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.