One thing I've noticed about OpenTable is that usually when I can't make a reservation through their service (e.g. when it says there are no available times left) I can still call the restaurant and be accommodated. After doing this a few times now, it's made me wonder about the value-added for the restaurant-goer as well as for the restaurant. It seems like in these situations, OpenTable is just getting in the way of the restaurant-customer relationship to the detriment of both.
this is mostly speculation, but my guess based on experience is that most places only allow opentable to book one or two tables per time slot. i've been rejected several times by a few places and instead walked in to a not particularly crowded place.
OpenTable isn't great if your goal is to go to a specific restaurant. It is very convenient if you're looking for a time slot in a particular area (e.g., before/after theater, an event, etc.) or on a particular date.
You know, Yelp should cut off its relationship with Opentable and just jump into this business itself and charge either no fee or a nominal fee to restaurants (basic vs. pro).
This would solve a big problem for Yelp; if Yelp could save restaurants from the crushing cost of reservations, restaurants would be more inclined to forgive Yelp for allowing us "bored, jobless layabouts" to trash them in a public forum (http://blogs.westword.com/cafesociety/2010/11/people_hate_us...).
The hard part for Yelp: getting computers (or, similar to OpenTable, specialized appliance PCs) into the restaurants. That's why OpenTable took so long to take off -- they had to convince a critical mass of restaurants that it was worth it.
I have mixed feelings about OpenTable. I know three people who work there, including an executive. I wish them well. I am concerned that the company's prosperity is based on value to restaurants that does not always actually exist. I, and the OP, could be wrong.
The crux of the argument made by the post is that a restaurant makes $10 profit on a $200 4-person cover yet OpenTable takes $10.40 for that booking (I want to call BS on those figures but lets ride with it)
In an earlier part of the piece, the author states that "[his restaurant owner friend] believes that if he stops offering it, his customers will revolt and many would stop coming to his restaurant. So he keeps paying, but carries a grudge and wishes for something better."
What's the problem if the customers stop coming if by servicing their business via OpenTable you either only break-even or even make a slight loss?
If that is the case, it's not worth servicing the customer in the first place.
GroupOn does this too - you loose money by servicing the business obtained via GroupOn, but the idea is that future business from each customer will be at market-price thus off-setting the initial customer acquisition cost (CAC) as future CAC is $0.
The difference here is that OpenTable customers continue to book via OpenTable, thus each booking creates further CAC that doesn't go down.
What I find sad is that for all the long winded post on this subject, the author gives no concrete quantitive specifics of the OpenTable tariff structure so everyone can get a clear understanding of the issue.
As a side point, it goes without saying that if you love your local restaurant book directly with them as it is obvious they reduce their profit margin on an OpenTable booking.
Ditto for delivery - don't use GrubHub who will take a %age if you can order directly with your local neighborhood restaurant.
From OpenTable's info, the booking per diner is $1.00 if done via OpenTable's site, but only 25 cents per diner if done via the restaurant's site. This suggests certain approaches....
His $10.40 is the cost for an "incremental" 4-top, ie a group that wouldn't have booked without coming in via opentable since they were new to the place. Given that even OpenTable's info estimates only 50% of the bookings would be incremental, and that that's likely an overestimate in OT's favor, I can imagine $10.40 may be about right.
4-top via OT = $4
1/2 4-tops from OT "incremental", cost is now $8 per incremental.
If it's really 2/5 4-tops from OT are incremental, we're at $10 per incremental.
This is an interesting opportunity to profit from. This company has massive expectations baked into it's stock price (NASDAQ: OPEN), trading at over a hundred times earnings. It's being massively shorted by the hedge funds. Combine the fact that there's relatively no barrier to entry with the rumors that their customer base isn't very satisfied makes for a huge opportunity to profit in the short/medium term.
That's not a huge barrier though. The restaurant didn't have some outlay of capital for that hardware that is going to motivate their decision to switch. When they cancel their OpenTable contract, they'll just send the hardware back.
