OpenTable does not have a lock on the restaurant reservation business.
I’ll admit, appearances suggest otherwise: the online reservation service is in one third of all U.S. restaurants that accept reservations for a total of 25,000 member restaurants, and seats a staggering nine million diners each month. Its annual profits are in the tens of millions, and the company is valued at a billion dollars.
Formidable but hardly impenetrable.
The field was wide open when OpenTable came on the scene with free to the end-user, real-time online reservations in 1998. It democratized the reservation book and rescued us from the busy signals and limited hours of telephone reservations. But the convenience to us comes at a cost to the restaurants. OpenTable runs on its own integrated hardware and software system. Restaurants have to invest in and commit floorspace to the terminals, and pay a monthly leasing fee of about $270. What really rankles is the reservation fee of $1—per diner, not per reservation—and the (smaller) fee charged even when a reservation is made through the restaurant’s own website. And you know those “1,000-point” bookings” that help restaurants fill seats at off-peak times? They can cost the restaurant as much as $7.50 per person.
OpenTable does seem to have the wind at its back. It’s reached critical mass with both diners and restaurants. But the tough economy has squeezed margins, and diners are seeking low cost and casual options. There are a lot of disgruntled restaurateurs out there, and unlike 1998, there are promising alternatives to OpenTable.
Urbanspoon’s Rezbook is coming on strong. As a restaurant recommendation site, Urbanspoon is already a big player. 10 million people have downloaded the Urbanspoon application on their smart phones, and the company claims 28 million monthly visitors. Its reservation fees are similar to OpenTable’s, but it eliminates leasing fees because the whole system can be run on a single iPad. Rezbook has just relaunched its iPhone app with a nifty ‘trending’ search feature, and recently reached the milestone of seating its one-millionth diner.
Livebookings, known as the OpenTable of Europe, is making a serious run for the U.S. with its Freebookings. The service is completely free to restaurants, with no required hardware or booking fees, and revenue will be derived from pay-for-click social media and search companies. It’s a plug-in for a restaurant’s existing website, Facebook page, and GooglePlaces page.
Another European reservation service, Eveve, is direct in its intention to go head-to-head with OpenTable on its home turf. Eveve charges a single monthly fee for its cloud-based service, starting at $200 regardless of reservation volume, and has made inroads by skimming off some of OpenTable’s top bookers who stand to save the most from the flat rate fee structure. In late 2011, Eveve launched its service in the Twin Cities, capturing 20% of OpenTable’s business in what had previously been its top market. The national rollout is underway.
A pair of startups are also making a run at OpenTable.
Seatme lures the restaurants with its iPad-friendly software and $50 monthly fee, and is winning the hearts of diners with a slew of new features. It makes recommendations, remembers that you don’t like beets, and texts you when a table is available at the new spot you’ve been dying to try. Ureserv boasts a low monthly fee of just $30 and subsidizes its revenue stream with paid advertising and food-related craigslist-style classifieds. It’s a cloud-based system that a restaurant can run on just a smartphone.
OpenTable could also be facing a homegrown threat. For years its had a de facto partnership with restaurant reviewer Zagat in the form of an exclusive referral relationship. Now that Google is the proud owner of Zagat, all bets are off. Google is free to strike a deal with another reservation service, say Freebookings, which has already developed a GooglePlaces plug-in module. Or Google could choose to leverage the good name of Zagat and launch its own service.
The technology sector has always been susceptible to periods of creative destruction. Business models give way and companies rise and fall as technology platforms shift. It will be months or even years before it all shakes out, but one thing is clear: OpenTable has had a good run, but it’s no longer a sure thing.