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WIKI ANALYSIS
Business Summary
OpenTable, Inc. provides restaurant reservation solutions in the United States, Canada, Mexico, Europe, and Asia. It offers services that form its own online network that connects restaurants with the customers who dine out. The company provides an electronic reservation book (ERB), which is an integrated software/hardware system that completely transforms the traditional hostess stand into an efficient business solution. The ERB provides several functions and processes for restaurants, including reservation and table management, guest recognition, and email marketing. [2] OpenTable also operates its own website, opentable.com, which allows diners to instantly find, choose, and book tables at restaurants on the OpenTable network.
OpenTable went public on May 21, 2009 with an IPO offering at $20 per share. Immediately following the debut of their IPO OpenTable saw criticism that a company like them is very prone to the recession. Despite analysts views, the company's stock raised 60% in its first day of trading to end the day at $31.89, up $11.89 from its opening price. [3]
Acquisition of GuestBridge
In the fourth quarter of 2009, OpenTable acquired GuestBridge, a company that provides guest management solutions such as guest satisfaction, repeat visits, and profitability for restaurants in several countries worldwide. GuestBridge was willingly acquired for $3 million [4] and this acquisition comes as a benefit for both companies to broaden their outreach and expand globally.
Acquisition of toptable.com
OpenTable acquired all of the shares of toptable.com on October 1, 2010 for $55 million. Toptable.com is Europe's largest online restaurant reservation website based in the United Kingdom. The company estimates that this acquisition provides OpenTable with an additional 3 million diner reservations each year. President and CEO Jeff Jordan states that this acquisition will accellerate the growth of OpenTable globally and will add a mutually beneficial business solution for both parties.
Business Segments
Service for Restaurants
OpenTable has developed an Electronic Reservation Book (ERB) [5] for each restaurant that purchases their software. Included with the software is all hardware necessary, including a touch screen monitor, to conduct table management at the host stand. Service for Diners
OpenTable allows potential diners to search for restaurants and reservations based on certain defined user parameters that include time, date, restaurant type, and menu price. Users can also register their email address which allows them to receive confirmation emails as well as earn rewards points after dining that can be redeemed for future discounts at various restaurants. OpenTable has a smartphone application that allows the OpenTable network to be available on Apple's App Store, Blackberry's App World, as well as Google's Android Market.
Strategic and Competitive Analysis
Competitors
Competition in the online reservation industry hasn't had the ability to develop much past a few competitors for the majority market share. This is due primarily to the fact that this industry is a new idea in diner solutions that has the potential to produce large revenues for any company looking to gain entry into the industry. So long as there is a unique competitive advantage, any company can make a move in this industry.
IAC
InterActiveCorp (IACI) is the owner of Urbanspoon, which is a leading provider or dining data throughout the United States. [6] Urbanspoon allows users to browse a database of restaurants based on type, location, and price. The database also providing access to various forms of information such as customer reviews, restaurant menus, and driving directions. Recently Urbanspoon has developed the ability to take reservations with a program called Rez. Rez allows users to search for, make, and confirm restaurant reservations for all restaurants on the Urbanspoon network. Urbanspoon is also offered as a smartphone app which is available on Apple's App Store, Blackberry's App World, and Google's Android Market.
SavvyDiner.com
SavvyDiner.com which is developed by Omnistep, Inc. is a restaurant referral system that is used by the concierge of several fine hotels throughout North America. [7] SavvyDiner.com allows users to search for restaurants by location, from there users can choose from a wide variety of restaurants. The website provides complete information about restaurants in any chosen area. Information includes hours of operation, cuisine type, dress code, and accepted forms of payment. SavvyDiner.com also allows users to make reservations for the provided restaurants through OpenTable.
Restaurant.com
Restaurant.com serves as a search engine for people that want to dine out. [8] Users can log onto the website and search for restaurants based on numerous defined parameters. The website provides information about each restaurant including hours of operation, menu type, price range, and certain highlights about each respective restaurant. Users also have the ability to purchase gift cards for each restaurant on restaurant.com. Gift cards can be purchased for as little as $10 upwards of $100, with each card being purchased on the website at less than face value.
Yelp, Inc.
Yelp is a provider of online local search options for internet users. [9] A search on any particular business will return results such as location, reviews from other users, business hours, and up to date business information. Business listings aren't limited to strictly restaurants and can include anything from hotels and beauty spas to nightclubs and theaters. Yelp also offers a smartphone app for users looking to find business information on the go.