This seems like an opportune space for a startup to compete in. You could easily sell the online reservation service for a fraction of what OT is charging and just skip the hardware nonsense. The hardware and table management system could be a separate product or service.
I would hope so, but I remember reading that the hardware was one of the keys to their success; "here plug this in, it will do your table management. And by the way, people can make reservations now too." Maybe now a competitor could get by just having a really good ipad app for the restaurants (is this what urban spoon's rez is?)
Here's what I'm thinking. I'm already working on a startup, so I'll give this one away for free.
Build the web app portion that allows reservations to be made from the customers perspective, just like they have now. Integrate it with Twilio so that the restaurant receives an automated call and can confirm/deny the reservation on their end, without having to deal with a bunch of new hardware. You just tell them that they're going to receive a phone call with the reservation information and the options. There's little or no training required on their side, no additional hardware, minimal integration, no new systems. It's a more organic transition for a restaurant when you're trying to talk them into becoming a customer.
You're missing half of the equation - It's not just the act of performing the reservation, it allows customers to search for to see if which restaurants have availability (and at what time). You can't do that unless you have access to all of their seating data, including walk-ins.
Yup, and accessing table availability requires integrating with the restaurant's point of sale system so you can track when tables are getting seated and cleared.
Innovating technology wise in the restaurant space is pretty tough cause sooner or later you're going to hit the wall of having to integrate with a dozen or more point of sale providers, no matter what you're trying to do (mobile/online ordering, reservation/waitlist systems, reporting systems, etc).
Oh, and because of their incredibly low profit margins, most restaurants can't afford to buy this type of tech. And the ones that do typically keep it for 5+ years between upgrades.
How bad is the barrier to entry though on the software side really? It's my understanding that Micros/Aloha (Radiant Systems) own 50-80% of the restaurant industry. If you hit that percentage with just two integrations it's really not that bad right?
Micros and Aloha are definitely the biggest two, and it makes the most sense to start there. But you also have to keep in mind that they both have multiple product lines (plus legacy systems), each with different capabilities and SDKs.
The worst part is dealing across vendors though. The APIs are incredibly inconsistent between them, and some are frankly, crippled.
who is going to disrupt the restaurant business by offering both the web-based POS AND reservation system bundled into a single product/service?
solves the problem of having access to seating data and provides a compelling upgrade option compared to alternatives. hardware just needs to be a "dumb" Internet terminal (likely with a touch screen and print capabilities).
I had this idea about 2 months ago and thought quite seriously about it, for the reasons you described.
But there are a lot of issues. How do you confirm to the customer that their booking went through? What if no-one answers? The customer experience just isn't that great.
The other big barrier is integrating their reservation system with whatever point of sale system the restaurant is using. (Of which there are many. All with different SDKs. Most of which cost lots of money to get access to).
A reservation/waitlist system that doesn't interact with the restaurant's point of sale system is mostly pointless as you need to be able to track real time table availability.
I've been following this company for awhile from a financial perspective, which is how I know. The most prominent hedge fund to short has been Whitney Tilson's T2 Partners', but they're just one among many -- 35% of the floated stock is short now.
I don't know of any way to research who is shorting what other than SEC filings. Mutual/Hedge funds have to report this information on a quarterly basis.
There are a few common signs in institutional shorting, that may be used to determine short interest in absence of official filings, share counts, or other data, but they mostly require a low-volume market to see clearly:
The accumulation/distribution line is strongly inverse to price(It's an indicator based on buy/sell volume. Normally, an accumulation precedes price rise while a distribution is in tandem with a selloff. When shorting, the long-term trend goes the opposite way - there's more buying than selling, yet price consistently drifts down. Caveat: being based on a composite of price/volume/time, it's not totally accurate and even changes dramatically across time scales. )
Market-maker quotes on Level II behave unusually in response to buys or sells(on small, low-volume stocks in particular, MMs are sometimes colluding forces and will "paint the chart" with tiny trades that, in a fair market, would not affect quotes).
