OpenTable: The Online Reservations That Restaurants Love to Hate | Hacker News Reader

OpenTable: The Online Reservations That Restaurants Love to Hate

nytimes.com

30 pointsjakarta17 comments

I am still waiting for the day someone takes down opentable. I'm at an incubator right now, and one of the partners had suggested we compete with them head-on because they operate so traditionally, especially with their equipment and high fees. There is definitely room for someone to take them on with a new software based model, but I think most start-ups are probably afraid of the sales effort and skills they'll need.

I'm invested in the hospitality industry right now and their profit margins are razor thin at 3-8% for those that survive. Of course on top of high sales it's not too bad, but most say that they were better off before opentable.

As they say in the article, a great app and an iPad can easily dethrone opentable.

I hate business like opentabke and groupon who wuck the blood of their customers just because they are the only game in town.

Until a better alternative hits them by surprise...

This is what success looks like. As a two-sided marketplace OpenTable is a fantastic business with very high barriers to entry. This is classic case of investor patience paying off.

If it didn't help their business, they wouldn't be on the system.

It's an ultracompetitive business. I'm sure any restaurant owner thinks he'd be doing great if it wasn't for credit card fees and rapacious landlords and city codes and taxes and whatnot. But if those went away the business environment would still get as tough as it needs to get to keep out the non-hackers.

That's what I thought until someone pointed out the prisoner's dilemma aspect of the situation. Using OpenTable makes a restaurant more profitable in isolation, but when everyone's using OpenTable, they're all worse off than they would be if no one was using it. This assumes that OpenTable doesn't significantly increase the number of restaurant-goers overall, which I think is accurate.

is the time the restaurant owner spends taking and canceling reservations worth something? is the time the user spends calling to check for availability worth something?

we've become that skeptical about technology around here? we really don't think that the convenience of checking availability on your mobile device is good for diners and helps people go out more and find better places to go?

whether it helps or hurts restaurants really boils down to whether you view it as a tax on the business, or a source of efficiency and a better product.

If you view it as a tax, which seems a little pessimistic, who pays the tax is a question of whether demand is elastic or inelastic. If the demand is inelastic, the restaurants can raise prices to cover the tax. If demand is elastic, they can't.

What that suggests is OpenTable helps the restaurants that are oversubscribed with reservations all the time, since they can pass along costs, and it helps them manage things more efficiently, keep tables filled, send email reminders so people remember to cancel. Also if you're Internet savvy there are good marketing opportunities. It probably doesn't help the others much. So they feel they are being dragged kicking and screaming into the 21st century and saddled with a cost and something they have a hard time using and complain about it.

This seems awfully like a startup seeing a need and filling it. It's hard to see evidence of a nefarious monopoly and market failure, unlike Ticketmaster which locks everyone in with anticompetitive agreements. If this kind of startup is a slippery slope to disaster, a lot of smart people are wasting a lot of time with this fancy technology.

The problem is the OpenTable, the reservation management system, is intertwined with OpenTable, the consumer-oriented reservation portal. Restaurants that are oversubscribed can easily switch from OpenTable without losing business, because they only care about reservation management. In fact, I'd guess that the more popular the restaurant, the more likely OpenTable is to give you a discount so they can beenfit from the network effects.

Everyone else is losing out because they're paying to gain access to customers who are using the reservation portal, but would've been customers anyway if it didn't exist. A third-party, back-end agnostic reservation portal would be better for everyone. The best portal would win, and the best reservation management system with the lowest prices would win. It is a market failure, though it will probably resolve itself eventually.

So what we're saying is that there's a huge business opportunity for anyone who can gain traction while undercutting OpenTable significantly (say, from $1 per reservation to 20 cents per reservation)?

Yes, but I think the only way to get people to use it is if they don't have to create yet another account just to reserve a table. Let people put in their phone numbers and text to confirm.

You'd also probably want to partner with Yelp if they're not already working on something similar. I'm guessing that OpenTable is so popular with restaurants because customers use it to find open tables at a particular time, so the network effects matter. Yelp gives you a leg up there.

Call me cheap... $1 per reservation does sound like quite a hit for a low-margin business.

It's $1 per seat reserved, so 4 people is $4.

Woah,

That's about half the tip at the cheap restaurants I go to, so I assume it would be a quarter of the tip at the "good" places.

Now, as I recall the help gets, on average, half their income from their tips.

So, yeah, that's a nice income indeed and you might see why a few folks aren't happy...

That's exactly what I thought; however the blog article linked from the nytimes pieces has some interesting info:

``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 approximately $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).''

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

Not sure where the `however` comes in ... the OpenTable hit just looks bigger...

Sorry, I misread the OP's comment. I was wondering why restaurants with $200 bills would worry about a $1 charge. Thx for the correction.

This is one of several articles that expand on an essay written by SF restaurateur Mark Pastore and published in the SFGate and on his site.

The original is also well worth reading: http://incanto.biz/2010/10/22/is-opentable-worth-it/

For those who are interested, the incanti.biz blog post was discussed on here about a month ago.

http://news.ycombinator.com/item?id=1904689

Reply on news.ycombinator.com