9.33 Open Table.Com, Inc.

OpenTable is the US's largest online restaurant reservation booking service, allowing customers to instantly find open tables at restaurants and to book them. The company was incorporated in San Francisco in 1998, changed its name to OpenTable.com, Inc, went public in 2009, and is still trading well above its $17 IPO price ($100/share in March 2011 {10}).

OpenTable acquired Toptable.com, a UK-based reservation website, for an estimated $55 million in 2010. Toptable.com's network included 3,000 restaurants in the UK and 2,000 in Europe. {9} By April 2012, OpenTable had released an application for the Kindle Fire, and was seating diners in the United States, Canada, Germany, Japan, Mexico, and the United Kingdom. {13} 2011-2 saw a healthy growth in both diners seated and revenue: {16} the installed restaurant base as of December 31, 2012 was 19,801, a 15% increase over December 31, 2011. {17}

Headquarters are in San Francisco, California.

Marketing the Concept

Marketing was tough. To get into 50 cities, the company originally paid online restaurant reviewers for links to its website, but the strategy was costing $1 million a month for $100,000 in revenue. {11} Management changes followed, and the company created the user-friendly ERB booking service and sold it through a door-to-door sales force that targeted expensive restaurants. The strategy worked, and OpenTable spread to 50 states and over 1,000 restaurants overseas. {6}

How It Works

OpenTable provides its proprietary ERB (Electronic Reservation Book) touchscreen software that: {12}

1. Provides a real-time map of free tables on each restaurant floor.
2. Keeps meal patterns for all parties.
3. Helps to maximize guest seating.
4. Saves time with automated reservations.
5. Keeps a database of diners.
6. Attracts repeat business with email marketing.
7. Offers a loyalty rewards point system. {5}

Fees are apparently tailored to the individual restaurant, {12} but were: {10}

1. A one-off $600-700 fee for onsite installation and training.
2. Monthly fees of $199 for hard- and software use.
3. Further add-on licenses and modules are priced from $25 to $89 per month.{9}
4. Transaction charges of $1/guest seated through the OpenTable website.
5. Transaction charges of $0.25/guest seated through the restaurant's own website. {9}

The system is free to diners.

SWOT Analysis

Strengths

1. OpenTable struggled to get its IPO priced, but the stock has since appreciated considerably, making takeovers expensive. {8}
2. Already well-known and becoming increasingly so. {11}
3. Covers most large US cities, and has expanded to Canada, Mexico, UK, Germany, France, Spain and Japan.
4. Operates a mobile service.
5. Features a set of 'best of' lists based on user feedback. {1}
6. The system is easy to use, and makes booking more efficient and less error-prone: realtime cancellations free up tables.
7. Not dependent on advertising revenues, which have suffered in the downturn. {4}
8. Grows by viral marketing: diners who find the service helpful recommend it to others.

Weaknesses

1. OpenTable does not grade restaurants.
2. System is relatively expensive for smaller restaurants where profit margins are traditionally slim (5-7%). {7} {10}
3. Though OpenTable has only some 1.45% of the country's restaurants, its US growth opportunities may have been overestimated. {8} {10}
4. OpenTable is not always accurate, being dependent on correct restaurant maintenance. {7}

Opportunities

1. Expansion through applications for tablets and mobiles: Palm, Blackberry, iPhone. {11}
2. Exportation of a successful model to other countries.

Threats

1. Many sites more usefully assess restaurants (food, service, value for money, etc.): Yelp and ChowHound.
2. Competition from similar services, e.g. Menupage, Urbanspoon and SavvyDiner. {8}
3. Competition from search engines, online yellow pages and travel agencies. {2}

Points to Note

1. Cost of initial marketing.
2. Mix of new and traditional marketing techniques.
3. Growth as an exponential network of satisfied restaurants and diners.

Questions

1. Provide an account of Open Table.Com, Inc. How does it work?
2. Explain the difficulties in marketing the idea, and how they were solved.
3. Provide a SWOT analysis for Open Table.Com, Inc.

Sources and Further Reading

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