Message boards for the ticker symbol suddenly see the appearance of paid bashers who will repeat negative news multiple times a day.
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With a lot of heavily shorted stocks, the company is fundamentally weak to begin with. However, even a very solid company is vulnerable if it's starting from a low market cap. So - in general - take the appearance of a large short position as a sign to either join them or get out. To see a short squeeze the float has to be very tight, and the stock needs to be forced into a speculative frenzy with good news or just big buyers. The long-run odds always favor companies failing.
OPEN is a big-board stock with a large valuation and volume right now, so I wouldn't expect shorts to be obvious enough that you can see these indicators. As well, their dirtiest tricks are reserved for pennies. They have the lowest risk there, since market cap is so small that they can absorb most price rises.
You can see what the short interest is on a stock to get a gauge of how shorted it is.
Plus if you have access to one of the online idea boards for hedge funds, you can see the write ups from analysts that believe OpenTable is a short -- sometimes they disclose whether or not their fund is short the company as well.
I think people generally underestimate the sales challenges associated with selling tech to restaurants. Restaurant owners are too busy running their restaurants to be looking for this stuff themselves.
That's why Groupon, Yelp, and OpenTable all have massive sales forces dedicated to finding and acquiring new restaurants. This costs money. The same pretty much applies to every other restaurant technology company, ever. (Particularly point of sale companies.)
It's also worth noting that the $10.04 in the article includes a portion of the startup fees. So dropping OpenTable for some new solution wouldn't necessarily make financial sense since you would need to pay the startup fees for the new solution. And retrain your staff, etc.
It's debatable whether the startup fees should be included in the per-table cost anyways, given that is a sunk cost.
"[R]estaurants find that they themselves no longer own the customer relationship."
This is the dumbest thing I've read today. I am sitting in your restaurant! I am voting with my dollars by choosing to show up at your establishment! If I like what you have to offer, odds are I'll be happy to give up some personal information.
If you want to know my email address to inform me of special events, or to give me a gift certificate for my birthday, then just ask me! It's not that hard.
Additionally, if I need a reservation to eat at your establishment, and you're not on Urbanspoon's Rez system or on OpenTable, you may as well not even exist. I'm not going to call you and a dozen other places looking for a last minute table. It's simply not worth my time.
[If] you're not on Urbanspoon's Rez system or on OpenTable, you may as well not even exist.
Perhaps to you, but I think that attitude is rare. I think most people find a place where they'd like to eat, and then they choose the easiest way to make a reservation -- the difference in convenience between Opentable and the telephone is pretty small. If I'm going to spend $$ on a nice meal, finding a good place is my priority; if I need to call them or tolerate their shitty Flash website, so be it.
Personally, I rarely use Opentable: apart from the fact that they take some of the restaurant's revenue, they can also report false negatives. For at least one restaurant I go to often (Ad Hoc in Yountville), there is almost never a good time available on Opentable, but there often is if you call the restaurant. Since I can't trust a "no availabilities" result from Opentable, it is easier to just call and speak to a live person.
Yes, that is my opinion. I don't doubt that I'm in the minority. Still, for me, OpenTable or Rez support is critical. My girlfriend and I will routinely pick a place to eat on a Friday or Saturday 30 minutes before we intend to eat. I don't like having to call a half-dozen places in order to get a table, and I wouldn't have much choice without these systems.
If the restaurant is unable or unwilling to report their true availability, then the value of OpenTable decreases dramatically.
> My girlfriend and I will routinely pick a place to eat on a Friday or Saturday 30 minutes before we intend to eat. I don't like having to call a half-dozen places in order to get a table, and I wouldn't have much choice without these systems.
