OpenTable and its discontents

December 11, 2010
isn't a fan of OpenTable:

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There’s a very swanky restaurant in San Francisco called Coi (pronounced kwa). Its owner isn’t a fan of OpenTable:

Daniel Patterson uses OpenTable at Coi, a restaurant he owns in San Francisco, and RezBook at Plum, his newer restaurant in Oakland. He regards OpenTable’s fees as excessive. “It’s just not where I want to spend the money,” Mr. Patterson said. His opinion is of particular interest because Coi is a two-Michelin-star restaurant where diners spend $150 to $160 a person. Mr. Patterson says the $8,000 that he spends annually on OpenTable is “a big chunk of what we make.”

In fact, diners spend a lot more than $150 to $160 per person at Coi. According to the restaurant’s OpenTable page, OpenTable reservations are taken only for the main dining room, where there’s a compulsory 11-course tasting menu. The price is $135, plus 9.5% tax (welcome to San Francisco) plus an automatic 18% service charge. Before having a drop to drink, that’s $172 per person as a bare minimum. If you’re ordering the $95 wine pairing, that gets you up to $293. (I’m assuming here that the tip is calculated on the pre-tax total, which some restaurants don’t do.) And if you fancy cocktails or coffee or cult California cabernets or 1907 madeira at $122 per glass, then of course they sky’s the limit.

Coi’s dining room has 28 seats, which means that the restaurant’s OpenTable bill works out to roughly 80 cents per seat per day. Compared to the $300+ that those seats are generating, not to mention the money going in to all that molecular gastronomy, I find it hard to characterize those 80 cents as “a big chunk” of anything much.

It’s worth doing the math, here: OpenTable charges $199 per month plus $1 per seated diner.* (It’s only 25 cents per diner if you book through the restaurant’s website, but Coi’s flash-based website, which can’t be viewed on the iPads or iPhones of San Francisco’s techy elite, makes that as difficult as possible.) If Coi is paying $667 a month to OpenTable, that means that OpenTable is seating 468 of its diners every month — in a restaurant which would be completely sold out every night at 850 diners per month. Clearly, OpenTable is popular among Coi’s patrons. But Patterson doesn’t get it:

Coi is a busy establishment, so Mr. Patterson does not look to OpenTable to bring in customers. He is concerned only with making the customer’s experience as enjoyable as possible. “Customers can tell the attention to food and to service — that’s palpable,” he says. “But the way you make a reservation?” He doubts that is a selling point.

This is ludicrous: of course it’s a selling point. If I’m out with friends and we decide we’d love to go to Coi next month, it takes no more than a minute to make a reservation using the OpenTable iPhone app: it’s incredibly easy to see what dates and times are available, and to select something convenient for all of us. Without OpenTable, we have to do an enormous amount of coordination — waiting until the restaurant is open, phoning them up to see what’s available, checking with our friends to make sure they can all do that date, phoning back the restaurant to confirm, sending round the details via email, etc. If Patterson wants to make his customers’ experience as enjoyable as possible, why on earth would he force them to go through that rigmarole?

On top of that, OpenTable makes it much easier for diners to provide feedback to the restaurant; that alone should be worth something to Patterson. (Not to mention all the time that his staff doesn’t have to spend answering phones.) So how come he’s so adamant about his opinion that OpenTable is worth very little and is overpriced? Patterson, more than most restaurateurs, is in the business of providing excellent service and charging commensurately. It’s weird that he fails to recognize and appreciate that model in OpenTable.

*The NYT says that OpenTable charges “an average of $270 a month for the terminals and table-management software”, not $199 a month; I’m not entirely sure where the discrepancy comes from.

Update: Some fantastic comments on this post. A few points worth adding:

Firstly, OpenTable helps, at the margin, newer restaurants as opposed to more established ones; emptier restaurants as opposed to fuller ones; and restaurants on side streets as opposed to those in high-rent locations. (Thanks to rjackson for that insight.)

Secondly, the psychology here is worth looking into. Restaurant owners dislike OpenTable for two main reasons. They get a big bill every month, which can be hard to pay; and they look at the astronomical market capitalization of the company and think it’s all coming out of their own pocket. In fact, it isn’t: a lot of the OpenTable bubble is due to the value of its email list, both in terms of advertising revenue in emails and in terms of Groupon-like offers. But restaurateurs often don’t understand that, or understand that OpenTable might simply be massively overvalued.

And thirdly, @mvaughan says that OpenTable has to be much better at communicating helpful analyses to restaurants. OpenTable’s software can be extremely powerful, but at the same time many restaurants use it for  nothing but reservations, with all that potential added value being neglected. OpenTable should be more proactive in communicating the other data that the service collects, and encouraging restaurants to leverage it as much as possible.

Update 2: OpenTable clears up the $199 vs $270 discrepancy:

The $199 monthly subscription fee includes our Electronic Reservation Book software, unlimited upgrades, the touch-screen computer system, and 24×7 IT help desk support. The average monthly fee per restaurant is higher ($270) because many elect to subscribe to add-on products such as software licenses for their own computers, additional Electronic Reservation Book systems, and POS integration.


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