Open Table and Competitors: Where Do They Go From Here?

The phenomenon that is Open Table reached a new milestone recently. On May 4, 2010, the company announced that it has seated 3 million diners via its mobile applications- a 200% increase in only eight months. At an average of $50 per check, this translates into $150 million in revenue for restaurants that be directly attributed to Open Table. http://www.opentable.com/info/newspage.aspx?id=325 For any restaurants not already on board with Open Table, no advertising campaign can match the persuasive power of results like these. First Quarter financial results were also promising for Open Table- total revenues were $21.3 million, a 33% increase over last quarter. http://investors.opentable.com/releasedetail.cfm?ReleaseID=466460.

So with Open Table on the rise, where does this leave its few competitors? While Open Table is the clear market leader, its remaining competitors struggles to capture the remaining market share. The main competitors are Restaurant.com,Inc. http://www.restaurant.com/, SavvyDiner, Inc. http://savvydiner.com/, and Yelp, Inc.http://www.yelp.com/. All three organizations are privately held, and therefore specific financial information is not available, and basically serve only North American restaurants and diners.

Due to the nature of the information market, these competitors face several challenges in their quest to unseat Open Table. First, network effects are a huge factor in this market. The whole point of these business models is to put the customers in direct connection with the restaurant of their choice. The more restaurants on the network, the broader the reach to the diners and the more valuable the product becomes- to both the restaurants who reach a broader base of diners and the consumers who have more options.

Second, but almost as important, are lock in and switching costs. Restaurants lay out a sizeable investment in order to connect to the Electronic Reservations Booking system hosted by Open Table, including an initial expenditure for hardware as well as monthly maintenance fees. Switching to one of these competitors would cause restaurants to incur substantial start up costs in switching out the hardware. Moreover, with its mobile capabilities, Open Table offers the largest reach of any of the companies, allowing customers to make reservations from virtually anywhere. If Open Table's claims are accurate, the results produced by their mobile applications are enough to make any restaurant think twice about moving to a competitor.

So is there anything that competitors can do to increase their market share? Time will tell, however as technology develops, survival will depend on foresight. Competitors must rely on partnerships with existing networks, or creating new networks to stay ahead. Will new products like the iPad, and the slew of tablets to follow, have any effect on this market? Almost certainly, as will the next version of the iPhone, and the next big technological phenomenon that exists now only as an idea. Seeing the trends before they happen, and positioning their organizations to gain maximum competitive advantage, will make all the difference. Open Table can't rest on its laurels- but for now, it remains the clear market leader in the industry.

Prior to June 2008, any diner wishing to make reservations at the restaurant of his or her choice needed to do so before leaving home or the office. However, as sales of the iPhone, Blackberry and other smartphones surged, consumers became increasingly reliant on the ability to manage their affairs while on the go. The phones boasted apps that managed personal banking, ordered pizzas and updated facebook pages. Why not have the ability to make a dinner reservation too. So Open Table took the next logical step in expanding its business model: they went mobile. http://www.opentable.com/info/newspage.aspx?id=260http://www.opentable.com/info/newspage.aspx?id=259. http://www.opentable.com/info/newspage.aspx

According to Open Table CEO Jeff Jordan, they wanted to target the consumers who were “affluent, professional, time-constrained and want to reserve a spot while they’re on the move or without a computer at hand."http://www.unwiredview.com/2008/06/30/opentablecom-to-let-users-book-restaurant-tables-from-their-blackberry-or-other-phones-online/
The Open Table Mobile App is currently available for free download on smartphones with Blackberry, iPhone, Android or Palm operating systems.http://www.blackberryinsight.com/tag/opentable/. http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20090914005944&newsLang=en However, any mobile phone user with Internet access can use Open Table through a mobile- web based system. The benefits for the mobile diners are clear. They still get all of the features that Open Table offers- immediate, real time access to reservation information, guaranteed reservations and no waiting upon arrival- with the added advantage of being able to reserve the table from anywhere. Again, the cornerstone of the Open Table business model is that there is no cost to the consumer. Diners don't pay for the service therefore they are inclined to use it liberally. The increased accessibility and ease of use for diners translates into broader reach and more customers for restaurants. If a group of friends wants to grab a bite to eat after basketball game, Open Table's mobile apps lets them know whether or not the closest, most convenient restaurant can seat them and if not, where they can get a table without waiting and without spending unnecessary time on the phone.