It never even occurred to me to try and make reservations _30 minutes_ before I want to go eat. Interesting concept. I usually just aim to only go places where I know I'll be seated very quickly, or else get take out.
Ad Hoc is a real destination. Most places aren't owned by Keller. OPEN controls the segment a level or two down from that. It's a reasonably popular discovery mechanism for the $25 entree world. http://www.quantcast.com/opentable.com
Something tells me Incanto isn't having too much trouble filling tables, even without Urbanspoon. You can't book Alinea in Chicago on OpenTable either.
In August, I used OpenTable to get a reservation at a Michelin-starred restaurant in CA (is Sonoma considered Bay Area? I'm not from the US so not sure) about 15 minutes beforehand. Process worked perfectly.
At 8pm, we arrived at a hotel in the area and looked online for a place to eat. By 8:10 we'd booked. By 8:16, we'd ironed clothes, showered, driven and arrived for a great meal. Ringing around looking for a table would've taken too long.
While one of us was showering, the other was trying to get the booking, ironing, etc. I am often late to get ready in the mornings but on this occasion I could've set some sort of speed record. It was frantic.
Remarkably, our GPS failed and we were relying on remembering a Google Maps view of the path we needed to take onto and off of the freeway. Fluked that too.
The bottom line is squeezing an industry with 5% profit margins cannot possibly last. This is the basic point I took from the author's extremely well written and obviously experience-infused post.
5% margins??? Seriously???
My sympathies to anyone in this shithole of an industry. That's impossible. No wonder all the restauranteurs/restaurant-employees I know are unhappy or insane. Or both.
My sense is the point of sale aspect of OpenTable is what makes them so entrenched... it's not easy to replace the hardware, retrain staff, etc, and the article doesn't touch on this.
Is there a startup competing in this space directly against OpenTable? Is Yelp the biggest potential contender (though i can't see them getting into the POS business)? Or Google?I could see google offering android-powered POS devices...
OpenTable doesn't actually sell the POS terminal (or software), they provide a standalone terminal that integrates with the restaurant's existing POS system.
Urbanspoon Rez is the only direct competitor to OpenTable that I've heard of, but I have no idea how much traction they've gotten so far. Their pricing structures seems to significantly undercut OpenTable.
[ with 200$ 10.1' android multi-touch devices e.g. http://goo.gl/S5JHs (I would suspect that wholesale costs would be closer to 100$). ]
For seeding 10000 restaurants, you would barely need a million and half dollars (not counting android app development). I daresay that you could make the interface close enough without infringing on copyright issues.
The key is to lock down a hardware manufacturer who can supply the devices with a low failure rate.
Or, spend a little more money and provide an iPad app. You get a proven reliable hardware platform plus it becomes a marketing tool - "choose our platform and you get a free iPad."
Not long ago I placed a reservation through OpenTable, and a couple minutes after we had been seated, I got an email from OpenTable telling me the reservation had been canceled from the restaurant's end.
Now I wonder if this was an honest mistake, or a strategic cancelation to try to stiff OpenTable on the per-reservation fees. Obviously they couldn't do that with every diner who walked in the door, but maybe they could sneak a cancelation in here and there to save a few bucks.
According to this, OpenTable charges (not counting equipment and fixed monthly costs) $1 per diner.
I think a good idea for the restaurants would be to add 'OpenTable' as a line item on the bill. This would get the message to customers, but may only work if a significant portion of restaurants in an area follow suit.
Many restaurant websites actually put an OpenTable link on their reservations page, directing traffic there.
That makes me think the restaurant prefers reservations to come in that way. They don't just see it as a secondary reservation system to bring in more customers, but the primary channel.
The added efficiency of OpenTable cannot be underestimated. Especially when trying to book something for a large group or at the last minute, being able to see availability across many restaurants in a single glance is critical. I'm not going to bother calling.
"That’s ultimately the most perplexing thing about OpenTable: unlike so many other Web services, this one has actually driven up operating costs, not reduced them."