Porter's Five Forces
Threat of Substitutes
The threat of substitutes for OpenTable and their product offering is low. The only real substitute for the Electronic Reservation Book is physical pen-and-paper reservation books and the act of diners calling into restaurants and making a reservation over the phone. Both of these forms of table management are outdated and inefficient. Diners that call in to make a reservation are burdened with certain things such as being put on hold and an inability to find a reservation time that suits their needs. Also diners that call in to make a reservation are restricted to only calling during normal business hours, and with OpenTable a reservation can be made at any time instantly. Finally, deal-of-the-day websites such as Groupon and LivingSocial has provided a new method for restaurants to fill their seats more efficiently.
Threat of Increased Competition
The threat of increased competition is certainly high for OpenTable because as of now they currently hold the majority of the market share in this industry. They hold a majority because they were the industry's first mover with this type of technology offering to restaurants and diners. There has yet to be another product offering from a different company that rivals OpenTable's market position. The door is open for new companies to innovate their own similar products and challenge OpenTable. InterActive Corp (IACI) has already made a beginning attempt at grasping the market share from OpenTable with their offering of Urbanspoon and Rezbook. These products have yet to make the impact that OpenTable has made on the restaurant industry.
Threat of New Entrants
The threat of new entrants to the industry of table management solutions is extremely high because the barriers to entry are fairly low. These low barriers allow new companies to develop similar products and to model the successful business plan the OpenTable already employs. These low barriers will caused decreased revenues if and when another company decides to imitate the business plan of OpenTable. It would be very easy for a company to make an emergence in this market because the overhead necessary is very inexpensive. Without having to provide for physical retail stores, the concept behind OpenTable's business is one that is very attractive and profitable.
Bargaining Power of Suppliers
The bargaining power of suppliers is low because OpenTable's products are technology and computer based. There are thousands of technology supply companies that OpenTable can use to create their ERB. Software technology creation and manufacturing is outsourced to evidently whichever company offers the lowest price. The hardware which is the ERB can be manufactured by any number of computer companies that offer the best cost savings.
Bargaining Power of Customers
The bargaining power of customers is moderate to low for OpenTable. For companies who wish to have a table management system incorporated in their restaurant, they are inclined to pay the price offered by OpenTable. It is moderate to low because with the Rezbook emerging from IAC's Urbanspoon, there is the potential for a price war which would allow businesses to switch away from using OpenTable's product line. As stated before, if and when a product offering emerges that gains some of the market share from OpenTable then the bargaining power of customers will continue to increase over time.
SWOT Analysis (Strength, Weakness, Opportunity, Threat)
Strengths
OpenTable is a leading provider of restaurant table management solutions to restaurants and reservations services for diners. They were and industry mover with their Electronic Reservation Book (ERB) which is implemented in all OpenTable customer restaurants. Being a first mover with this type of technology gave OpenTable the ability to gain that initial customer base that any new competition now must tap into in order to gain share of the market. The ERB really streamlines table management efficiency within the restaurant allowing for an increased number of customers seated and ultimately higher revenues. OpenTable's subscription plan that comes along with their hardware and software allows them to continually gain revenue from the restaurants that use their products. Also with OpenTable's product line that not only targets restaurants but also targets the actual diners that visit those restaurants allows them to cover all aspects of the restaurant industry so that they can earn revenue in virtually all areas.
Weaknesses
With any business there is obvious weaknesses that if not fixed can be detrimental to any organization. Perhaps the biggest weakness for OpenTable is the seasonality of the restaurant industry. The restaurant industry is a very seasonal one in that there are marked increases in business around the holidays with increased revenues in the first and fourth quarters, and a significant decrease in revenues in the second and third quarters.
OpenTable is a relatively new business that is moving very rapidly and seeing significant numbers for net income and profitability. The problem with OpenTable being such a young company is that it makes it very difficult to accurately forecast future revenues and expenses. For instance, if and when another company comes up with a similar product to the ERB, OpenTable could see dramatic decreases in revenues so long as they can come up with newer technology to rival their potential new competition.
Opportunities
OpenTable as a company is seeing significant opportunity in their international segment. Their goal is to replicate their successful business model that is currently implemented in North America and to exercise this strategy internationally. Perhaps the beginning of this international opportunity was executed when OpenTable acquired toptable.com which is a leading restaurant reservation service in Europe. Also OpenTable is seeing pleasing returns in the stock market with a very high Price/Earnings ratio compared with the industry average. This indicates that analysts are expecting strong returns in the future which is good news for OpenTable. If they can continue to provide an innovative product and service to their customers then nobody will be able to touch their current hold on the market share.
Threats
OpenTable as a company is significantly threatened by the current recession that is affecting virtually any business in the world today. Less people are dining out which means decreased revenues for restaurants that use the OpenTable service and less reservations being taken from OpenTable.com and their smartphone apps. A decline in people dining out also means less revenues for OpenTable because they also receive profits based on a per diner fee.
