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OpenTable Reconsidered

Is what's convenient for diners a bad deal for restaurants?



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Pastore agrees that there are benefits to online reservations. Although Incanto has never been an OpenTable client, the restaurant's own web site nevertheless does allow diners to reserve tables online 24/7, just like on OpenTable.

Rather, Pastore writes, "the more important question is whether OpenTable's role, as the Web's exclusive gatekeeper to this country's restaurant seats, is a good thing for restaurants and their customers."

Do OpenTable restaurant owners really feel as resentful as Pastore seems to be implying? According to an informal survey conducted by the Incanto owner, they do. It revealed that only one out of a dozen restaurant owners actually felt that joining OpenTable had been a worthwhile investment. Pastore also says that these dining establishments only keep the service because they fear they'll lose even more business if they give up access to the OpenTable site's loyal network of diners.

In other words, what's a win-win for diners is becoming a lose-lose proposition for restaurants.

Mike Dodson, OpenTable's senior vice president of sales, dismisses this claim, citing internal surveys that indicate a whopping 97 percent of the company's restaurant clients "would say OpenTable is a value for the money" — a statistic which, if accurate, would seem to undermine Pastore's argument.

The truth probably lies somewhere in between. Here in the East Bay, quite a few restaurant owners say that they do, in fact, feel satisfied with the services that OpenTable provides, especially from a simple marketing standpoint — Boldrini's Riva Cucina is just one of the restaurants that, by all outward indications, has benefited in this respect.

Robert Lauriston, whose Berkeley restaurant Locanda da Eva closed down this past November just four months after opening, says that OpenTable was both more effective and less expensive than the other promotional tools he tried. For instance, when the restaurant opened, Lauriston placed one-time ads in several local theater and concert programs: "The total cost was equivalent to about two months' OpenTable bills, but it didn't seem like we got much response."

By contrast, being listed on OpenTable's search engine not only allows a restaurant to reach the eyeballs of prospective diners but, unlike other marketing ploys, it does so in a way that produces quantifiable results, at least insofar as you can keep track of how many reservations come through the site.

While Pastore doesn't go so far as to call these satisfied clients "suckers," he does believe that many of them may not have adequately considered the long-term implications of the OpenTable business model. And even before the Incanto owner published his criticism of OpenTable, there were a number of local restaurant owners who had already begun to question their allegiance to the company.

Daniel Patterson is the chef-owner of San Francisco's Michelin two-starred Coi, which is listed on OpenTable. But when he opened Plum in Oakland's Uptown neighborhood earlier last fall, he decided to look for an alternative means to handle the restaurant's online reservations — even though he himself still uses OpenTable sometimes as a diner.

"Their basic model, which is free to the consumer, cost to the restaurant is great," Patterson said. "So from a consumer standpoint ... I find it an easy system to use, an efficient system to use. The problem is it's just too expensive."

It's instructive, then, to delve into the economic nuts and bolts of OpenTable. All of OpenTable's revenue comes from its restaurant clients, and the company's pricing structure is broken up into three basic components. First, there's an installation fee, which costs between $600 and $700 depending on a restaurant's location and includes the installation of the touch-screen computer terminal you'll see at most OpenTable restaurants, as well as training of the restaurant staff. Then there's a $199 monthly fee, which pays for ongoing use of the company's electronic reservation book software, which, among other things, allows the restaurant to keep track of its bookings and keep tabs on the preferences of its regular customers. Even if you call to make the reservation the old-fashioned way, the restaurant still uses OpenTable's system to record your information and secure your table. That $199 figure increases if the restaurant opts to add various licenses that, for example, might allow it to have multiple reservation terminals at different locations within the restaurant.

Perhaps the biggest sticking point is an additional "pay-to-play" cover charge for every diner that's seated through OpenTable. Every time you book a table on the OpenTable web site, the restaurant has to pay $1 per diner in your party — so $4 for a party of four. And even if you book your table by clicking through the restaurant's own web site, the restaurant still has to pay a reduced fee — $0.25 per seated diner, or $1 for that same party of four. (There's no charge when you call the restaurant directly to make your reservation.)

In other words, the more diners that OpenTable provides for restaurants, the more the restaurants end up paying in fees. Which helps explain OpenTable's impressive cash flow. Since the company started in 1998, near the height of the dot-com boom, it has grown steadily, and in recent years its revenues have soared from $27.2 million in 2006 to $41.1 million in 2007, to $55.8 million in 2008, to $68.6 million last year.