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CHAPTER 9
9.10
E-commerce Retail and Services
CASE STUDY
Open Tabl e:
Your Reservation Is Waiting
O
penTable is the leading supplier of reservation, table management, and
guest management software for restaurants. In addition, the company
operates the world’s most popular platform for making restaurant
reservations online.
OpenTable was founded in 1998 by Chuck Templeton, an entrepreneur who was
struck by the difficulty that people often had trying to make restaurant reservations
over the telephone. From there, OpenTable has grown into the world’s leading provider
of online restaurant reservations, with nearly 60,000 restaurants around the world using
OpenTable’s system, and 31 million diners per month booking restaurant reservations
via OpenTable’s website and mobile app as of the end of 2019. Open Table automates
the reservation-taking and table management process, while allowing restaurants to
build diner databases for improved guest recognition and targeted e-mail marketing.
OpenTable’s website and app connect directly to the thousands of computerized
reservation systems at participating restaurants, and reservations are immediately
recorded in a restaurant’s electronic reservation book.
Restaurants purchase monthly subscriptions to the OpenTable Electronic
Reservation Book (ERB), the company’s proprietary software, which is installed on a
touch-screen computer system and supported by asset-protection and security tools. The
ERB software provides a real-time map of the restaurant floor and enables the restaurant
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to retain meal patterns of all parties, serving as a customer relationship management
(CRM) system for restaurants. The software is upgraded periodically, and the latest
version is designed to provide increased ease of use and a more thorough view of table
availability to help turn more tables, enhance guest service, personalize responses to
diners, coordinate the seating process, and maximize guest seating. Guest Center is a
cloud-based version of the ERB that runs on iOS and Android mobile devices and the Web.
OpenTable’s revenue comes primarily from subscriptions. Restaurants used to pay
a one-time fee for on-site installation and training, but OpenTable has eliminated these
fees to respond to competitors offering cheaper products. However, OpenTable’s main
subscription model is a $249 monthly charge for the use of its software and hardware
in addition to a $1 transaction fee for each restaurant guest seated through online
reservations. There is also a more basic version of its software called OpenTable Connect,
which costs nothing per month to use, but increases the transaction fee to $2.50 per
guest. The online reservation service is free to diners. When an individual makes a
reservation, the site “suggests” that they send invites to their dinner companions directly
from OpenTable that include a link back to the OpenTable site.
The restaurant industry was slow to leverage the power of the Internet. This was
in part because the industry was, and continues to be, highly fragmented and local.
The founders of OpenTable knew that dealing with these restaurants as a single market
would be difficult. They also realized that the Internet would give diners instant access
to reviews, menus, and other information about restaurants. And there was no method
for making reservations online—we all know reserving by phone is time-consuming,
inefficient, and prone to errors. To induce diners to start using an online reservation
system, OpenTable would need real-time access to a number of local restaurants, and
the ability to instantly book confirmed reservations around the clock.
When OpenTable was founded, most restaurants did not have computers, let
alone systems that would allow online reservations made through a central website.
OpenTable’s initial strategy was to pay online restaurant reviewers for links to its website
and to target national chains in order to quickly expand its reach. This got the company
into 50 cities, but it was spending $1 million a month and bringing in only $100,000 in
revenue. Not exactly a formula for success. OpenTable halted its marketing efforts and
narrowed its focus to four cities: Chicago, New York, San Francisco, and Washington, D.C.
The company retooled its hardware and software to create the user-friendly ERB
system and deployed a door-to-door sales force to solicit subscriptions from highend restaurants. The combination of e-commerce, user-friendly technology, and the
personal touch worked. The four markets OpenTable targeted initially developed into
active, local networks of restaurants and diners that continue to grow. OpenTable has
expanded across the country, and the company has now seated over 1.7 billion diners.
In 2018, 58% of OpenTable’s reservations were made via a mobile device, and that
percentage continues to grow.
As the company grew, investors began making plans for it to go public. In 2009,
the company proceeded with an initial public offering (IPO) despite poor economic
conditions. The gamble paid off. On its first day of trading, OpenTable’s shares climbed
59% and the share price climbed to over $100 in 2013, more than five times the $20 IPO
price. In 2014, Booking Holdings (formerly known as Priceline) acquired OpenTable for
$2.6 billion. OpenTable hoped to leverage Booking Holding’s global reach in an effort
to continue to expand its business beyond the United States.
