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.