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Priceline to Buy OpenTable in Deal Valued at $2.6 Billion (bloomberg.com)
164 points by arch_stanton on June 13, 2014 | hide | past | web | favorite | 72 comments

> Priceline is buying a company that seats over 15 million diners per month across more than 31,000 restaurants via online bookings.

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.

Your maths are wrong as that'll be per cover (per person sitting round a table), not per booking.

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.

I figured one person dining is one booking. So two people 2x the fee, 10 people 10x the fee. That's how I read the announcement anyway, this may be wrong but it makes sense to me (a 'per seat' fee). After all, a restaurant will make more money if more people show up so it would make good sense to tie their business model to that.

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'.

This deal is paying $14 per annualized booking....it's a valuable company, but that's pretty insane imho.

Although as someone else pointed out, they could move into other industries.

OpenTable has no effective competitors (for now?) - they'll be making this many bookings for the foreseeable future. That's $14 per booking... divided by how many years you think OpenTable will continue to hold the reservation throne.

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.

Nick Kokonas of Alinea/Aviary summed up the threat to OpenTable in his recent post about his restaurant ticketing system[1]:

"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.

[1] http://website.alinearestaurant.com/site/2014/06/tickets-for...

OpenTable isn't just a reservation system, it's a full-on restaurant management system. They've seen this possibility coming and they're reasonably well positioned to deal with it.

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.

> 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.

Yelp acquired SeatMe[0] (front of house management) last year to expand into this market, and Yelp Reservations[1] was launched last month. These two products combined function as an OpenTable replacement.

Disclaimer: I work at Yelp.

[0] https://www.seatme.yelp.com/

[1] http://officialblog.yelp.com/2014/05/yelp-reservations-new-f...

I worked at SeatMe right before the acquisition (actually I was the first employee and engineer and built a major portion of it). I can say that it is completely designed to be a full OpenTable replacement in every way. I don't think was a feature after working on it for 18 months that OpenTable had that we didn't.

I'm not in this industry, but isn't Yelp highly untrusted and relatively despised to the point that selling this is going to be a massive challenge?

Your checkered past seems like it might come back to haunt you ad you try expanding into other verticals...

The company I work at provides systems that compete directly in this space, and yet we rarely come across OpenTable as a competitor. I don't think we've gone after a single client that has brought up OpenTable as a obstacle.

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.

You sound pretty convinced. But it is almost never the case that a product or service is insulated from competition.

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.

All of OpenTable's features are core competencies of a restaurant. A restaurant must do CRM, it must maintain analytics about its own performance, it must be able to manage tables and keep track of payments, and unless you're a no-reservations place, it must have a system in place to handle reservations.

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.

The vast majority of restaurants don't have a unified system to do this today. Where the company I work for has gone in, it's usually been the first step towards a unified restaurant CRM solution they've taken. It's rare for us to start talking to a client that tells us they already have a CRM solution in place. It is somewhat more common for us to come across restaurants that use services like OpenTable and competitors only as a source of bookings.

> 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)

Look at how Square attacked the POS market. They didn't start by trying to replicate everything existing POS systems were doing. They started by appealing to small shops who were not using full scale POS systems.

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.

"Evil? Probably. Very effective? Hell yeah."

This is why everyone hates us.

> Perhaps OpenTable management realizes this and figures this is a good time to exit.

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.

Google does not even have to enter the space to potentially upset the restaurant booking space.

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.

Has this no-name table booking platform for a small marketer received enough mindshare in the consumer land to generate tons of leads?

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.

Most of the restaurants around here just link to OpenTable on their reservations page, if you get there via Google. I think they actually pay a smaller percentage for those kind of bookings, rather than ones that were generated within the OpenTable app.

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.

The fee is 25c per booking when done through an embed on restaurant's site, $1 when generated through OpenTable or a partner site they pay.


