

OpenTable: The Online Reservations That Restaurants Love to Hate - jakarta
http://www.nytimes.com/2010/12/12/business/12digi.html

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jwu711
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.

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Kilimanjaro
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...

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ariels
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.

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RockyMcNuts
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.

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natrius
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.

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RockyMcNuts
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.

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natrius
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.

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

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

~~~
joe_the_user
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...

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phil
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/>

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dolinsky
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>