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SOURCES: “Global Fast Facts,”
Press.opentable.com, accessed
August 20, 2020; “New OpenTable
Feature Spotlights Safety
Precautions,” Blog.opentable.com,
June 10, 2020; “Restaurant
Bookings Have Fully Recovered
in Germany in a Sign That Activity
Rebounds Quickly as Lockdowns
Ease,” by Steve Goldstein,
Marketwatch.com, June 3,
2020; “OpenTable Data Shows
Consumers Are Starting to Eat Out
Again,” by Pymnts, Pymnts.com,
May 27, 2020; “OpenTable Says
25 Pct of US Restaurants Won’t
Survive,” by Pymnts, Pymnts.com,
May 14, 2020; “OpenTable Adds
Bar and Winery Reservations
Amid Coronavirus,” by Syjil
Ashraf, Thedailymeal.com, May
14, 2020; “OpenTable Feature
Lets People Reserve Grocery
Shopping Appointments,” by
Pymts, Pymnts.com, March 31,
2020; “The Michelin Guide,
TripAdvisor and TheFork Launch
an International Strategic
Partnership,” Ir.tripadvisor.com,
December 3, 2019; “OpenTable
Releases New Features to Help
Restaurants Maximize Table
Availability,” Press.opentable.com,
October 30, 2019; “OpenTable
Moves into Delivery—Why—and
Why Now?,” by Pymnts,
Pymnts.com, August 1, 2019;
“OpenTable Deepens Integrations
with Point-of-Sale Systems,”
Press.opentable.com, June 5,
2019; “American Express Has
Acquired Reservation Platform
Resy,” by Cale Weissman,
Fastcompany.com, May 15, 2019;
“OpenTable Pilots Centralized
Reservations for Hospitality
Groups on GuestCenter,”
Press.opentable.com, October 17,
2018; “The Power of OpenTable
Is More Accessible Than Ever,”
Restaurant.opentable.com,
accessed October 2018; “The
Quest to Topple OpenTable,”
by Whitney Filloon, Eater.com,
September 24, 2018; “OpenTable
Now Lets Diners Choose Where
They Will Be Seated,” by Nancy
Trejos, Usatoday.com, August 16,
2018; “OpenTable Reorganizes
Its Marketing, Product and
People Teams,” by Kristin Hawley,
Table.skift.com, June 4, 2018;
“OpenTable Unveils Business
Intelligence Suite for GuestCenter,”
Press.opentable.com, May 15,
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E-commerce Retail and Services
In the past, restaurants that purchased OpenTable’s software package were less
likely to switch to a different service and abandon their investment. Many restaurants
report that they and their staff members find the software easy to use and beneficial to
their bottom line. Specifically, it streamlines operations, helps fill additional seats, and
improves quality of service, providing a concrete return on investment. This has led to
both high customer satisfaction and high retention rates. By creating an online network
of restaurants and diners that transact with each other through real-time reservations,
OpenTable has figured out how to successfully address the needs of restaurants and diners.
OpenTable’s market also exhibits network effects: the more people use it, the
more utility the system delivers. More diners discover the benefits of using the online
reservation system, which in turn delivers value to restaurant customers, and helps
attract more restaurants to the network.
However, after years of dominating the market for online reservations and guest
management software, the company has ceded some ground to newer challengers. In
late 2016, Booking Holdings reduced the value of OpenTable on its books by $941 million,
after increased investments in its international offerings failed to produce increased
profits. In 2018, Booking Holdings announced that it would combine the teams behind
OpenTable and Kayak, an online booking site that has grown internationally with much
more success. Restaurants have complained about OpenTable’s pricing, arguing that
once they have attracted and retained loyal customers, paying a $1 charge to OpenTable
after each repeat booking doesn’t make sense. Some restaurants also have concerns
about the fact that OpenTable inserts itself in the middle of the relationship with the
customer, capturing valuable marketing data.
A number of competitors have sprung up that hope to take advantage of these
issues. Resy, a reservation startup that has won over some high-end restaurants, allows
restaurants to ask for a credit card to reserve, which helps reduce the number of
no-shows. Resy now works with over 4,000 restaurants in more than 200 cities around
the world, serves more than 2 million diners per month and was acquired by American
Express in 2019. Many restaurants that have switched to Resy report that it is far cheaper
than OpenTable, sometimes reducing their monthly expenses on booking software by
hundreds of dollars. Yelp was formerly a partner of OpenTable’s, but in 2015, it canceled
that partnership and announced that it would begin using its online reviews platform to
provide reservation services, directly competing with OpenTable. TripAdvisor has also
developed its own online reservation system, TheFork, and in December 2019, acquired
Bookatable, a similar platform from The Michelin Guide, which, when combined with
its own system, gives it over 80,000 bookable restaurants.