By October 2009, Open Table had seated one million customers via mobile apps. The company also reported that its mobile apps had resulted in over $50 million in revenue for its participating restaurants. http://www.washingtonpost.com/wp-dyn/content/article/2009/10/29/AR2009102904395.html.In February 2010, the number of diners seated had grown to two million, generating over $100 million in revenue for restaurants. http://investors.opentable.com/releasedetail.cfm?ReleaseID=443931

Going mobile was not the only way that Open Table has expanded its product. First, the website is organized in a way that provides the diner with immediate access to information in order to make the decision of where to eat, and more importantly for restaurant owners, where to spend their money. The site is searchable allowing the consumer to narrow a selection by any number of factors: geography, cuisine, price, menu items, etc. A customer looking for an upscale seafood restaurant in Harbor East will automatically be directed to The Oceanairre Room without having to weed through a list of places that she will never visit. This is especially helpful for travelers who are not familiar with the restaurant landscape of a foreign city. Any potential obstacles between a particular restaurant and potential diner are removed, providing a direct path between the restaurants who offer a particular service and the customers who are ready, willing and able to pay for it.

Open Table also provides a mechanism for customer feedback and reviews of past dining experiences to help future customers with their choices. http://www.opentable.com/info/newspage.aspx?id=271. But why would restaurants, that pay handsomely for the service, want the company to provide a forum for an aggrieved customer to (perhaps unjustly) trash it and potentially risk losing business? The main attraction to restaurants is the accessibility to the marketplace- so why would they want to risk being portrayed in poor light? The company has assured participants that the customer review function is reliable. Only customers who booked through Open Table and actually showed up for the reservation are permitted to post a review. This information is easily verifiable through Open Table. This protects against potentially bogus reviewers from posting inaccurate and unfair comments. Open Table also monitors the reviews for crass or inappropriate comments, and they are only posted for 60 days.

The diners gain clear benefit from customer reviews. They read about the experiences other diners had with a particular restaurant and are left to make up their own minds. Product reviews are always helpful to consumers, knowing that every consumer's needs and tastes are different. The benefits to the restaurants are more unclear, but they're there. First, good reviews (real or bogus) are obviously always welcome. Second, it's a direct channel to customer feedback on the product. Constructive feedback, even in the form of a bad review, can help businesses reshape or retool their products to better meet customer needs. If the restaurant didn't get it right, they should want to know why and have the chance to correct it.

Making Reservations a Win-Win Scenario

In the age of the internet, technology literally affects every aspect our lives - from complicated financial transactions to tasks as simple as making a dinner reservation. Back in the day, making restaurant reservations might involve some extensive time on the phone, or maybe even a trip or two to a particular restaurant, or multiple restaurants, working out the who, what, where, & when. Even when that was all done, there was no way to tell if the restaurant could actually seat you when you arrived. Maybe they had made the reservation in error, lost the reservation, or even overbooked on purpose, giving way to frustrated diners who might not be back after the bad experience. Also, there was the issue of the waste of everyone’s number one commodity- their time.

Enter OpenTable.com. Anyone who’s tried to make a dinner reservation for a recent Restaurant Week in Baltimore is probably familiar with Open Table, Inc. (NASDAQ: OPEN) This is the company that hosts and maintains the website OpenTable.com, an online, real time restaurant reservation system. At no charge to the potential diner, the system provides a real time view of the local restaurant landscape that allows end users to make their dining plans with the latest up to date information, ensuring that the restaurant will be able to accommodate them. This is the system that tells you that a table for 10 at Charleston’s at 8 pm on Saturday is a no-go, however you and three of your friends are more than welcome at Petit Louis during the same time slot.

Open Table, Inc. was formed in 1998 in San Francisco, CA as a venture capital firm. It went public, quite successfully, in 2009. http://www.reuters.com/article/idUSTRE54C5AI20090513. http://www.dailyfinance.com/story/investing/opentable-ipo-sets-off-feeding-frenzy/1553137/; http://www.businessinsider.com/opentable-closes-up-60-2009-5

The driving force behind Open Table, Inc. is its proprietary hardware/software system, Electronic Reservation Book or ERB. http://www.opentable.com/info/restaurateurs/software.aspx. According to the company website, “[ERB] automates the process of taking reservations and managing tables, while allowing restaurants to build robust diner databases for superior guest recognition and targeted e-mail marketing.” ERB interfaces with Open Table’s website in real time. http://www.opentable.com/info/aboutus.aspx. Restaurants are charged a subscription fee for the software/hardware, and website management- a fee which the company says more than pays for itself. http://www.opentable.com/info/restaurateurs/pricing.aspx.
The company currently touts itself as the world’s most popular online reservation system, used by over 12,000 restaurants and having seated over 130 million guests. http://www.opentable.com/info/restaurateurs.aspx?id=2. In 2009, the company posted total revenues of over $68 Million. http://finance.yahoo.com/q/is?s=OPEN&annual.

