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Strong opinions, weakly held

OpenTable needs competition

This weekend I read a restaurant owner’s perspective on OpenTable. In short, he feels like OpenTable charges to much to arrange reservations, but that most restaurants feel like they must use it if they want to be competitive. In other words, that OpenTable has captured such a large portion of the online restaurant reservations market that they are able to extract monopoly profits.

Here’s how he breaks down the numbers:

One independent study estimates that OpenTable’s fees (comprised of startup fees, fixed monthly fees, and per-person reservation fees) translate to a cost of roughly $10.40 for each “incremental” 4-top booked through OpenTable.com. To put that in perspective, consider that the average profit margin, before taxes, for a U.S. restaurant is roughly 5%. This means that a table of 4 spending $200 on dinner would generate a $10 profit. In this example, all of that profit would then go to OpenTable fees for having delivered the reservation, leaving the restaurant with nothing other than the hope that that customer would come back (and hopefully book by telephone the next time).

What this looks like to me is a great opportunity for someone to build and launch an OpenTable competitor. I think the key would be to charge less than OpenTable, and make sure that restaurants could stay on OpenTable and book reservations through the competing site as well. Restaurants aren’t going to dump OpenTable since it is omnipresent, but I think most would gladly link from their own sites to a competitor if it would save them money and they still booked the reservation.

The catch is that OpenTable is good at what they do. They have a fully integrated solution where they provide a computer to use to book reservations. They offer a solution that enables restaurants to book reservations through OpenTable their own Web site. And, most importantly, people can find restaurants through the OpenTable Web site and mobile apps. That said, if OpenTable is really overpriced, the opportunity exists to take them on. After reading the article, I’d love to see someone give it a shot.

For what it’s worth, I could see Yelp going into the reservations business. Is there any reason the detail pages at Yelp don’t have a “make a reservation” link for restaurants that accept them? The opportunity is there.

2 Comments

  1. Wow. I never considered that side of it. I use OpenTable a lot. As you say, I don’t really know of another restaurant reservation system, and OpenTable is really comprehensive. I have to admit that the “reward system” is what drew me in. I like being rewarded for something that I normally do anyway, since many of the restaurants that I dine in fairly regularly are there. And it is fantastic for travelling, as I recently learned on a trip to Charleston and Savannah.

  2. I guess I’m gonna switch (back) to the phone. Occasionally we have a niche need — what restaurant can we get into on short notice at this odd time — that only Open Table can really serve, but other than that, I’d rather call anyway.

    Heck, even if you’ve found something through OpenTable for a distant city, couldn’t you google the restaurant directly and call? (OT has only itself to blame if you decide to work around it rather than feel good about it…)

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