Is Urbanspoon's Rez a match for OpenTable?

As per the Seattle Times description of Urbanspoon's new online reservation service it has dubbed 'Rez':

It's pulling Urbanspoon into the business-software market and challenging the dominant online reservation company, San Francisco-based Open Table, which had sales of $55.8 million last year. Rez adds a yellow button that pulses if one has reservations available. You can use the button to focus a search for restaurants with reservations available, and reserve with a few more taps.

Rez is a nice concept, and Urbanspoon will get restaurants to join just because Urbanspoon and Citysearch have a lot of clout and are recognized brand names. But the fact of the matter is that restaurants will only be using Rez in order to get some free publicity on Urbanspoon - not because they really plan on using the system, which may deem Rez not very useful because restaurants won't be able to manage the reservation data properly. Consider that at least 20% of a restaurant's business comes from walk-ins - how does Rez plan on capturing this info? Unless Rez actually helps restaurants manage their dining rooms, eg: waiting list management, electronic reservation book, and most importantly - an interactive floor-plan, than it doesn't have a whole lot of utility for an upscale dining establishment.

: Image via CrunchBase

Here is just a small list of the foreseeable problems Rez will encounter when trying to expand their business:

Internet entrepreneurs & engineers don't understand the way restaurants operate. Unless you've owned, operated or managed a restaurant you it's very tough to build an application that dictates the way a restaurant should run its books. Think of it this way - Theo Epstein is a genius when it comes to crunching saber metrics and finding the right players for the Boston Red Sox to build a championship team, but Dustin Pedroia isn't about to ask Mr. Epstein how to hit a curve ball.
Advertising professionals sell ads, not software. Ad men know a lot about site sponsorship fees and CPM rates, but the integration of a table management solution for restaurants is not in the same category. Citysearch is a great way for Urbanspoon to sell advertising, but an online reservation service is more of a software sale than an online marketing service.
Clients (Restaurants) don't value Free. Ethan Lowry was quoted as saying that the key differentiation is going to be that "It costs you [restaurants] nothing when we send you business". Even if Urbanspoon plans to give Rez away for free, restaurants wouldn't use it like they use OpenTable. This has more to do with the psychology of a sale. Good, reliable clients need to feel that they're paying for something, and OpenTable gives their clients thousands of reasons (otherwise known as dollars) to use their software to its maximum capabilities.
Online Reservations aren't as simple as clicking the button that says 'Reserve a Table'. As per the article on Rez, "Restaurants use a special app that they tap and slide to notify Urbanspoon when tables are full or open. They can also use the system to add online reservations to their Web site". If it was only this easy. What this article fails to note is that OpenTable has a rather sophisticated operating system behind the actual reservations. Restaurants utilize this to manage their floor and waiting list so that their kitchen doesn't get swamped, their servers are given the right client information, and a plethora of other details in regards to the reservation and how the restaurant can best utilize its floor in order to maximize covers and revenue. Sending an email or text message to the restaurant saying that they can expect a party of four at 8 pm is pretty much worthless unless there is a very intricate system to help manage that data.

Image via CrunchBase

The irony of the situation is that I've spent the last couple of months bashing OpenTable and singing the praises for Urbanspoon, but you have to give credit where credit is due - OpenTable has a good operating system and from all indications Rez doesn't have such a system, and doesn't really plan on building one. The fact is that when OpenTable went public in January 2009 a bunch of innovative entrepreneurs said "I can do what they do". New players are jumping into the online reservation world without fully understanding the needs of the restaurant, which deal more with floor management, turning tables, maximizing revenue, etc. The online reservation aspect is only one piece to the puzzle.

I think Rez could be a great application if it were linked in to an active dining room management solution, but unfortunately software to help restaurants manage their books is not as easy as programming an iPhone app. My suggestion is for Urbanspoon to build a platform that is open-sourced so that more sophisticated Table Management solutions can easily be hooked into the Rez online reservation module. This would be a win-win - for Urbanspoon, and the restaurants they hope to do business with..

