Nice example of how to scale a business: if you average 450 bookings over a relatively small number of restaurants (31,000) montly, so that's 15 bookings per restaurant per day your business is worth billions of dollars.
Lead generation is serious income, and serious exits too.
A 46% premium over their current stock price is a hefty bonus for everybody that holds stock, top class negotiating skills exhibited by the sellers.
There's also no chance they were generating 15 covers per day per restaurant on average, let alone bookings, it's simply not possible, I just don't believe it.
AFAIK opentable have some sort of table planner/POS system, which is probably what's massively inflating that figure. So looking at their website there's this:
So it sounds like to be an opentable restaurnat means completely replacing your front of house, those are not leads, most of that will be self-generated by the restaurant.
Source: Worked for a regional competitor that only provided leads. I would say we roughly had 0.1 booking per restaurant per day, although I'm sure we could do better.
So you book 'tables' or 'groups', not 'seats', I wasn't aware of the term 'cover'. So the math stands but the term changes from 'booking' to 'cover'.
Although as someone else pointed out, they could move into other industries.
Considering that they don't really have a real competitor right now, even if the OpenTable killer is being worked on right now, it'll be a while yet before they actually threaten OpenTable's numbers.
"At one time it was definitely the case that if I were looking for an Italian restaurant in a certain neighborhood I would consult OpenTable, read the reviews, and book directly. Now I just use Google or Google Maps. Google of course knows this and that’s why they bought Zagat. I’d bet Google will soon begin the reservations game as part of Zagat ratings."
Could Google deliver a reservation system to restaurants without renting them hardware and nixing the $14 customer charge? Sure. Could they even pay for the hardware out of their own pockets to get traction and dump a pile of Nexus tablets in every store? Absolutely.
Perhaps OpenTable management realizes this and figures this is a good time to exit.
OpenTable only does reservations when facing the diner, but when facing the restaurant they do reservations, CRM, payments, table tracking, and analytics.
Whoever wants to replace OpenTable needs to replace all of this at once. Not only that, they need to convince a restaurant to ditch practically their entire IT stack, retrain all of their employees in the new system, and do so without service or quality interruption.
OpenTable has positioned themselves to be about as sticky as you can imagine a software business to be. They've locked in their vendors hard. Evil? Probably. Very effective? Hell yeah.
It's not as if no one's challenged OpenTable before - there are in fact a number of restaurant management startups out there, but none can even dent OpenTable's dominance due to the lock-in. Google couldn't take out OpenTable even if they tried, not without burning a pile of cash taller than this current purchase price.
Yelp acquired SeatMe (front of house management) last year to expand into this market, and Yelp Reservations was launched last month. These two products combined function as an OpenTable replacement.
Disclaimer: I work at Yelp.
Your checkered past seems like it might come back to haunt you ad you try expanding into other verticals...
Some of our clients use OpenTable or competitors to feed them extra bookings, but most of the ones that do see them as expensive enough to be undesirable as their only or main source of bookings, and prefer to avoid them as much as possible. Most our clients are larger operators, though.
And 31,000 restaurants is not all that much worldwide - it leaves a vast number of restaurants open for competitors. There are more than 30,000 restaurants in the UK alone, for example. Most of these are operated by chains that are less likely to be willing to let OpenTable into their business as more than one amongst multiple third party booking sources.
And I completely disagree that for competitors to emerge they MUST do everything that OpenTable does. They only have to offer a couple of features that OpenTable doesn't. Or do one thing better or cheaper.
If you don't cover all of the above bases as a competitor, you're leaving your customers to cobble these pieces together themselves. Maximum freedom? Sure, but how many takers do you think you'll have?
"Hey Mr. Restaurant Owner, I understand you have a substandard but perfectly functional system that runs every major concern of your restaurant. Your employees kind of hate it, but they're extremely proficient at using it since it's the industry standard. Boy do I have a great idea for you! You should throw this system away so you can assemble multiple pieces of software from multiple vendors together to do the same thing, in a field where interoperability isn't even in the vocabulary! How your payments system talks to your CRM system? Fuck knows. But you should do this!"
OpenTable isn't completely immune from competition, but they're pretty much as close as any software company can get. There's a reason why every potential competitor to OpenTable has taken the "full restaurant management system" angle.
OpenTable is vulnerable if someone can execute on the kitchen-sink restaurant management system better and more cheaply. I don't think it's vulnerable to piecemeal replacement.
> Your employees kind of hate it, but they're extremely proficient at using it since it's the industry standard.
The thing is, it's not the industry standard. It may be by far the largest, but it serves a tiny portion of the industry.
According to the press release, they serve 31,000 restaurants worldwide. There are more than 400,000 restaurants in the US, of which more than 200,000 are "full service" restaurants.