It's not $14 customer charge, that's what Priceline paid per annual lead. Cost per lead is likely to be less than a $1 dollar, annual revenues were $190M, divided by 12*15M leads is around $1.05. They likely have other income streams than lead generation, if they are providing full CRM to restaurants.

TripAdvisor recently bought lafourchette (~$140 million according to TC) who are pretty active in Europe where OT has very less presence. lafourchette apparently has 12,000 restaurant partners according to this article http://techcrunch.com/2014/05/07/lafourchette-gobbled-up-by-...

Disclaimer: I work at TripAdvisor.

Ripe for disruption. OpenTable could exist in 1997, the only reason a competitor doesn't eat their lunch is that it's a boring space—that is unfortunately fully booked by OpenTable.

They could be toast within a year, if a Slack-quality competitor decided to take them on.

Bookatable is about the same size.

They couldn't move to other industries. From a customer's point of view, the process of restaurant reservations and booking an appointment at a dentist (example) is very very different- even the target audience is different. From a business solutions perspective, its even more process varying.

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.

The services booking space is already pretty crowded. There's no king like with restaurants and OpenTable but Square, for instance, bought up BookFresh a few months ago, to get into the services booking industry.

I think you are confusing bookings with seats. I think 15 seats/day probably implies more like 5 reservations per day.

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.

Apparently the correct name is 'covers' (See mattmansers comment below). I wasn't familiar with the terminology but the math still holds as far as I can see. Just replace 'bookings' with 'covers', so depending on the average table size 5 reservations sounds about right.

My interpretation is the company is being bought for future growth, not the scaling to date.

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.

>It starts to make sense if Priceline can convert even a small fraction of them into hotel and airplane buyers

i think it is other way - the "flight+hotel+rental" package will be extended with breakfast/lunch/diner options.

That doesn't work for how locals use OpenTable, but it could work for tourists who come in for a vacation. (Hence the value to Priceline)

>top class negotiating skills exhibited by the sellers

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.

It was under its averages, but still at a frothy valuation (75 P/E before the announcement). The majority of their revenue comes from bookings and that's going to be hard to continue milking quarter after quarter. A great move to sell out for a very high sum.

This isn't (just) leads. Restaurants don't usually integrate OpenTable with their reservation system -- OpenTable is their reservation system. At least around me, they are running a core business function for nearly all the best restaurants around me.

The valuation would appear to be mostly based on the leadgen portion of the business. Even with 31K restaurants paying $2500 / year for the system (which I hear is their average take per restaurant) the value would be in the low 100's of millions.

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 was wondering when OpenTable would be bought up. They were kind of under the radar versus other big name companies (Uber, Snapchat, etc...) yet they supply a widely used and profitable service.

I believe Priceline's global reach will help OpenTable extend past the US market. The service is great!

OpenTable isn't even really a startup, they've been around for over a decade and have a near-monopoly. No bubble with this acquisition. OpenTable's investors would be crazy to sell for anything less.

I actually wonder how hard would it be to compete with OpenTable. I know they won't target my country soon :)

Besides the usual scaling they'll get from the larger org and cross marketing (e.g. I'm guessing people who book with OpenTable travel more than the average person), imagine Priceline combining its "name your own price" concept with OpenTable's inventory of restaurants to offer prix fixe meals. Pick an area of town, a type of food, headcount, and a max price and they match you with a restaurant that can accommodate.

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.

It's also worth nothing that some ~90% of the Priceline group's revenue (iirc) is booked through Booking.com, which is one of the top travel sites in the world (and remarkably unknown in the US). Not everything Priceline does is the "name your own price" gig.

Interesting. We used booking.com extensively when travelling in Europe because most of the smaller hotels use it as their booking engine. (And we also heard lots of complaints that they didn't like using it, because the cut was too big... but they were still using it.)

Booking.com is the dominant player in Europe with something approaching 50% of all online hotel bookings going through them. They are unique in that they have tens of thousands of small hotels that use them exclusively as their booking engine and don't distribute to other online travel agencies.

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.

