Wednesday December 22, 2010
The company’s stellar success has drawn some grumbling in the restaurant industry. Why does OpenTable deserve to prosper while some of its restaurant clients struggle merely to survive?
“Have the ascent of OpenTable and its astronomical market value resulted from delivering $1.5 billion in value to its paying clients, or by cunningly diverting that value from them?” Mark Pastore, the owner of Incanto, a San Francisco restaurant, recently asked in his restaurant’s blog. (With Friday’s close at nearly $72, OpenTable’s market valuation is now over $1.6 billion.)
One naturally feels sympathy for restaurateurs, who must contend daily with hellish business conditions. But Mr. Pastore’s restaurant doesn’t use OpenTable, so he didn’t mention the actual costs of the service. When I obtained the figures from the company, however, I was surprised: they didn’t seem outsize.
OpenTable costs a restaurant about $650 on average to get set up. A client restaurant then pays an average of $270 a month for the terminals and table-management software.
What perhaps most rankles restaurateurs is the reservation fee: $1 per patron. All in, OpenTable receives an average of $635 a month from each of its client restaurants, the company says.
OpenTable is in about one-third of restaurants in the United States that accept reservations. When I spoke with Mr. Pastore last month, he said he was concerned that OpenTable was “becoming a Ticketmaster, a tollbooth to the nation’s restaurant tables.”
That would not be good. What retail customer has dealt with Ticketmaster and exclaimed afterward, “What a great value for such a modest fee!”
(A Ticketmaster spokeswoman declined to discuss her company’s fee structure.)
Jeffrey D. Jordan, OpenTable’s chief executive, bridles at the suggestion that his company resembles the ticketing company. “Ticketmaster raised its fees relentlessly,” he said. “We’ve lowered ours.” OpenTable’s basic reservation charge of $1 has been in place since its start, in 1998. Another fee, for reservations placed through OpenTable that originate on clients’ Web sites, has been reduced to 25 cents from $1.
If OpenTable were shaking down its restaurant clients in the back, out of view of the patrons, then we would expect competitors to appear and offer a similar service at a much lower cost.