How much do restaurants pay to accept phone reservations? It seems the cost comes from running two reservation systems - hiring a person to accept traditional phone calls, and paying OpenTable for the online reservation system.
I think there definitely is an opportunity to remove OpenTable from the equation. Look at restaurants like Momofuku Ko's annoying reservation system, where their in-house .NET reservation system books out within 3 seconds after 10am ET for 12 seats (24 covers a night), and seat inventories are only released 6 days in advance. Momofuku almost never starts a restaurant project without it now (e.g their buttermilk American free range fried chicken and Korean fried chicken).
It created lot of hype by becoming the anti-OpenTable. Read about the complaints of this reservation system on NYT, Departures, etc. Major food editors still have been unable to review the restaurant simply because their inventory allows for no special favors.
Of course, anyone with Mechanize and scripting language of choice can do high-frequency reservation bookings.
However, OpenTable does have a huge following, and its followers like to redeem OT points for cash. Which is why restaurants are hesitant to remove it for customers that will only eat at OT restaurants.
I've looked at how OPEN's vulnerable a couple of times. What's not covered yet in these comments are the host's notes on each diner. When I make a reso, if the restaurant has made a note about me (tips great, gets pissy about being near the kitchen/lav, hard of hearing, whatever), it comes up when I check in. Those notes are not shared between restaurants.
There seems to be no global diner profile in the system and there's certainly no social aspect to figuring out where your friends have reservations or like to eat. That's where I think OPEN can be undermined. I'm not an Urbanspoon user, but I don't think they've cracked that nut either.
think that Groupon and clones will go through the same strugles. I just fail to understand how "discount only" cn be a business. it just mean someone is paying for the service and giving up their profits and customer relations.
My startup http://sexbyfood.com provides a web-based reservation book for restaurateurs. It works on any HTML 5 browser or iPad, keeps audit trails of changes to reservations, prints a proper guest-list, has real-time activity feeds, a flexible allocation algorithm, and provides a plugin that restaurants can add to their website.
From OpenTable's own data, their revenue averages $600 a month from a given restaurant. Not a negligible cost, but doesn't seem outrageous.
Probably room for someone to undercut that, but it doesn't seem that the cost of restaurants controlling their own electronic reservations systems would be tremendously lower.
But maybe if restaurants did it on a cooperative basis. Hmm.
Seems like it would be hard for a competitor to gain a foothold. But it might be possible:
Contact all the restaurants in a given area.
Propose them a service similar to OpenTable.
Guarantee to them a lower price and greater control.
Market yourself as restaurant owner friendly.
Launch the service and advertise in the selected area to reduce costs.
Based on the 2004 Restaurant Industry Operations Report published by Deloitte & Touche LLP, average pre-tax profit margins range from 4-7% (4% for Full...
Literally in the article summary right there on the first result of the SERP [restaurant profit margin].
I have many restauranteur friends in my country, and their profit ranges between 50% to 60%. I have trouble believing that in the USA their profit margins are so crappy. I bet there's a lot of stuff going on under the table (pun intended).
Net. I didn't say this thinking the US should have similar percentages though. This is attributed to the fact that labor costs in my country is easily one third to one half as expensive as labor in the USA. Perhaps there is also less overhead in getting ingredients. I'd understand a 10% ~ 20% percentage net yearly profit, having most restaurants in the lower bracket of course, but 4% or 5% seems extremely low to me.
It's not about labour/ingredient costs, but rather the competitiveness of the market. A healthy competitive market drives profit margin to the lowest sustainable point.
Supermarkets often have profit margins as low as 3-4%.
The question is how many failing unprofitable restaurants are included in those stats. We all know the average new restaurant doesn't last long and hemorrhages money.
The question is not is opentable worth it, the question is this question worth it being posted on this site, or is it just completely irrelevent drivel? I'd say the latter is true.