Tags: citysearch, ethan lowry, management, online, opentable, reservations, restaurant, table, urbanspoon

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Comment by Norbert Marrale on November 6, 2009 at 1:31am: All good and well, but I'll wager that POS vendors won't have the marketing clout to become a ubiquitous consumer brand.

Open will have to change its focus on online (losing 50% of their revenue coming from hardware). Don't think that would go over well with the shareholders.

LiveBookings appointed a marketing manager for North America in September.

Interesting to see that US, OT and LB are all staying out of the discussion here ;)

Maybe the consumer space is big enough for multiple networks, just like it is in most other industries?

Give it another 5 years, and you'll see a handful of national/global players plus dozens of regional providers. All of their (and our) data merged into a frontend app that interfaces between booking information providers and consumers. The XML schema is pretty much the same anyway...

Norbert - DineMonkey.com

Comment by Busi Buchan on November 3, 2009 at 12:56pm: here in the UK we have Top Table and Livebookings who work on the same premise as Rez, and they are popular with both consumers and restaurants. The UK is way more agressive (and I daresay, advanceed) in terms of restaurant online bookings options. It would be worth your while for you guys(if you have a vested interest) to check these guys out.

Comment by Jonathan Morse on November 2, 2009 at 5:36pm: Brian, what you describe is not a monopoly but a "deep moat" and why investors in Open would pay $25 a share with a P/E that is out of whack and a market size that is questionable. Open has 10K+ restaurants and according to Compete 1M+ unique visitors per month. POS vendors may jump in but the question is where. As a Table Management solution, a reservation solution or both?

If I was to guess, POS companies will probably go the table management route as the hardware is already in place. Table Management would be a nice software upgrade and provide that much needed additional revenue for POS companies. Will that hurt Open? Probably not because a majority of their revenue is from the reservations. In fact I bet Open would gladly give the Table Management over to POS companies because that side of the business is killing them in the profit dept.

So how do you dethrown Open? The old fashioned way, build a better mousetrap with a lower cost and more value. Open started 10 yrs ago when SaaS was just a fantasy. Open has huge overhead (ironically in sales and marketing) but lots of cash (thanks IPO) but they are vulnerable to someone who can cross that moat.(without being gobbled up by Open like Guestbridge)

One last point, clearly restaurants do not hate OpenTable nor are they "limping along" as their retention rate and new sales continue to climb. For the record, I do not work for OpenTable nor am I an investor just a software guy who thinks OpenTable has done more good then bad for the restaurant industry.

Don't hate the playa hate the game.

Comment by Andrew Fickert on November 1, 2009 at 10:34pm: Actually, we're just about there. We are now testing online reservations, as well as the ability to order ahead for the table with our online ordering technology. Reservations work with OpenBravoPOS and we'll hopefully have a couple more POS systems by the end of the year.

The feature is in our API, but undocumented at the moment. Whether or not anyone else will adopt it, who knows. One thing I've learned is that a lot of POS venders like to keep things as closed off as they can so they can charge their customers more for their proprietary solutions. Furthermore, things like PCI/DSS and other requirements make creating open source solutions rather difficult to produce for the industry as someone has to pay to get apps certified, at least for the North American Market.

I'm not just ranting though, we're actually in the process of an overhaul of OpenBravoPOS and working with a few others that have the same needs. It works quite well for sit down restaurants (Fine-Dining/Fast Casual), but lacks a lot for take/out delivery.

Comment by Brian Hageman on November 1, 2009 at 8:27pm: Opentable has had a near monopoly, has had 10+ years to develop their product, and has spent something like $100M in capital, in order to barely squeak out a profit and to be generally despised by restaurateurs and ignored by most diners. Why would anyone want to get into the online reservation business?

Opentable will limp along until the POS manufacturers get their act together. The POS companies should build reservations into their POS systems and then provide an open API to developers. Opentable would be out of business within a year or two.