Open Table: Threat or Menace?

By

The Tribune takes a look at the economics behind Open Table. But it's a curious piece plus another related piece that leaves as many questions as it answers. Here's part of its opening:

When you book a table through the Open Table website, the restaurant is charged $1 per seated guest so if you show up as a foursome, that's $4 off the restaurant's bottom line... And if you call the restaurant and make the reservation human voice-to-human voice, that costs the restaurant nothing.

Nothing? Really? People answer restaurant phones for free? Sure, it's just one more part of the job for staff at some smaller places, but larger restaurants often have dedicated staff answering phones, or at least people for whom it's a major part of their duties, so it certainly costs something.

The premise of the article seems to be that restaurants feel compelled to use Open Table because other restaurants do, but wish they didn't have to and it's all a big drain on their business:

Restaurants would love it if you'd call them for reservations, even as an ever-increasing number of them pay Open Table for each online reservation plus equipment installation and a monthly "subscription" fee to help them manage their reservations and fill seats. After all, restaurants operate on tight margins, so those expenses will be reflected in the prices.

As the piece points out, that can be a four-figure sum each month for some places. (Though one note, we don't believe it's true that you have to lease the Open Table terminal, because we were recently shooting video at a restaurant where the partners were talking with the Open Table rep about what kind of basic PC to buy to run the software on.)

But anyway, why do they do this expensive and self-destructive thing? Because there's another side of Open Table which the article doesn't really address: it's not just a reservation service. It's also a form of marketing, extremely effective at targeting potential customers at the precise moment that they want a reservation and needs to see what's available. The point of Open Table is not just that it takes reservations, it's that it moves reservations a restaurant wouldn't have gotten otherwise. How many? Does it pay off? For some types of restaurants but not others? The answers are frustratingly elusive in the piece:

[Sarah] Stegner's restaurant has an older demographic than many in the city, so she estimates that 20-25 percent of Prairie Grass's reservations are being made via Open Table, but she's still paying more for the service each year because that percentage (and thus the number of reservations charges) keeps rising.

Okay, but is that because a higher proportion of a static customer base number is using Open Table or because Open Table is growing her customer base? One's costing you money, the other's making you money, so it kind of matters which it is. These questions aren't really addressed in more than generalities, but we have a hard time believing that they're not part of Open Table's standard sales pitch, and thus would provide some context for whether or not the sums being paid are producing value for the restaurants who are their customers. Compared to Groupon's sometimes ruinously large piece of the action, Open Table's flat rate service seems like a very straightforward model that could well be worth what it costs. But we don't really get that argument, pro or con.

Likewise, a second piece talks up the Next ticketing system as an Open Table alternative. Which it is... but only for restaurants who are themselves following an alternative model to the industry standard. Maybe everything will switch to that model, but we doubt it; much more likely that certain kinds of restaurants will be able to go that way because of high demand, but others will remain the kind of place you pick at the last minute because of what's available. Quickly and efficiently in a way that makes life easier for both the diner and the restaurant... via something like Open Table. [Tribune]