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OpenTable: The Value and Cost of Online Reservations

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OpenTable has a 90% share of the online reservations market.
Those who enjoy geeky inside-baseball looks at the restaurant business must read the recent post by Mark Pastore (via Grub Street).

Pastore, an owner of the San Francisco restaurant Incanto (perhaps best known as the home of the acclaimed, offal-loving chef Chris Cosentino), explores what restaurants gain and lose by using the online-reservation site OpenTable -- and explains why his restaurant opts not to use it.

Pastore's basic argument is that whatever benefits OpenTable, which dominates the market for online reservations, provides a restaurant -- namely, convenience -- are likely outweighed by its cost to the restaurant:

What are the actual economics of listing your restaurant on OpenTable? First and most importantly, the restaurant pays all the fees. Diners not only don't pay any fees directly, they earn rewards for showing loyalty to OpenTable. This is the crux - and brilliance - of OpenTable's business model: OpenTable has convinced restaurants to pay it substantial fees while it takes the customer relationship out of the hands of the restaurant and places control into OpenTable's hands. Then, after having lent their names to the service, enabled OpenTable to attract online diners, and funded the construction of a powerful database of customers loyal to OpenTable, restaurants find that they themselves no longer own the customer relationship. Restaurants that want continued access to those diners now have to pay OpenTable for the privilege. This may be at the core of why many restaurateurs quietly resent OpenTable.

Pastore's post breaks down the nuts and bolts of OpenTable economics. For those who wonder whether these number matter, given all the other costs a restaurant faces, consider these data that Pastore provides:

OpenTable went public in 2009 (NASDAQ: OPEN) and as of September 30, 2010 it was priced at more than $1.5 billion. That translates to more than $100,000 for each contract it holds with the approximately 14,000 restaurants listed on OpenTable.com.

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