OpenTable’s mission is to power great dining experiences.
Chuck Templeton was a Product Manager at semiconductor firm Quester Technology. One weekend in 1998, his in-laws visited him and his new wife in San Francisco. She attempted to book a dinner reservation for the group by phone, but ended up spending three hours calling venue after venue. Observing her situation, he thought about the possibility of starting his own booking service.
The thought did not come out of the blue – Templeton had much experience with the restaurant industry, having worked in it for several years to pay for college. His idea was to create a website that could connect to back-end restaurant reservation terminals. That way, diners could book a spot at any time in advance. Inspired, Templeton quit his job and put off his plans to get an MBA.
Templeton’s early research consisted of him calling entrepreneurs and asking them to meet with him for interviews; surprisingly, many of them agreed. He soon realized that most restaurants did not have back-end reservation systems – instead, they wrote down appointments in notebooks. In response, he decided to partner with a software company to build an electronic reservation book.
Templeton also noted that most venues did not yet have computers (much less Internet connectivity), and so worked to design a terminal that would be placed on-site at host stands. His business generated investor interest, and in May 1999 he was able to raise $2 million from VC firms Draper Richards and Venture Frogs. His service, OpenTable, began operations that August.
Templeton’s initial clientele were a small list of restaurants in San Francisco. Things went well, and his base soon expanded to venues in New York. In January 2000, he raised $10 million in Series B funding, followed by $36 million in October. Expansion continued to several major cities. In 2009, with 10,000 restaurant clients, OpenTable went public. In 2014, it was acquired by Priceline.
Business model of OpenTable
OpenTable has a multi-sided business model, with two interdependent customer segments that are both needed in order to operate:
- Consumers: Individuals who want to make restaurant reservations online
- Restaurants: Foodservice venues that want to generate more business from consumers
OpenTable offers four primary value propositions: accessibility, convenience, cost reduction, and brand/status.
The company creates accessibility for consumers by enabling them to save a spot at restaurants over the Internet. This provides an additional booking option when the phone option might not be possible. For restaurants, it provides an additional source of reserved customers.
The company offers convenience by enabling consumers to search for restaurants and reservations on its website using parameters such as dates, times, price range, and cuisine. For restaurants, it provides an Electronic Reservation Book (ERB) that handles and simplifies many processes, including reservation management, guest recognition, table management, and email marketing.
The company reduces costs by providing deal opportunities. Consumers are awarded Dining Points when they honor a reservation made through the website. If they earn enough points, they can redeem them for a reward, such as a Dining Rewards Gift (a discount) or an Amazon Gift Card. OpenTable also saves restaurants the cost of using paper systems to take reservations.
The company has established a powerful brand due to its success. It bills itself as the leading provider of online restaurant reservations, having partnered with over 37,000 restaurants worldwide. It serves over 19 million diners per month, and has served over one billion since its founding. These customers have spent over $42 billion at the restaurants and generated more than 40 million reviews.
OpenTable’s main channels are its website and mobile app; the company utilizes a sales team for restaurant clients. It promotes its offering through its social media pages and online advertising.
OpenTable’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service through the website or app while having limited interaction with employees. The site provides self-help resources such as restaurant reviews, a listing of the most popular restaurants among OpenTable users, and answers to frequently asked questions. That said, there is also a community element in the form of forums where customers can interact with each other.
OpenTable’s business model entails maintaining a robust common platform between two parties: consumers and restaurants. The platform consists of its website and mobile app.
OpenTable maintains the OpenTable Affiliate Program. Program members promote the company’s service by including links in their platforms (websites, mobile sites, mobile apps, etc.). Members receive a payment when visitors click on the links and make a reservation; those who generate more than 100 reservations a month qualify for revenue share opportunities. Partners typically fall into the following groups:
- Local or national dining directories
- Local and yellow page listing sites
- Food/restaurant blogs and online communities
- Magazine and newspaper websites
- Theater, movie, or music venue sites
- Chamber of commerce and/or culinary sites
Specific partners include Menupages, Yelp, and Google.
OpenTable’s main resource is its proprietary software platform, which serves over 37,000 restaurants and over 19 million monthly customers. It also depends on its human resources in the form of technology, customer service, and sales employees. Lastly, as a startup it has relied heavily on funding from outside parties, raising $48 million from 11 investors as of October 2000.
OpenTable has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions. Its biggest cost driver is likely marketing expenses, a fixed cost. Other major drivers are in the areas of customer support/operations and sales, both fixed expenses.
OpenTable has four revenue streams:
Upfront Fees – The company charges a one-time fee to restaurants for installation of on-site terminals and training services; it ranges from $200 to $700.
Reservation Fees – The company charges a transactional fee to restaurants each time a customer makes a reservation; the amount is $1 for reservations made through the site or app and $0.25 for reservations made through the restaurant’s site using the company’s software.
Subscription Fees – The company charges a fee to restaurants for monthly access to reservation management services (Electronic Reservation Book software); the minimum amount is $199 per month, with extra features costing $25 – $89 per month.
Marketing Revenues – The company charges restaurants a fee to be featured on its website as part of the promotional POP program or to be a part of e-mail marketing efforts. It also obtains revenues from its Spotlight program, through which it sells discount coupons to customers (it splits earnings from these sales with the restaurant).