about not being Yelped. Phanfare has few network effects. It’s really high quality web hosting for your photos and videos. We are archival, holding the original bits, something I know is outside the cost model of facebook. And we are just about the photos and videos. Hence, I think a high end to our market will continue to exist: people willing to pay for a better product with better ingredients that is purpose built for the problem.

But at the same time, the mass market will go to the free ad-supported solution. For us, that is not a problem. But for Zagat it really is, because in restaurant reviews, its winner take all.

  • Darryl

    Yeah, except that Yelp might get you attacked by an owner angry at your bad review:
    http://valleywag.gawker.com/5396122/yelp-fights…

    Yeah, except that Yelp's restaurant star ratings all tend to be 3-5 making them functionally useless to the consumer. (Sure the reviews are fun to read and of course let them sell more advertising, but when you're just *trying to find a restaurant in an unfamiliar neighborhood FAST with a hungry wife and two hungry kids*, better differentiated star ratings would be helpful.)
    http://valleywag.gawker.com/5380645/on-yelp-eve…

    Yeah, except it's apparently easy to buy yourself a good Yelp rating:
    http://valleywag.gawker.com/5349846/the-new-res…

    I actually like reading reviews on Yelp, but as I say, they're not always the most useful way to actually quickly find a place to eat. But maybe that's not the point of Yelp, or Zagat, for that matter.

  • Brad

    Zagat has the quality advantage of having a generally higher-quality group of reviewers in its core group that (I assume) it is paying to do the job – just like newspapers have the advantage over your average blog. Unfortunately that advantage costs money.

    Yelp is community-sourced which is great for a lot of things, but you have to wade through the lower quality stuff and the inevitable spam coming from owners/affiliates of the reviewed establishments. $2/month is probably way too much to pay for something 99% of the real audience won't use more than once per month (if that much) so they need a better pricing model. They need to be part of some large subscription model so that they get paid for the audience they actually supply. Advertising is one way to do that, but in most of my experience it doesn't pay and in all of my experience it is annoying to the end user. Yelp could probably tap into this first if they have a way to pay their best reviewers – maybe they do already.

  • http://blog.phanfare.com erlichson

    Zagat does not pay its reviewers. I think its just interested volunteers, most of whom traditionally purchased the book. I agree that professional reviews from people paid to be impartial have their place, but even there, advertising is probably the best way to pay for it provided the review is of broad enough interest. If not, then you have to go the subscription route. But, I would argue that if restaurant reviews are your thing and the audience for your reviews is so narrow that you think you need to charge, then the reviews are not that good or useful.

    I believe most of the problems having to do with people trying to game the system, owners reviewing their own restaurants, etc, can be solve through reputation systems and identity. On social networks, for example, nearly everyone travels under their own name. Hence, reviews are not anonymous and if you are the shop owner and write one, people will realize this.

    Zagats should have made the site free in 99 and and encouraged wider participation. If they had, yelp might not have gotten traction. They under invested and worked to protect a legacy business. Their short term thinking led to long term disaster.

    At this point, they should sell themselves to opentable. Open table is getting into the review business and Zagats has a nice dataset that would help bootstrap their process. Of course, OpenTable is only white table cloth restaurants and Yelp is much broader than that.

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    That site is quote useless as I can download public domain books online now from google library.

  • http://www.sheeparcade.com Free Games

    I very much resent the fact that Zagat gives you no choice in the matter, automatically renewing your online membership and charging your credit card when it expires.

    There is no opt out option, forcing customers to remember to cancel 12 months later. This strikes me as bordering on abuse.

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    Online reviews is a natural online business. There are huge network effects. You want to review a restaurant where people are reading and you want to read reviews where there are lots of reviewers and reviews.

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