Perhaps feeling the pressure from its growing list of competitors, OpenTable has
focused on improving its user experience across all of its platforms. In 2018, OpenTable
released a new version of GuestCenter with a full set of analytics to help restaurant owners
improve efficiency and in 2019, it partnered with Upserve, a restaurant management
software provider to leverage OpenTable’s point-of-sale system and enable servers
to have diner information and preferences in real-time to help personalize service
during meals. It also added new features to its system to help restaurants maximize
table availability. OpenTable continues to enhance its app. It has simplified its home
screen to feature two main tabs, Book and Discover. The Book tab shows nearby dining
options based on the user’s location, while the Discover tab offers recommendations
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Review
based on a user’s history and preferences in a wider radius. The app allows users to
fully pay for meals with a variety of popular payment services and integrates with over
600 other services, including Alexa, which allows diners to make reservations by voice.
Recent upgrades include dynamic, data-backed recommendations for each individual
user’s home screen based on the user’s past bookings and the ability to order delivery or
pick-up using any one of several on-demand restaurant delivery services, such as Caviar,
Grubhub, and Uber Eats, directly from the app.
However, the Covid-19 pandemic has created a huge additional challenge for the
restaurant industry and OpenTable. OpenTable estimates that 25% of the restaurants
in the United States will not survive and the U.S. restaurant industry as a whole was
projected to lose an astounding $240 billion in sales in 2020. OpenTable has attempted
to adjust in response, adding the ability to reserve time at grocery stores, as well as
reserve times at bars, wineries, and other drinking establishments. It also cut prices
through 2020. As restaurants began to reopen, it also added a feature to its app to allow
diners to see what safety precautions the restaurant is following. One hopeful sign in
June 2020 was data from Germany and Australia, two countries further along in the
reopening process, showing the restaurant bookings in Germany had fully recovered,
with Australia also showing positive signs. And in the United States, as the economy
slowly reopens, restaurant bookings are starting to trend upwards. Booking Holdings
still believes in its long-term strategy of linking the OpenTable platform with the
customer base of the Booking Holdings family of travel sites, ultimately creating a single
ecosystem for Booking Holdings customers.
697
2018; “OpenTable Caters to the
On-the-Go, Last-Minute Diner with
App Redesign,” Press.opentable.com,
May 1, 2018; “OpenTable Updates
App to Make Booking Faster,” by
Robert Williams, Mobilemarketer.com,
May 1, 2018 “Inside the
Restaurant-Reservations Start-up
Race,” by Marissa Conrad,
Grubstreet.com, March 2018;
“OpenTable Began a Revolution.
Now It’s a Power Under Siege,” by
Stephanie Strom, New York Times,
August 29, 2017; “OpenTable
Introduces Owners and Managers
iPhone App for Guest Center,”
Opentable.com, April 26, 2017;
“Online Reservation Battle Heats
Up for Open Table,” by Ronald
Holden, Forbes.com, March 5,
2017; “Restaurant App Challenges
Industry Giant OpenTable,” by
Matthew Flamm, Crainsnewyork.com,
May 10, 2016; “Yelp and
OpenTable End Partnership, As
Allies Become Competitors,” by
Riley McDermid, Bizjournals.com,
December 18, 2015; “Priceline
Agrees to Buy OpenTable for $2.6
Billion,” by Drew FitzGerald, Wall
Street Journal, June 13, 2014.
Case Study Questions
1. What characteristics of the restaurant market made it difficult for a reservation
system to work?
2. How did OpenTable change its marketing strategy to succeed?
3. Why would restaurants find the SaaS model very attractive?
4. What challenges does OpenTable face?
9.11
REVIEW
KEY CONCEPTS
Understand the environment in which the online retail sector operates today.
•
The retail industry can be divided into seven major firm types: general merchandise, durable goods,
specialty stores, food and beverage, gasoline and fuel, MOTO, and online retail firms. Each type offers
opportunities for online retail. The MOTO sector is the most similar to the online retail sales sector.
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