So why does Open Table work so well? The answer lies in the examination of the distinct, yet simultaneous, benefits that it provides to both diners and restaurants. First, and perhaps most fundamentally, Open Table creates a marketplace by opening a direct channel to buyers (potential diners) and sellers (restaurants), without providing for the actual financial exchange. The actual financial exchange occurs in the restaurant when the check is paid. It does, however, provide the information that gives the diner the ability to make a quick, comfortable, and most importantly, free decision. The restaurants, in return, receive the business and the ability to maximize their own product sales during the diner’s visit.

BENEFITS FOR THE DINER

The clearest benefit for the diner is that the service is completely free. Because the restaurants bear the costs of the system, there are no costs passed to the consumer. Or are they? There is some incentive for restaurants to bury the costs of the system in strategically raised menu prices. So far, there’s no evidence of that.

Open Table is also comprehensive in that it also gives the diner the complete picture: menu information, ratings, reviews, restaurant information. It is literally one-stop shopping for restaurants. Consumers are privy to all of the information that they need without surfing, calling or legwork.

Network effects also play a part. The more restaurants that utilize the system, the more choices the diner has when he or she visits the website. While clearly beneficial to the consumer, maybe not so beneficial to some of the more well-known restaurants who stand to lose market share to the smaller ones.

It’s real-time. The availability is updated in real time so the diner is getting the most accurate information. If an available slot is still showing, you can be guaranteed that it’s available and that a table will be waiting for you when you arrive.

Most times, it makes for a pleasant dining experience. The goal is minimal wait time, and less opportunity for errors.

Finally, it’s easy- all the consumer has to do is point, click, and show up on time.

BENEFITS FOR THE RESTAURANT

By hosting the marketplace, Open Table expands the restaurants’ access to their target markets, increasing sales, and defraying (even paying for) the costs of the system. As stated earlier, this may have counter-effects on some of the more established restaurants, forced to share the marketplace with those that are not as well known. Also, the startup costs can be expensive as one blogger points out: http://www.inpraiseofsardines.com/blogs/2008/09/behind-the-curt.html

Information. Here’s one of the major, if not the biggest, selling points for restaurants. When diners use Open Table, restaurants don’t just get a last name and party size- they get much more than that. They get to create a virtual file on every diner who frequents their restaurant. They know when you were there, what you ordered, how you like your steak, your favorite after dinner drink, how you tipped, and most importantly, how much you spent. The restaurant can track all of this information through the use of the Open Table ERB. This information allows the restaurants to deliver more personalized service to its customers- a trend that has been developing in this and other service oriented industries for some time now. http://www.marketingpower.com/AboutAMA/Pages/AMA%20Publications/AMA%20Journals/Journal%20of%20Marketing%20Research/TOCs/SUM_2009.5/Buyer_Monitoring.aspx. But would restaurants use this information to provide personalized service to “worthy” customers at the expense of those they deem “unworthy” based on prior visits? Are there privacy concerns involved- especially if someone is keeping track of how much alcohol was consumed at a business-expensed dinner? Or do diners like their favorite restaurants to know that they like their martinis dirty, their burgers well done, and that they always leave 20%?

Direct email marketing is made easy for restaurants that use Open Table. The information complied on each diner allows the restaurants to precisely target groups of diners using the data from their previous visits. They can identify the steak lovers, the vegetarians, the wine drinkers and the sweet-tooths. They can also compile information on when you’re most likely to dine out, and tailor specials to meet your personal likes. What’s unclear is whether or not they can retrieve information on competitors. If consumers don't return to your restaurant, where did they go, and more importantly, why? Surely Open Table has this information- and it could be valuable.

Open Table also minimizes “no shows” for restaurants. The system tracks whether or not the diner made good on the reservation and can flag, or even ban, repeat offenders- another guarantee for the restaurant that a booking through Open Table means actual dollars in the door.

Customers are asked for feedback- rants and raves- about their experience, giving the restaurant direct access to the likes/dislikes of their clientele.

Finally, when a customer arrives and is attended to immediately without a wait, the restaurant has already won the first battle. Provided that the food and service can deliver, a pleasant overall experience should follow.