Most of these are still "unexplored territory" where there's either little to no IT investment (the small operators) or a patchwork of custom/partial solutions, often bolted onto the till-system with no central CRM solution (the larger operators)
It may appear now that OpenTable has a death grip on the market but it only takes a slight shift in ideology for opportunities to emerge.
This is why everyone hates us.
It's also 2 billion dollars. That's simply a good time to exit. You could foresee-ably work the rest of your life and never build your company to that level on your own. No doubt OpenTable worked extremely hard to get to this point so I wish them all the best in the future and nice, long lives to enjoy that wealth.
If they added "book a table" to the search result page & map listing or restaurants, and solicited those as paid ads, competitors could encroach on OpenTable's success.
Even small local marketers could get in on that game: buy a software license for a table booking platform and start selling to local restaurants. Collect $X per booking, pay Google $Y, profit $X - $Y. No OpenTable required.
Of course, OpenTable could get in on it, too.
If a diner makes a reservation off the restaurant's Web site by clicking the embedded OpenTable form, their fee is 25c. The big bucks is in generating new customers through OpenTable app/site itself and various partners (Yelp, etc.) and rewards where OpenTable brings in customers during slow hours by awarding them 1,000 points.
That thing he mentions about restaurants not putting up their prime time reservations is a bigger threat to OpenTable, since they know they will be sold and don't want to pay the fees, but I don't know how widespread that is outside of chic city restaurants. I know that I would just book elsewhere if I saw that a place "seemed" book solid in OpenTable.
Disclaimer: I work at TripAdvisor.
They could be toast within a year, if a Slack-quality competitor decided to take them on.
I say this because we provide a solution (http://carwashy.com) somewhat similar to opentable, except we provide it for cleaning businesses. The featureset we provide and demanded by our customers is a superset of what opentable provides to restaurants. Albeit we initially asked the question of why isn't there an opentable for x service-based business.
I'd say if they weren't bought, they still had a lot to go- I doubt they have >60% market penetration even in NA.
Interestingly, their revenue is about $17M/month, so that implies they generate about $1/seat in revenue. For some reason, I thought they were charging restaurants much more than that.
15 million diners per month * 12 months = 300 million dining experiences. Priceline is paying $8 for each of these seatings. That seems like a lot for an organization that is rent-seeking. It starts to make sense if Priceline can convert even a small fraction of them into hotel and airplane buyers. At that point the deal makes a lot of sense.
i think it is other way - the "flight+hotel+rental" package will be extended with breakfast/lunch/diner options.
Certainly a nice premium but not clear if this is a result of negotiating prowess or necessity given the large fractured institutional holdings. 30% is a pretty typical change of control premium for public companies and until the offer OPEN was under its 90 and 120-day moving averages.
So you're right it isn't 'just' leads but that does seem to be the bulk of the valuation.
The fact that the restaurants are locked in definitely helps so there is a synergistic effect there as well from having that software out there.
I believe Priceline's global reach will help OpenTable extend past the US market. The service is great!
Not sure if it's a workable idea (I honestly can't see myself ever using it) but it's an interesting angle to think about.
Booking.com uses an agency model so the hotels pay them a commission that tends to be lower than the margin they share with Expedia and others on the merchant model. However, since Booking.com has so much leverage in the marketplace, they have started charging more for premium placement, etc. that hotels have to comply with if they want exposure to their massive audience.
There is a definitely model and need for filling empty seats at a restaurant. It just has to be done profitably over the variable costs of food (significant) and additional labor (much less significant).
Discounts are for getting rid of excess merchandise, not acquiring new customers.
Houston's was such a big hit that it's now Restaurant Weeks and lasts a whole month.
This was the first thing I thought of. I do think there might be a challenge convincing people that they should lock themselves into a restaurant (assuming it works the same way as with hotels) though.
Surely 10% of the international market would far exceed 50% of the US market? The US is only 4.5% of the world's population.
They could keep the "table" name if table is thought of in a more abstract way, such as an open spot in a reservation table/chart/spreadsheet.
I assume, the more people answer "no" to the question above, the more real this bubble is.
OpenTable has been a public company for almost 5 years now (see http://finance.yahoo.com/echarts?s=OPEN). Revenues, cost, growth, and all other metrics have been publicly examined and scrutinized for long time. The 46% premium paid by Priceline is based on how the new management estimates that they can leverage the assets of Opentable and hardly a "bubble-ish" premium.
If you believe that OpenTable is part of a bubble, then the whole US stock market is in a bubble, which may be true but again not directly connected to Uber and Whatsapp valuations.
They are successful because they solve a real, substantial problem for millions upon millions of people, not because they've got the prettiest website or following the latest design trend du jour. They are in some ways antithetical to modern startups: that seem to be in a race to solve ever more inconsequential problems in minor ways using the best UX and design.
Their website is ugly, their mobile app even more so, but yet they solve a problem and solve it very well, so people including myself keep going back. If only more companies would put this much quality into executing their core.