Priceline, the online travel broker, bought OpenTable for 2.6 billion dollars last week. OpenTable dominates online restaurant reservation in the United States with about 24,000 restaurants using its application. We have discussed the goods and bads of OpenTable from a restaurant’s perspective, but the truth is that there are few competitors left.
Over half of all online restaurant reservations in the US go through OpenTable giving the company an disproportionate amount of influence in the restaurant industry. That is 47 million diners in the last 3 months. In total, it provides online reservations to about 32,000 restaurants worldwide and is poised to an international juggernaut with the help of Priceline.
With this purchase, restaurateurs have only begun to start guessing how OpenTable will change now that it is owned by Priceline. And it will change. Priceline has big plans for OpenTable as they paid a 46% premium on OpenTable’s stock price.
Priceline has a global sales force that can expand OpenTable, bringing with it the jet setters and business travelers. In particular, Priceline’s 9,000 employees (compared to OpenTable’s 625) are spread out in major travel destinations around the world. Expect OpenTable to make inroads in these cities especially in countries that have little online restaurant reservation already.
Knowing what city and even what hotel customers will be in, Priceline will likely offer dining deals and make suggestions of local restaurants that use OpenTable’s restaurant reservation. The marketing potential is enormous, as travelers normally have a tough time making dining decision. The only question is if the OpenTable restaurants who participate in this packaging or cross promoting will be hit with extra costs, whether through advertising or higher covers.
Restaurants have seen this kind of premium with 1,000 point tables. Normally, a patron receives 100 rewards points per reservation, but if an OpenTable restaurant opts into the 1,000 Point Table program, a patron earns 1,000 rewards points when he or she makes a reservation (which they honor) at an OpenTable 1,000 point table restaurant. 1,000 rewards points is halfway to 2,000 rewards points and a $20 OpenTable Diner Cheque, their gift cards, and can drive extra reservations. However to be able be part of the program (which also give a restaurant priority placement on OpenTable), restaurants pay $7.50 per cover, substantially more than the normal $1 cover fee.
Although many restaurant owners might not realize it, OpenTable isn’t a top tier brand. The farther you go away from urban areas, the less and less people know of OpenTable (because they haven’t used it). OpenTable’s 24,000 US restaurants sound like a lot but there are 10,000 restaurants in Manhattan alone.
Priceline will put OpenTable center stage and reach out to customers. We expect, as OpenTable receives more exposure, restaurant owners will feel even more pressure to join OpenTable restaurant reservation service/network or be cut out of the market. The growth of OpenTable in the US market will continued fueled by a renewed brand.
OpenTable’s much smaller competitors often have better applications with less bugs. That isn’t to say that OpenTable does not work, but it is years behind, technology and marketing wise. With Priceline, OpenTable will probably have a renewed look and interface, which may provide fresh competition with restaurant websites.
Other improvement are inevitable. OpenTable’s payment solution will probably be rolled out quicker. OpenTable started testing it in participating San Francisco restaurants in February 2014 through its iPhone app. Essentially, a customer has a credit card attached to their OpenTable account. The convenience of this kind of technology means that if OpenTable doesn’t do it someone else will. Of course the only weak element is that many have not bought into the OpenTable brand even if they use it repeatedly for restaurants (something Priceline will strive to change).
TripAdvisor, formerly the sister company of Expedia (Priceline’s rival), has acted on the overlap between travel and restaurants. They purchased the “OpenTable of France,” lafourchette, which has 13,000 restaurants in continental Europe. As the leader in travel advice, TripAdvisor’s website is the optimum time to push restaurants. However, lafourchette has little worldwide reach and TripAdvisor, as a website and not a broker, does not have the network of Priceline nor does laforchette have the jumpstart that OpenTable does.
Some analyst predict future marriages between restaurant based companies and travel companies. Obviously, there are many cross promotional and cross marketing opportunities, but how it will play out is yet to be seen. These are the first major mergers between the e-commerce-age travel and restaurant sites.
OpenTable, often described as a natural monopoly, rules the restaurant industry in the United States. With Priceline now calling the shots, this is destined to be the beginning of a new chapter in online restaurant reservation.