Is OpenTable Worth it?

http://incanto.biz/2010/10/22/is-opentable-worth-it/

by iisbum • 16 years ago

139 85 16 years ago

rubyrescue• 16 years ago

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...

steveklabnik• 16 years ago

A fellow AlphaLab alumni is doing some interesting stuff in this space: http://nowaitapp.com/

stevenwei5• 16 years ago

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.

sandGorgon• 16 years ago

[ 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.

illumin8• 16 years ago

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."

mattmanser• 16 years ago

In the UK there's at least http://www.godine.co.uk, who recently won our local startup of the year:

http://notttuesday.com/2010/11/11/and-the-winner-is/

aaronbrethorst3• 16 years ago

    "[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.

tptacek2• 16 years ago

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.

aaronbrethorst3• 16 years ago

I don't doubt that for a second. In fact, I would've guessed that most top tier restaurants would shy away from using such systems.

But, as it works out, though, there are a bunch of Michelin-starred restaurants in the Bay Area that are on OpenTable: http://www.michelinguide.com/us/sf_stars_2011.html

neilc• 16 years ago

[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.

aaronbrethorst3• 16 years ago

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.

scottrafer4• 16 years ago

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

Lots of people hit it first.

dasil003• 16 years ago

The statement:

This is the dumbest thing I've read today.

and:

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.

are in direct conflict.

ben10402• 16 years ago

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.

http://online.barrons.com/article/SB500014240529702048786045...

noodle2• 16 years ago

depends on who is dining, but that might make the type of person who is trying to accumulate opentable points mad.

ben10402• 16 years ago

I'm that type of person, which is why it bothered me and it even sticks in my mind at all now.

The reservation that was canceled would have tipped me over the threshold to get a cashback reward, so I let OpenTable know and got my points.

The restaurant wasn't very good anyway, which was a factor in my decision as to whether or not I should've taken it up with OpenTable.

philtoronto2• 16 years ago

I want to call shenanigans on the profit margin in the restaurant business being 5%... OK, shenanigans.

tptacek2• 16 years ago

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].

sp4rki2• 16 years ago

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).

philtoronto2• 16 years ago

I was ignorantly assuming they meant gross. You're right.

smackfu2• 16 years ago

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.

ig13• 16 years ago

Seems reasonable. In the UK the break-down is typically:

  60% gross profit  
  30% wages
  10-15% rent
  5-10% overheads (rates, bills, etc.)
  5% advertising

Leaving a profit margin of around 5%.

Most restaurants are lifestyle businesses, simply because they don't make enough money to be anything else.

netaustin• 16 years ago

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...).

sabat• 16 years ago

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.

js3309• 16 years ago

The reason they have a special relationship is because Benchmark Capital is a investor in both.

It is a overvalued company when it IPOed and especially now since some of the metrics are ridiculous.

Its P/E ratio is 127.5. Time to short Open.

dotBen3• 16 years ago

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.

dotBen3• 16 years ago

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.

waterlesscloud4• 16 years ago

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....

dotBen3• 16 years ago

Yes, but that doesn't match what the post author says based on his figures.

It could be opentable cost = booking fee per diner + setup costs + monthly fees. I'd like to know more.

d2viant4• 16 years ago

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.

jakarta2• 16 years ago

That's basically the essence of capital cycle theory isn't it?

Wherever you see high valuations and high returns on capital, competition is bound to come in, which gradually reduces returns and valuations.

krosaen2• 16 years ago

No barrier to entry? Don't they outfit each customer with a complete table management system including the hardware?

d2viant4• 16 years ago

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.

gphil2• 16 years ago

> It's being massively shorted by the hedge funds.

Just out of curiosity, who are "the hedge funds" and how do you know this? Is there some way of researching who is shorting what?

d2viant4• 16 years ago

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.

jakarta2• 16 years ago

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 am counting 4 of those write ups right now.

herdrick• 16 years ago

> no barrier to entry

There's a pretty big network effect.

waterlesscloud4• 16 years ago

You only have to take this on in a particular market to start. It makes no difference that OT has restaurants in NYC if you're competing in SF.

danielharan• 16 years ago

Is it legal to short a company and enter the market with an OSS solution or other competitive offer?

scottrafer4• 16 years ago

Yes, it's legal.

stevenwei5• 16 years ago

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.)

smackfu2• 16 years ago

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.

waterlesscloud4• 16 years ago

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.

Monkeyget• 16 years ago

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.

tkanet• 16 years ago

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.

mdon• 16 years ago

"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.

jasonjei• 16 years ago

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.

ojilles2• 16 years ago

How big is the part where OT is used for business, but when the OT points are cashed out folks can keep that privately? Could be hard to sway that...

gphil2• 16 years ago

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.

noodle2• 16 years ago

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.

zoudini2• 16 years ago

Having found several restaurants with no OT availability to have reservations available upon calling, I think this is the case.

I'm pretty sure a lot of restaurants set aside a certain amount of tables/times as OT inventory.

sstrudeau• 16 years ago

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.

ajx• 16 years ago

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.

ojilles2• 16 years ago

Excellent business opportunity is not material for HN?

nikcub2• 16 years ago

"it was too expensive to keep, but letting it go could be harmful."

which means that they have probably priced their product perfectly

nikcub2• 16 years ago

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.

digitailor• 16 years ago

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.

_urga• 16 years ago

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.

a4agarwal• 16 years ago

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.

scottrafer4• 16 years ago

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.

zoudini2• 16 years ago

this gets at something i am working on right now

scottrafer4• 16 years ago

Let me know if i can useful.

va_coder• 16 years ago

From this consumer's point of view he's wrong in saying everyone loses.

I use Opentable a lot and I like not waiting for a table.

psawaya• 16 years ago

Unrelated to the article, but I'm impressed with Incanto's clean and readable layout. Most restaurant sites are an ugly mess of flash.

pablohoffman• 16 years ago

That reminded me of a recent Paul Graham tweet:

  You've found market price when buyers complain but still pay.

http://twitter.com/#!/paulg/status/22576762202

Is OpenTable Worth it?

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