That's a good idea for growth, might help them attract more price sensitive users who probably don't dine out as much as their average user.

We already tried this with groupon, resteraunt a have no benefit in attracting price sensitive customers aaas the margins are already so low

Groupon may not have lived up to the hype, but they're still putting millions of people in restaurants each year. And part of the reason they didn't live up to the hype is because their deals are a lot better for the merchant now (70% of revenue going to the merchant instead of 50%).

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).

Yes and open table is already doing it. They reward repeat customers who pay full price (their point system) not try to generate new customers who are a poor fit for long term business by discounting their meals.

Discounts are for getting rid of excess merchandise, not acquiring new customers.

Restaurants do prix-fixe menus all the time.

That sounds like an automated version of various cities' Restaurant Week promotions, where participating restaurants offer promo prix fixe menus (sometimes all the same price, sometimes different price levels allowed).

Houston's was such a big hit that it's now Restaurant Weeks and lasts a whole month.

> Not sure if it's a workable idea

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.

Future growth must come from international. OT is in 50% of all reservation taking restaurants in the US but in only 10% of reservation taking restaurants in international markets. That said, it's not easy to go international - they've tried a few times in Europe and had to retreat.

If there is one thing that companies consistently underestimate it is how hard it is to internationalize a business.

That 10% seems rather unlikely. Are you sure that isn't just of restaurants that take online bookings, not of restaurants that take bookings? In much of the world, the vast majority of restaurants that will take reservations do so via telephone, and OpenTable has 0% of that very large market, which would make it pretty much impossible for their overall market share to hit 10%. Even in much of Europe: for example, nearly every tavern in Greece (tens of thousands of them) will reserve tables via telephone, but very few of them have any kind of online presence.

> only 10% of reservation taking restaurants in international markets

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.

Restaurants are strongly tied into local culture. What works in one country may very well not work in another.

Population has little to do with it. What percentage of world restaurant reservations are made in the US? For example, I don't know if people in India or China make reservations or is it more customary to show up or maybe have standing reservations.

The key missing stat is what percentage of restaurants are reservation-taking restaurants, in various countries. And what percentage of those restaurants are using a point-of-sale computer system.

Yes - you need the % that is reservation taking vs walk-in. That said, my 10% stat is from their 10Ks and relates only to the markets they are in.

They could also grow by diverging from just tables (possibly requiring a name change) to include other reservation types such as spas, hair cuts/colors, etc.

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.

Incredible. Priceline is a way more formidable power than I earlier ever thought

Lately there's been talks by high demand restaurants to charge a fee just to make a reservation. It will be interesting to see if Priceline pursues this as a revenue stream with OT.

Never seen a fee for a reservation but I have booked at restaurants that took my credit card and would have charged me a fee if I were a no show.

Opentable, Uber, Whatsapp...are we witnessing another bubble without noticing it?

I assume, the more people answer "no" to the question above, the more real this bubble is.

The comparison with Uber and Whatsapp is not the proper one. These are private companies that were funded and acquired, respectively, purely on growth potential.

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.

I think Uber's valuation makes the most sense out of all of the ones we've seen thus far. They're poised to completely eliminate the taxi industry in its current state.

Without noticing it? People have been screaming "bubble" for years now.

Feels undeserved. I've really been hoping a competitor would come in and beat them. OpenTable, until very recently, had a Gingerbread style app on Android.

I think this is great - and this is coming from someone who loves good design and UX.

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.

I agree with the sentiment, but their gingerbread Android app was not just ugly, it was unusable. I think people suffered through it because there was no competition.

Probably because their core competency is allowing people to make restaurant reservations, which they happen to be really good at, not Android app design, which just has to be good enough enable the former.

I can't speak to their Android app, but as a customer, I've always been very satisfied with OpenTable. To the degree that I'm now annoyed if I want to get a reservation at a restaurant that doesn't support it. I believe from the restaurant owners' sides, there are some pretty legitimate complaints, though.

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