O p e n T a b l e :

Your Reservation Is Waiting

OpenTable is the leading supplier of reservation, table management, and

guest management software for restaurants. In addition, the company

operates OpenTable.com, the world's most popular website for making

restaurant reservations online. In just over 15 years, OpenTable has

gone from a startup to a successful and growing public company that counts around

two-thirds of the nation's reservation-taking restaurants as clients.

Today, more than 38,000 restaurants in the United States, Canada, Mexico, the

United Kingdom, Germany, and Japan use the OpenTable hardware and software

system. This system automates the reservation-taking and table management process,

while allowing restaurants to build diner databases for improved guest recognition

and targeted e-mail marketing. The OpenTable website, mobile site, and mobile app

provide a fast, efficient way for diners to find available tables in real time. The websites

and app connect directly to the thousands of computerized reservation systems

at OpenTable restaurants, and reservations are immediately recorded in a restaurant's

electronic reservation book.

Restaurants subscribe 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 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. The ERBs at OpenTable's customer

restaurants connect via the Internet to form an online network of restaurant reservation

books.

OpenTable's revenue comes from two sources. Restaurants pay a one-time fee for

on-site installation and training, a monthly subscription fee for software and hardware,

and a transaction fee for each restaurant guest seated through online reservations. The

online reservation service is free to diners. The business model encourages diners to

assist in viral marketing. 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.

OpenTable is a service-based (software as service, or SaaS) e-commerce company.

In other words, customers don't buy software and install it on their computers, but

instead go online and get the software functionality through subscriptions. OpenTable

is also an online service that does not sell goods, but instead enables diners to make

reservations, like social networking sites provide services.

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

localmade up of more than 30,000 small, independent businesses or local restaurantowning

groups.

The founders of OpenTable knew that dealing with these restaurants as a single

market would be difficult. They also realized that the Internet was changing things for

diners by providing them with instant access to reviews, menus, and other information

about dining options. And there was no method for making reservations onlinewe

all know reserving by phone is time-consuming, inefficient, and prone to errors. In

order to make the system work, reach and scale were very important. For diners to use

an online reservation system, they would need real-time access to a number of local

restaurants, and the ability to instantly book confirmed reservations around the clock.

If customers were planning a trip to another city, OpenTable would need participating

restaurants in those cities.

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 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 high-end

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 implemented the same strategy across the country, and now includes approximately

38,000 OpenTable restaurant customers. In 18 years, the company has seated

approximately 1 billion diners, including 370 million via its mobile solutions, and it is

currently averaging 20 million diners per month. In the second quarter of 2016, half

of its seating requests in North America originated from a mobile device.

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 a terrible economy

and worse financial markets. 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, Priceline announced that it would acquire OpenTable for $2.6 billion.

OpenTable plans to leverage Priceline's global reach as it continues to expand its

business beyond the United States, which has thus far accounted for about 80% of its

revenues. Clearly, Priceline believes OpenTable can help it grow even further, this

time into restaurant reservations. They might be right: OpenTable is well-positioned

for future growth. Its size, track record of growth, and high customer satisfaction rates

should continue to work in its favor, and the company hopes to branch out from its

main focus of fine dining into other areas like casual dining.

OpenTable has benefited from having e-commerce revenue streams from subscription

fees and per-transaction charges, rather than depending on advertising. Further,

more than 50% of OpenTable's revenue comes from B2B subscriptions, which are

typically part of long-term contracts. Restaurants that have invested in OpenTable's

software package are less likely to want to incur the switching costs associated with

changing to a different reservation management package.

Another reason for its success is that OpenTable has a large number of satisfied

customers. Restaurant owners report that they and their staff members find the

software easy to use, and it helps them manage their business better. 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.

While OpenTable is the biggest, most successful online player in the restaurant

reservations market, it does have competitors. MenuPages offers access to restaurant

menus and reviews, but visitors to the site can't make reservations, and the site

covers only eight U.S. cities. In 2012, OpenTable partnered with onetime competitor

Urbanspoon, acquiring its reservation management system, Rezbook, and becoming

Urbanspoon's reservation provider. Competitors in other countries where OpenTable

does not yet operate, such as Restalo in Spain and Italy, and in markets like casual

dining, such as NoWait, represent challenges to OpenTable. India-based startup Zomato

acquired U.S.-based NexTable in 2015, adding another challenger to the mix, and

Reserve and Yelp's SeatMe service also represent potentially formidable competitors

for OpenTable. Reserve has undercut OpenTable on price, with a $99 monthly subscription

fee for restaurant owners compared to $249 for OpenTable, and has strong

venture capital backing, but has less than two percent of the clients that OpenTable

has amassed. Yelp may be a more significant immediate threat. OpenTable ended its

partnership with Yelp in late 2015; Yelp users had been allowed to book reservations

through OpenTable, but OpenTable hopes to improve its reviewing capability and Yelp's

launch of SeatMe shows a desire to enter the reservation business.

The company is committed to bolstering its presence on multiple platforms. It has

a mobile website, mobile applications that work on all major smartphone platforms,

and an iPad app that fully integrates with its ERB software. GPS enables mobile users

to locate and make reservations at nearby venues. In 2015, OpenTable launched a

version of its app for Apple Watch that reminds diners of their reservations, provides

directions, and shows a countdown. It is also testing a premium service that involves

paying for an additional fee for last-minute, prime-time reservations at popular restaurants,

using a surge pricing algorithm similar to that used by Uber.

OpenTable is attempting to shift its relationship with both diners and restaurants

from a "transactional" relationship to an "experiential" relationship, which focuses on

the experience of dining. OpenTable launched its first payments feature that allows

users to pay for meals completely within the OpenTable app on the iPhone and

Android in 2015. In 2016, the company released an improved payment option called

Tab, which automatically bills diners without even having to open the app. Though

the feature is available in less than 100 restaurants nationwide, the company hopes

that Tab's ease of use will make it a popular option for diners in the future. OpenTable

is trying to simplify other areas of the dining experience, including picking a

venue. In 2016, the company rolled out a feature in its iOS app that allows groups

of diners to vote on restaurants in a group text format and then quickly confirm the

selected reservation within iMessage. OpenTable also created a Discover option that

allows users to pick from restaurants using different criteria: popularity, location, new

arrivals, and more. Other improvements to its app included better integration with

Apple Maps and Apple Pay. Currently, the app doesn't have a robust personalization

engine to generate its recommendations, but OpenTable leadership plans to remedy

that in the future.

OpenTable's growth is projected to continue in the United States, Canada, and

Mexico despite considerable market penetration. Selective international expansion is

planned beyond its current operations in Germany, Japan, and the United Kingdom.

OpenTable supports each of these locations with a direct sales force servicing approximately

1,000 restaurants.

The company's international strategy is to replicate the successful U.S. model

by focusing initially on building a restaurant customer base. OpenTable believes the

localized versions of its software will compare favorably against competitive software

offerings, enabling them to expand across a broad selection of local restaurants.

Case Study Questions

1. Why have OpenTable competitors had a difficult time competing against OpenTable?

2. What characteristics of the restaurant market make it difficult for a reservation

system to work?

3. How did OpenTable change its marketing strategy to succeed?

4. Why would restaurants find the SaaS model very attractive?