OpenTable is a website and app that allows diners to make restaurant reservations for free. There are three ways to make a reservation: (1) the OpenTable website (www.opentable.com); (2) the OpenTable app; and (3) the OpenTable platform on the restaurant’s website. When Chuck Templeton founded OpenTable in the late 1990s, the service only included San Francisco restaurants. However, there are now over 32,000 restaurants listed across the globe. Each month, more than 17 million diners worldwide use it to make a restaurant reservation.
Basic revenue model
OpenTable brings in revenue through subscriptions and reservations. For subscriptions, it charges restaurants a monthly fee to use their software. The software does more than just manage reservations; it is a comprehensive platform that manages the front-of-house and collects comprehensive customer data. Monthly fees start at $199. For reservations, it charges each restaurant $1 per diner if the reservation was made on the OpenTable website or app, and $0.25 per diner if the reservation was made on the restaurant’s website.
Direct network effects strongly influence OpenTable. The product’s value increases for diners when more restaurants use it, and increases for restaurants when more diners use it. When more restaurants list themselves on OpenTable, diners benefit in the following ways: (1) more choice, including price, neighborhood, and cuisine; and (2) greater likelihood of finding a specific restaurant. And when more diners use OpenTable, restaurants benefit in the following ways: (1) more diners in the restaurant; and (2) increased visibility online.
Because OpenTable is now very popular with restaurants and diners, it is now trying to capture more value and scale-up. One example is OpenTable points, which is similar to a frequent flier program. Diners with an OpenTable account earn points every time they make a reservation. One reservation is typically worth 100 points, and once diners accrue a certain amount of points they can redeem them for OpenTable Dining Rewards, like restaurant gift cards. This rewards systems continues just promotes more OpenTable usage, which increases reservation revenue. OpenTable also cleverly coordinates with restaurants to offers diners 1,000 points to make a reservation at an off-peak time. For example, a diner could earn 1,000 points to eat at 5:00 pm at a high-end restaurant. This system is a win for all parties: restaurants make money by filling seats that would otherwise be empty, OpenTable earns reservation fees, and diners earn extra OpenTable Points.
OpenTable is also trying to take advantage of indirect network effects to popularize its other products and services. For example, OpenTable produces a platform called Guest Center that manages the front of the house for restaurants. It allows restaurants to customize their floor plan, quickly assign tables, and track individual diner data. The Guest Center has been successful so far because it is an easy sell: restaurants already use OpenTable to manage reservations, so paying a little more for a similar product that integrates everything makes sense.
OpenTable was the first mover into the online and mobile restaurant reservation space. The first mover advantage for OpenTable was huge and has allowed it to completely dominate the market. This combined with the importance of network effects means that it is very difficult for competitors to take on OpenTable. Consequently, most competitors instead try and carve out a smaller niche. For example, Resy allows users to pay money to secure a high-demand reservation. There is also Tock, a front of the house software developed by celebrity chef Nick Kokonas from Alinea in Chicago. To date, competitors like these are left to eat OpenTable’s crumbs. However, things could get interesting with the debut of Yelp’s SeatMe, which is essentially a cheaper version of OpenTable.