NYC Hotels

The prize they are all fighting for is the right to supply an online reservation solution to D&D, formerly Conran, in London but there are rumours D&D has decided to specify and build its own reservation and marketing solution.

The OpenTable business by its nature doesn't scale well. Aside from the fact that it relies on a sales force and “high touch” relationship management with thin margin clients, the business model is inherently self-defeating. Really great restaurants thrive on their regulars, not the aspirational folks who dine out occasionally. OpenTable increases the cost not only of first time visitors but of savvy regulars who use the system to accumulate points at places they would dine at anyway.

Moreover, and I think this is a real killer — the places that likely generate the most revenue for OpenTable, are by their nature the most desperate and vulnerable. Consider the “1000 point curse.” A lot of restaurants that have seen their business decline will list lots of 1000 point reservation slots at peak times. Now, keep in mind, only two of these reservations means a $20 check for the diner; it's effectively a $10 discount on a meal. Of course OpenTable doesn't give away free money, so one assumes that the 1000 point slot is a real revenue (i.e. margins) generator for them.

Furthermore, consider their target market and current revenue base. Let's face it, OpenTable is a SF company for a reason. SF has (I believe) the most restaurants per capita in the nation. Therefore by owning this local market and NYC as well (and other major U.S. cities), they perhaps have created a solid base, but hardly an assurance of avoiding market saturation. 10,000 restaurants is great; but consider that SF alone has over 3,000.

What is the other 94% of reservation taking? Chain restaurants perhaps? That is to say, businesses with enough marketing power and internal proprietary systems knowledge that they would not outsource to OpenTable, or if they did, would have immense pricing power.

OpenTable may very well be near market saturation _in the niche they serve well_, which I believe is moderate to high end restaurants in affluent urban settings.

And in the final analysis, to reiterate a previous point somewhat — I am surprised at how expensive OpenTable really is. Great restaurants don't rely on leads generation or bringing in new customers, they rely on word of mouth and regulars. Literally, regulars who come back for years and years. While OpenTable costs $2.61 per head, a single satisfied customer “pays” the restaurant back many times over by growing the base that has heard of them. This is a slow process. And yet, it works, and has worked for many years. It leads me to believe that, again, the restaurants most dependent upon OpenTable are the ones least successful at word of mouth marketing, and therefore the most likely to fail. That does not bode well for their business model.

So a user who completely utilizes all the features of OpenTable will see the real cost of OpenTable be much much less in terms of money saved in time, labor, and lost business.

The typical restaurant margin is microscopic. Something south of 5% in most cases.