OpenTable: Gift from the Tech Gods or Trojan Horse Designed to Steal Profits?

If your restaurant takes reservations you must have at least considered online booking. The pitch is enticing; free-up the staff, dump that 19th Century paper and pencil and use the application to reach savvy professionals who prefer booking their restaurant reservations online. So, what's the catch?

 

For starters, online booking isn't free. The largest provider of online booking is OpenTable (OT) and their hefty set-up and monthly fees can significantly cut into your margins.  Furthermore, OpenTable loves to tell restaurants that their application provides you with a competitive advantage while they're actively trying to sell that same advantage to your competition.

The costly fees of OpenTable are a problem but that's just the beginning. A stated objective of the company (from their S-1) is:

"Continuing to attract diners to our [OT] website by offering the best reservation experience through enhanced ease of use and restaurant content, thereby increasing market adoption of our [OT] solutions, building our [OT] brand awareness and driving word-of-mouth referrals to our [OT] website." 

Did you catch the nuanced objective to drive traffic to the OpenTable site, not your restaurant's website. Why would OT do that? They do it because OpenTable wants to be the portal for all consumer reservations. If they own the customer relationship you will have to pay their fee to access all diners looking for a table. In addition, their points program builds loyalty for OpenTable, not your local restaurant, and you get to pay for it.

It's very important to ask yourself whether it's fair for your restaurant to be required to pay for online reservations generated from your own website or Facebook page. OpenTable currently charges a fee for reservations from your own network and we don't think that's fair at all.

In the next couple of weeks, we are going to examine alternatives to OpenTable and analyze the economics of online reservation systems. Please post your questions and comments.

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Tags: opentable, reservations

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Comment by Seth Gardenswartz on January 20, 2012 at 3:20pm

If you would like to see the webinar we did no this subject you can watch it here. The webinar is 30 minutes and does a nice case study on a real restaurant using OpenTable.

To see the webinar, click here.

Comment by Iñaki Zarate on January 19, 2012 at 12:57am

I think Opentable has enjoyed an almost monopolistic situation in the USA, however, with the tech. cost of entry into the arena not being brutal, we will see small localised players entering the market as well as other competitors doing their trade in other countries, that currently have null or a testimonial presence having a go at the american market.

I guess freebookings (freebookings.com)  would be quite an affordable option for those local restaurants, maybe it lacks the functionality other providers offer in their electronic reservatrion books, but for a large share of restaurants, it will provide the functionality they are looking for at 0 cost and still providing consumers with more than capable online reervation tools. 

Comment by Ivan Collins on January 18, 2012 at 7:55am

Hi Seth,

I spend a lot of time explaining the same points to prospective clients.   We have built a lot of the features of Reservation Genie based on areas that we felt Open Table was operating as a Trojan Horse.  These are some examples:

  1. We never charge cover fees from our network. 
  2. We enable the restaurant to add reservation links to any website in their network, book reservations without cover fees, and compare website results in convenient graphs. 
  3. We offer a loyalty program where customers compete for VIP status and the restaurant offers VIP's a perk if they stay on the VIP list.  This model creates a network around each restaurant, eliminates couponers from the equation because the incentive is only given to repeat customers, and cuts out middle man fees as they pass the perk directly to the guest.  You can see it in action here.
  4. We offer an off peak hour program kind of like 1000 point tables, but again the restaurant gives an incentive directly to the guest so there are no middle man fees.  Plus they can enter whatever perk they want so that it matches their brand.


I'd love to talk to you more about it.   Please do get in touch when you start examining alternatives.

Sincerely.

Ivan Collins

Reservation Genie

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