OpenTable: Restaurant Reservations Made-Easy
OpenTable is the market leader in online restaurant reservations. The company has made several strategic decisions to grow its two-sided platforms and has benefited from strong cross-sided network effects. Yet, in a perceived winner-take-most market, OpenTable should continue growing and innovating to stay ahead of competiton.
OpenTable is a two-sided platform connecting restaurants to diners. The platform’s main offering is to enable diners to make online restaurant reservations. The company benefited from a first mover advantages, found ways to generate value for both diners and restaurants, tackled the chicken-and-egg problem by onboarding restaurants at first and capitalized on strong cross-side network effects.
The platform generates value for both sides of the market. Diners benefit by getting an easy and smooth restaurant reservation process (i.e. lower search and transaction costs) and by getting a list of restaurants and time slots available for a reservation. In addition, they get access to other benefits such as the ratings/ reviews of the restaurants, the ability to see which nearby restaurants have openings, etc. On the other hand, OpenTable creates value to restaurants by enabling online reservation capabilities which some restaurants do not have (i.e. digitizing the reservation system). In addition, by listing the restaurants on the platform, the restaurants benefit from increased online visibility which potentially generates new leads for them.
The platform was launched in in 1998 when the founder identified a need: most restaurants did not have the capabilities and/or the vision to digitize their reservation process, relying instead on manual processes (e.g. pen and paper). After identifying the need, the platform needed to solve the chicken-and-egg problem and opted to do so by focusing on restaurants first. To onboard restaurants, OpenTable started off by offering them a booking management system to reduce manual processes. After the company managed to onboard a bunch of restaurants, it offered the online solution to connect to customers and then opened the platform to diners.1 The company started slowly growing its diner base (i.e. diners making online reservations) and with more diners using the platform, more restaurants became interested in joining the platform. As such, the platform capitalized on strong cross-side network effects.
OpenTable captures value by charging restaurants for reservations, while making the service free to use diners. Specifically, the company charges restaurants a small amount per seat reserved through the platform. OpenTable opted to charge restaurants instead of customers given that the restaurants extract more value from its service (customers will come and pay to dine/ drink, lead generation, etc.). The company also sells reservation tools to help restaurants manage reservations and charges a monthly subscription fee for these tools.2
To-date, the company has amassed a staggering list of 60,000 restaurants on-boarded to its platform and is seating around 134 million diners monthly.3 In fact, the online restaurant reservation market seems to be a winner-takes-most-market. In fact, the market exhibits strong cross-side network effects. In addition, there are barriers to entry associated with scale, mainly from the number of restaurants on the platforms, a first mover advantage that the platform has. For multi-homing, OpenTable managed to reduce the tendency of restaurants to do so by offering reservation tools (e.g. Connect, GuestCenter) among other value-added services, and as such making the relationship stickier with restaurants and increasing switching costs. In addition, the platform established a loyalty program to keep diners engaged and attempt to reduce diner multi-homing, which in turn fueled the network effects.
However, there are still platforms entering the market and attempting to gain market share by lowering costs to restaurants (e.g. smaller fees charged to restaurants per reservation, only monthly flat fee) and by differentiating their offerings. For example, Tok, a competitor, differentiated its offering by allowing restaurants to ask diners to pay a reservation fee in order to reduce the risk of cancellations.4 Resy, another competitor, enabled a text message feature that notifies customers when their tables are ready.5
Even though both differentiation and lower costs efforts can be easily replicated by OpenTable (and some of them have been such as the text message feature)6, the company should act faster to react to rising competitors that are gaining traction. The company should continue innovating to stay ahead of competition and retain customers – restaurants and diners. In fact, the company has started venturing into some new areas to continue growing. One of these avenues is food delivery, a very crowded market. To enter this market, the company decided to partner with existing delivery apps (e.g. Caviar, UberEats) looking to grow and tap into OpenTable’s customer base. OpenTable is planning charge these platforms a fee when customers order through the platform.7 Many additional innovative opportunities can still be explored by OpenTable. An example of an opportunity that the company has started dabbling with is the use of data analytics to improve the diner experience on the platform by providing more accurate restaurant recommendations based on past preferences. Other data analytics use cases can also be leveraged by the company (e.g. providing analytics reports on customer preferences to restaurants).
Endnotes
1 “How to Seed Your Platform in Standalone Mode”, Pipes to Platforms.
2 “OpenTable Explained: Here’s How The Company Makes Money”, Business Insider, October 2011.
3 Press Room, OpenTable, www.press.opentable.com/home.
4 “OpenTable vs. Resy vs. Tock: The restaurant reservation game is expanding. Here’s what that means for customers”, Boston Globe, May 2019.
5 Ibid.
6 Ibid.
7 “OpenTable Enters Restaurant Delivery Market, Partners With Caviar, GrubHub And UberEats”, Forbes, July 2019.
Thanks for the interesting article. What do you think about the impact of free cancelation or no show to the restaurants? Although Open Table enables more customers to book the spot online, it is also easier to cancel or even not to show up since there is no personal contact with the restaurant. I think a small deposit to the restaurant (fully refundable when a customer cancels, let’s say, 24 hours before) might encourage customers to behave more appropriately. At the same time, however, the deposit may reduce retention rate and growth.
I’ve noticed that there is some price discrimination on Open Table from some of my past reservations – depending on the restaurant booked, sometimes the app requests a deposit that is not refundable if cancellations happen too late. This might be driven more by the restaurant policy than OpenTable, but perhaps it something worth exploring as a product feature to some segment of restaurants (high demand, more upscale, etc.)
The upcoming restaurant recommendation engine seems like a great way for OpenTable to capitalize on the wealth of data that they have. Is there a way they could not only use it to benefit consumers but also restaurants in some form of advertising if they need more awareness within a specific consumer sub-set?
An alternative to the no-show fee that hbs51369394 mentioned is the approach taken by Tock, in which customers pay up-front – sometimes for an entire prix fixe meal, and sometimes just a deposit that is then applied to the check total. This seems to potentially create more value for the restaurant since it provides them with up-front cash and completely insures them from cancellations and no-shows – but do you think it’s a threat to OpenTable’s model?
Great article on Opentable – thank you! You made a strong argument that the table reservation market is winner-take-all. I wonder though if network clustering and multi-homing offers opportunities for other apps to compete? I have found that Resy and OpenTable have different restaurant adoption rates in different areas.
Also – given the ease at which I can cancel or change a reservation, and that I can make bookings on Resy and OpenTable for the same time and place, I have made bookings at different places but same time to preserve optionality. Multi-homing would reduce this (cost to the restaurant) and improve the scalability of their platform.
OpenTable is a great platform that I have been a satisfied user of in the past. I didn’t know that they were partnering with delivery services, and I am skeptical that they can provide enough value to these delivery services to demand a fee. The areas I have seen OpenTable growing have been in building the software restaurants use on-site for seat assignments to enhance their data capture and increase switching costs. I also would be interested in seeing them expand into payments for in-store meals (maybe you give your card ahead of time and pay in the app). I haven’t seen many people cross over into in-store payments, and they might have what it takes to crack that space.