
Is OpenTable Worth it? - iisbum
http://incanto.biz/2010/10/22/is-opentable-worth-it/
======
gphil
One thing I've noticed about OpenTable is that usually when I can't make a
reservation through their service (e.g. when it says there are no available
times left) I can still call the restaurant and be accommodated. After doing
this a few times now, it's made me wonder about the value-added for the
restaurant-goer as well as for the restaurant. It seems like in these
situations, OpenTable is just getting in the way of the restaurant-customer
relationship to the detriment of both.

~~~
noodle
this is mostly speculation, but my guess based on experience is that most
places only allow opentable to book one or two tables per time slot. i've been
rejected several times by a few places and instead walked in to a not
particularly crowded place.

~~~
zoudini
Having found several restaurants with no OT availability to have reservations
available upon calling, I think this is the case.

I'm pretty sure a lot of restaurants set aside a certain amount of
tables/times as OT inventory.

------
netaustin
You know, Yelp should cut off its relationship with Opentable and just jump
into this business itself and charge either no fee or a nominal fee to
restaurants (basic vs. pro).

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...](http://blogs.westword.com/cafesociety/2010/11/people_hate_us_on_yelp_the_bac.php)).

~~~
js3309
The reason they have a special relationship is because Benchmark Capital is a
investor in both.

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.

------
dotBen
The crux of the argument made by the post is that a restaurant makes $10
profit on a $200 4-person cover yet OpenTable takes $10.40 for that booking
_(I want to call BS on those figures but lets ride with it)_

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.

~~~
waterlesscloud
From OpenTable's info, the booking per diner is $1.00 if done via OpenTable's
site, but only 25 cents per diner if done via the restaurant's site. This
suggests certain approaches....

~~~
dotBen
Yes, but that doesn't match what the post author says based on his figures.

It could be opentable cost = booking fee per diner + setup costs + monthly
fees. I'd like to know more.

~~~
waterlesscloud
His $10.40 is the cost for an "incremental" 4-top, ie a group that wouldn't
have booked without coming in via opentable since they were new to the place.
Given that even OpenTable's info estimates only 50% of the bookings would be
incremental, and that that's likely an overestimate in OT's favor, I can
imagine $10.40 may be about right.

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.

------
d2viant
This is an interesting opportunity to profit from. This company has massive
expectations baked into it's stock price (NASDAQ: OPEN), trading at over a
hundred times earnings. It's being massively shorted by the hedge funds.
Combine the fact that there's relatively no barrier to entry with the rumors
that their customer base isn't very satisfied makes for a huge opportunity to
profit in the short/medium term.

~~~
gphil
> It's being massively shorted by the hedge funds.

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?

~~~
d2viant
I've been following this company for awhile from a financial perspective,
which is how I know. The most prominent hedge fund to short has been Whitney
Tilson's T2 Partners', but they're just one among many -- 35% of the floated
stock is short now.

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.

~~~
chipsy
There are a few common signs in institutional shorting, that may be used to
determine short interest in absence of official filings, share counts, or
other data, but they mostly require a low-volume market to see clearly:

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.

\---

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.

------
aaronbrethorst

        "[R]estaurants find that they themselves no longer own the customer relationship."
    

This is the dumbest thing I've read today. I am sitting in _your_ restaurant!
I am voting with my dollars by choosing to show up at your establishment! If I
like what you have to offer, odds are I'll be happy to give up some personal
information.

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.

~~~
neilc
_[If] you're not on Urbanspoon's Rez system or on OpenTable, you may as well
not even exist._

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.

~~~
aaronbrethorst
Yes, that is my opinion. I don't doubt that I'm in the minority. Still, for
me, OpenTable or Rez support is critical. My girlfriend and I will routinely
pick a place to eat on a Friday or Saturday 30 minutes before we intend to
eat. I don't like having to call a half-dozen places in order to get a table,
and I wouldn't have much choice without these systems.

If the restaurant is unable or unwilling to report their true availability,
then the value of OpenTable decreases dramatically.

~~~
draebek
> My girlfriend and I will routinely pick a place to eat on a Friday or
> Saturday 30 minutes before we intend to eat. I don't like having to call a
> half-dozen places in order to get a table, and I wouldn't have much choice
> without these systems.

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.

------
digitailor
The bottom line is squeezing an industry with 5% profit margins cannot
possibly last. This is the basic point I took from the author's extremely well
written and obviously experience-infused post.

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.

------
rubyrescue
My sense is the point of sale aspect of OpenTable is what makes them so
entrenched... it's not easy to replace the hardware, retrain staff, etc, and
the article doesn't touch on this.

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...

~~~
sandGorgon
[ with 200$ 10.1' android multi-touch devices e.g. <http://goo.gl/S5JHs> (I
would suspect that wholesale costs would be closer to 100$). ]

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.

~~~
illumin8
Or, spend a little more money and provide an iPad app. You get a proven
reliable hardware platform plus it becomes a marketing tool - "choose our
platform and you get a free iPad."

