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OpenTable Reconsidered

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



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In the end, though, the concerns of Pastore and other OpenTable critics have more to do with the long-term implications of the company's business model than with the short-term hit on a restaurant's pocketbooks. Again, for Pastore, the biggest issue has to do with a loss of control of customer relationships, as the customer's loyalty veers more toward OpenTable and less toward any individual restaurant.

He explains that, on a basic level, the partnership between OpenTable and a restaurant is problematic because OpenTable's interests are fundamentally different from those of the restaurant owner: OpenTable wants as many people to book through its site as possible to maximize the fees it can collect; it doesn't matter where exactly they end up eating. Restaurant owners, on the other hand, obviously want diners to choose their particular restaurant — and prefer them to make their reservation over the phone or through the restaurant's web site, in order to minimize those fees.

Yet various OpenTable policies and promotions ensure that customers will likely continue to choose the most expensive booking option for restaurants. For example, its Dining Rewards program offers cash-redeemable "points" for every reservation made through OpenTable, and no points, of course, for reservations made through the restaurant web sites.

Perhaps the most egregious example of this is the 1,000-point reward program that restaurants can choose to participate in, mainly to fill tables during off-peak times (paying an astounding $7.50 per cover for those bookings). Customers who book those specific tables via OpenTable (which are clearly labeled as part of the promotion) receive 1,000 dining points — the equivalent of $10 cash.

So, as Locanda da Eva owner Robert Lauriston speculated in a discussion thread, "When a customer goes to with the intent of making a reservation at a particular restaurant, they might be distracted by some of OpenTable's promotions and end up eating somewhere else."

In that case, being listed on OpenTable can actually become a drawback, as it puts the restaurant in the unexpected position of having to compete for the diner's attention on the web site itself.

Pastore's other fear is that OpenTable is quickly becoming a monopoly within its market, lacking a viable competitor in the realm of online reservations — RezBook's potential as a challenger notwithstanding. He argues that the lack of serious competition is what allows OpenTable to charge such high fees — and puts them in the position to charge even more in the future.

Customers have already suffered the consequences of this type of monopoly, Pastore warns, pointing to the hold that Ticketmaster has over the online sale of concert tickets, which allows the company to charge exorbitant fees: "It would be hard to argue that Ticketmaster is providing 40 percent of the value of a concert ticket, but since there is no alternative, they command the fee."

None of the restaurant owners interviewed for this article spoke of raising their prices in order to cover OpenTable's fees, but in a monopolistic situation, it's easy to imagine that restaurants might have no choice but to pass those costs on to customers.

But OpenTable's Dodson scoffs at the notion that the company is a monopoly, citing the fact that 92 percent of restaurant reservations nationwide are still done over the telephone. What's more, OpenTable hasn't raised its prices since 2002, and, in fact, actually lowered the cover charge for diners booked through a restaurant's own web site from $1 down to $0.25 — not the actions you might expect from a company that's out to gouge its clients.

Nevertheless, there are certainly signs that OpenTable's market share is getting stronger and stronger. The company's own internal estimates indicate that nearly half of the restaurants in North America that accept reservations use OpenTable to manage those reservations. And, given the continued prevalence of the telephone reservation, it's quite likely that a large percentage of the restaurants that aren't using OpenTable simply don't offer online reservations at all.

As more of these pen-and-paper holdouts give in to the irresistible tide of technology, it's certainly not inconceivable that Pastore's fears might come to fruition. And so, depending on the success of potential OpenTable rivals like RezBook, the future of online restaurant reservations remains very much up in the air.

Pastore's advice? If there's a restaurant that you care about and that you'd like to do well financially, eschew those Dining Reward points for once and pick up your telephone when you go to book a table.

Meanwhile, even Riva Cucina's Boldrini holds out hope that a less costly alternative to OpenTable will emerge: "I'm from Italy ... but I know that in this country that's the way it goes," he said. "Somebody has a good idea and it gets started, and you have the unique feature for a while. And somebody else will try to make it cheaper, and they'll get a slice of the market. So it's only a matter of time."