Is OpenTable Worth it?
incanto.biz
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I'm pretty sure a lot of restaurants set aside a certain amount of tables/times as OT inventory.
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...).
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.
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.
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.
Ditto for delivery - don't use GrubHub who will take a %age if you can order directly with your local neighborhood restaurant.
It could be opentable cost = booking fee per diner + setup costs + monthly fees. I'd like to know more.
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.
Wherever you see high valuations and high returns on capital, competition is bound to come in, which gradually reduces returns and valuations.
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.
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.
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.
The worst part is dealing across vendors though. The APIs are incredibly inconsistent between them, and some are frankly, crippled.
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).
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.
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.
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?
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.
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.
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.
Any more info on these?
There's a pretty big network effect.
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 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."
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.
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
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.
Wow. You iron, shower, and drive a whole lot faster than I do.
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.
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.
If the restaurant is unable or unwilling to report their true availability, then the value of OpenTable decreases dramatically.
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.
Lots of people hit it first.
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.
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.
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...
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.
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.
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...
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.
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.
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.
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.
You've found market price when buyers complain but still pay.
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.
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.
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.
which means that they have probably priced their product perfectly
I use Opentable a lot and I like not waiting for a table.
Literally in the article summary right there on the first result of the SERP [restaurant profit margin].
Supermarkets often have profit margins as low as 3-4%.
60% gross profit
30% wages
10-15% rent
5-10% overheads (rates, bills, etc.)
5% advertising
Most restaurants are lifestyle businesses, simply because they don't make enough money to be anything else.