------
ben1040
Not long ago I placed a reservation through OpenTable, and a couple minutes
after we had been seated, I got an email from OpenTable telling me the
reservation had been canceled from the restaurant's end.

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...](http://online.barrons.com/article/SB50001424052970204878604575492014259852240.html)

~~~
noodle
depends on who is dining, but that might make the type of person who is trying
to accumulate opentable points mad.

~~~
ben1040
I'm that type of person, which is why it bothered me and it even sticks in my
mind at all now.

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.

------
nikcub
I think a good idea for the restaurants would be to add 'OpenTable' as a line
item on the bill. This would get the message to customers, but may only work
if a significant portion of restaurants in an area follow suit.

------
a4agarwal
Many restaurant websites actually put an OpenTable link on their reservations
page, directing traffic there.

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.

------
mdon
"That’s ultimately the most perplexing thing about OpenTable: unlike so many
other Web services, this one has actually driven up operating costs, not
reduced them."

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.

------
jasonjei
I think there definitely is an opportunity to remove OpenTable from the
equation. Look at restaurants like Momofuku Ko's annoying reservation system,
where their in-house .NET reservation system books out within 3 seconds after
10am ET for 12 seats (24 covers a night), and seat inventories are only
released 6 days in advance. Momofuku almost never starts a restaurant project
without it now (e.g their buttermilk American free range fried chicken and
Korean fried chicken).

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.

~~~
ojilles
How big is the part where OT is used for business, but when the OT points are
cashed out folks can keep that privately? Could be hard to sway that...

------
pablohoffman
That reminded me of a recent Paul Graham tweet:

    
    
      You've found market price when buyers complain but still pay.
    

<http://twitter.com/#!/paulg/status/22576762202>

------
scottrafer
I've looked at how OPEN's vulnerable a couple of times. What's not covered yet
in these comments are the host's notes on each diner. When I make a reso, if
the restaurant has made a note about me (tips great, gets pissy about being
near the kitchen/lav, hard of hearing, whatever), it comes up when I check in.
Those notes are _not_ shared between restaurants.

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.

~~~
zoudini
this gets at something i am working on right now

~~~
scottrafer
Let me know if i can useful.

------
tkanet
think that Groupon and clones will go through the same strugles. I just fail
to understand how "discount only" cn be a business. it just mean someone is
paying for the service and giving up their profits and customer relations.

------
jorangreef
My startup <http://sexbyfood.com> provides a web-based reservation book for
restaurateurs. It works on any HTML 5 browser or iPad, keeps audit trails of
changes to reservations, prints a proper guest-list, has real-time activity
feeds, a flexible allocation algorithm, and provides a plugin that restaurants
can add to their website.

------
waterlesscloud
From OpenTable's own data, their revenue averages $600 a month from a given
restaurant. Not a negligible cost, but doesn't seem outrageous.

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.

~~~
Monkeyget
Seems like it would be hard for a competitor to gain a foothold. But it might
be possible:

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.

------
nikcub
_"it was too expensive to keep, but letting it go could be harmful."_

which means that they have probably priced their product perfectly

------
va_coder
From this consumer's point of view he's wrong in saying everyone loses.

I use Opentable a lot and I like not waiting for a table.

------
philtoronto
I want to call shenanigans on the profit margin in the restaurant business
being 5%... OK, shenanigans.

~~~
tptacek
_Based on the 2004 Restaurant Industry Operations Report published by Deloitte
& Touche LLP, average pre-tax profit margins range from 4-7% (4% for Full..._

Literally in the article summary right there on the first result of the SERP
[restaurant profit margin].

~~~
sp4rki
I have many restauranteur friends in my country, and their profit ranges
between 50% to 60%. I have trouble believing that in the USA their profit
margins are so crappy. I bet there's a lot of stuff going on under the table
(pun intended).

~~~
ig1
Gross or Net ? - 50% gross profit is common, I doubt you could find any
developed country where 50% net profit was the norm for restaurants.

~~~
sp4rki
Net. I didn't say this thinking the US should have similar percentages though.
This is attributed to the fact that labor costs in my country is easily one
third to one half as expensive as labor in the USA. Perhaps there is also less
overhead in getting ingredients. I'd understand a 10% ~ 20% percentage net
yearly profit, having most restaurants in the lower bracket of course, but 4%
or 5% seems extremely low to me.

~~~
ig1
It's not about labour/ingredient costs, but rather the competitiveness of the
market. A healthy competitive market drives profit margin to the lowest
sustainable point.

Supermarkets often have profit margins as low as 3-4%.

------
psawaya
Unrelated to the article, but I'm impressed with Incanto's clean and readable
layout. Most restaurant sites are an ugly mess of flash.

------
ajx
The question is not is opentable worth it, the question is this question worth
it being posted on this site, or is it just completely irrelevent drivel? I'd
say the latter is true.

~~~
ojilles
Excellent business opportunity is not material for HN?

