OpenTable started in 1999 in San Francisco and Chicago, to facilitate the reservation process of restaurants using Internet. While competition did not exist, few restaurants at that time had internet connectivity, and paper books and phone calls were the main booking tools. Rather than a product company, OpenTable was envisioned to be a platform from the start. In order to drive adoption at the restaurant side, OpenTable developed and installed their Electronic Reservation Book (ERB) at $200-$700 per restaurant, while the cost could be many times higher. It then charges $1 per customer visit booked on its platform. On the customer side, OpenTable initially receives reservations through a website, and later developed a mobile app as user behaviors changed.
To the restaurants, OpenTable offered the restaurant the ability to better utilize their capacity, save labor while receiving bookings during busy hours, gather customer information, and handle some marketing and loyalty programs. Diners get the convenience of reserving tables on a 24-7 website and loyalty vouchers. Cross-sided network effects exist as more diners make the platform more attractive to restaurants, and vice versa. OpenTable only charges restaurants for its service, possibly because restaurants have fewer alternatives once they adopted the platform, while customers could always switch to phone call if OpenTable started charging them fees for bookings.
OpenTable’s market enjoyed a period of no competition, and expanded to the UK through the acquisition of a local, similar company called TopTable. This strategy avoided fragmenting the market and allowing multi-homing of users. However, it is not really sustainable over time as new entrant can enter the market. There is also limited network effect generated by putting restaurant and diners in distant cities on the same platform.
Zagat, acquired by Google in 2012, as well as Yelp, which acquired SeatMe in 2013 while still in partnership with OpenTable, introduced competition for customer traffic. Both services competed for restaurant participation by offering lower fees. Groupon, a “daily deal” discounts platform, also draws diners to restaurants through conditional promotions. It is worth noting that these competitors had business scopes different from that of OpenTable, as Zagat and Yelp focused on reviews and marketing, and Groupon focused on short-term deals, they could potentially generate revenues in different parts of their service, while undercut OpenTable in the price for the booking service.
To counter the challenges, OpenTable expanded its service range to include customer reviews, and more importantly, mobile bill payment. However, customer reviews are services that Zagat and Yelp were already strong at. While payment significantly differentiated OpenTable from these competitors, it leads the company into another platform war fought among payment companies, including PayPal, MyCheck etc. Among payment platforms, the competition centers on POS system compatibility, breadth of usage beyond restaurants (including e-Commerce), and security. Meanwhile, as multi-homing is relatively easy on mobile phones, it is hard to foresee when a competitor will turn profitable as time goes on.
After posting its first quarterly loss in five years for the period ended March 31, 2014, OpenTable was acquired by Priceline for $2.6 billion. Through this largest acquisition in its history, Priceline hopes to expand OpenTable globally and improve the browsing experience, and add to the portfolio of experiences offered by Priceline services. However, since then Priceline has repeatedly posted impairment charges to this acquisition, reflecting a decreased prospect for growing the OpenTable platform.