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OpenTable Reconsidered

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

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So, even if the OpenTable fees mean that the meal is essentially being offered at a discounted rate, the restaurant is still not going to lose as much money on that transaction as it would if the table just remained empty. In fact, Dodson cites internal studies that say that as little as three incremental reservations a month, each for a party of three diners, is enough for most restaurants to break even on its OpenTable investment.

But OpenTable's formula conveniently fails to factor in the hundreds of dollars that a restaurant has to pay in fees each month for diners who clearly are not incremental — who would have eaten at that restaurant even if OpenTable didn't exist. Plug those numbers in, and breaking even becomes a more difficult proposition.

Meanwhile, in Pastore's view, this whole notion of an incremental diner is specious at best, especially in a market that's as OpenTable-saturated as the Bay Area. If people — for reasons of convenience or whatever — consistently use the site to book tables even at restaurants they've already decided to go to, then OpenTable's role as middleman begins to seem more and more burdensome for restaurants saddled with ever-mounting fees.

"Once everyone is using OpenTable, then these fees are no longer about bringing 'new' business to a restaurant," Pastore said in a follow-up interview. "It's just a toll that you have to pay to reach your existing customers."

That said, Dodson takes issue with the idea that OpenTable's ability to "put butts in seats," so to speak, is the only thing of value that it has to offer. He cites as one example a drastic reduction in no-shows when the reservations are made through OpenTable, a product of the fact that the diner receives an instant e-mail confirmation and can cancel his reservation with one click. He also points out that restaurants that don't want to pay a high monthly fee can opt for a cheaper package known as OpenTable Connect, in which the restaurant pays $29 a month to be listed on OpenTable but doesn't buy the whole electronic reservation book. It's only fair to note, however, that the cover charge for the Connect package is an even steeper $2.50 per seated diner, meaning that any potential savings get largely wiped out if that marketing exposure is overly successful.

Finally, Dodson notes that OpenTable was selling its electronic reservation book well before online reservations took off. Restaurant owners were willing to buy it because they felt that it had value, especially for high-end restaurants that wanted to keep track of and collect data on their regulars and VIPs.

Nicolas Francois, the restaurant general manager at Wente Vineyards in Livermore, says he finds the OpenTable system's reporting capabilities especially useful, as they allow him to keep track of the number of times a guest has visited, what his or her dining preferences are, and more: "I can pull a report that will show me all guests who attended our Chef Dinners in the last eighteen months. Then I can send them an invitation for the upcoming dinner. Or I can pull a report showing my top twenty guests. Or I can pull a list of all recorded guests whose birthday is coming up next month."

There's no question that all of this data is of value to a restaurant, but it's difficult to quantify that value, especially in the absence of a viable competitor to OpenTable — one that can provide similar tools for managing customer relationships, but perhaps at a slightly more palatable price point.

One company trying to take on that task is the restaurant information and review web site Urbanspoon, which in May launched its own restaurant reservation system called RezBook. Mani Dhillon, Urbanspoon's general manager, is quick to point out that his company's intent isn't to poach current OpenTable clients, but that doesn't prevent him from touting RezBook's various advantages: There's basically no setup or training required, since the software is essentially just an iPad application and, as such, is simpler and easier to use than the OpenTable system. RezBook is also a lot less expensive — again, there's no setup fee except the cost of purchasing an iPad, the monthly fee is only $99, and there's no cover charge for reservations made through a restaurant's own web site. And, for the time being, even the standard $1 cover charge for bookings made through the Urbanspoon site is being waived.

What remains to be seen, however, is whether RezBook can really compete with OpenTable on the marketing side of things. Urbanspoon.com has plenty of users who look to the site to find general restaurant information, but it hasn't yet emerged as a destination for diners looking to make reservations — and probably won't do so until the company builds upon the two hundred-some restaurants that are currently using its system.

That didn't keep Daniel Patterson from choosing RezBook to manage his reservations when he opened Plum. In addition to the more appealing price point, Patterson also preferred the sleekness and the easy-to-use interface of the iPad system, describing the OpenTable computer terminal as "clunky" and "ugly."

"You can't go wrong with an IBM solution," said Urbanspoon's Dhillon. "But it's not until a Mac or an Apple product comes out that people can see that there is a difference and a benefit."