Another threat is that the OpenTable system and network is web-based. This means that there is the potential for viruses, technical errors, and foul play. Any networked system is vulnerable to interruptions for a number of reasons, in any occurrence there is a detriment to the reputation of the system should an interruption occur. So long as OpenTable can maintain their network security and sustainability then their reputation will not be harmed.
The ERB is being replicated with newer technology that can and will rival the technology of OpenTable's key product. A system by Urbanspoon called Rez or Rezbook is primed to be OpenTable's main competition. Rezbook is virtually the same type of system that OpenTable provides with table management and reservation services. Rez offers their product on the high tech iPad that is offered to all of their restaurant subscribers.
Perhaps the biggest threat to OpenTable is their push for international expansion. OpenTable is taking a huge risk pushing for an international presence. They have already invested significant sums of money into acquisitions and business infrastructure worldwide and an unsuccessful expansion could lead to a collapse of the company. Any company takes risk when pursuing international efforts, it's those that succeed that see strength continue beyond that initial expansion.
Marketing Strategy
Product
OpenTable offers dining solutions for participating restaurants in an attempt to make table management more efficient and profitable. When a restaurant wishes to incorporate the OpenTable product into their host station, they receive all necessary hardware including a touch-screen monitor for optimal use. The hardware comes pre-loaded with the OpenTable software that connects diners with the restaurant via the OpenTable network. The OpenTable software allows each restaurant to receive reservations from the OpenTable network as well as manage the tables within the restaurant. The primary objective is to increase revenues for restaurants through added efficiency with the OpenTable system.
For diners, OpenTable has a website where users can create and confirm reservations made at thousands of restaurants worldwide. Users can use the opentable.com website to search for and book reservations or they can choose to use the OpenTable app provided on most smartphone application distributors. Increasing functionality and control allows users to see information on exactly what restaurant they are looking for whenever they want it.
Price
For the Electronic Reservation Book (ERB) provided to restaurants by OpenTable, there is a one time installation fee that can range anywhere from $200 to $700. Once installed, the OpenTable service charges a monthly subscription fee of $199/month. OpenTable also charges a per diner fee to restaurants for their services. When a restaurant receives a reservation to their ERB from either the OpenTable website or the OpenTable mobile app, the restaurant is charged $1.00 per seated diner. When the ERB receives a reservation from the restaurant website, OpenTable charges $0.25 per seated diner. OpenTable does not charge diners who book their reservations on the OpenTable website or mobile application, there is also no charge to receive reservation confirmation. [10]
Place
OpenTable products are present in all 20,000 restaurants of the current software subscribers. New restaurant customers are reached through the OpenTable representatives worldwide. Participating restaurants are located in the United States, Canada, France, Spain, Germany, Japan, Mexico, and the United Kingdom. OpenTable is also available to diners via the World Wide Web through opentable.com and as an app on all data capable smartphones.
Promotion
OpenTable has a strategy of direct sales to restaurants. With the use of sales representatives, OpenTable is able to develop sales leads on restaurants that are in need of a more efficient table management system. The team of reps aims to overhaul host stations that are currently using pen-and-paper techniques to manage reservations. OpenTable reps provide sound business advice to potential restaurants that wish to use the system. The reps also participate in numerous trade shows and conferences to promote the ERB.
OpenTable targets their diners to use the website or app to book reservations simply by word-of-mouth and internet browsing. OpenTable offers Dining Rewards that allows users to accumulate Dining Points each time they make a reservation through the OpenTable network. Users can then use these Dining Points towards discounts off guest checks at desired restaurants.
Financial Performance
Since the inception of OpenTable in 1998, the company has seen a dramatic increase in their financial profitability. The company is experiencing incomes that are nothing short of a company that has a firm grasp on the market share. Over the past several years, including the IPO in 2009, OpenTable has seen an increase in net income of 7000% over the past four years. Their revenues have been consistently increasing year over year and the company is showing strong indications of industry domination.
Recent annual reports show OpenTable has exercised a 44% increase in revenues of $99 million in 2010, up from $68.6 million in 2009. This strong increase in revenue can be explained by their Electronic Reservation Book (ERB) being installed in 20,000 restaurants throughout the world, this number is up 62% from 2009. Perhaps the most stunning financial statistic within the fiscal year of 2010 is OpenTable's ability to record net income of $14 million, up nearly 180% from last years $5 million net income. [11] OpenTable has a Price/Earnings ratio of 192.3 (compare to the industry average of 14.1), suggesting that investors paying such a steep price for its stocks are expecting unusually high earnings growth in the future. The graph below shows a P/E analysis of OpenTable and their competitors.
With OpenTable being such a small company in size compared to their competitors, numbers like their gross profit and net income seem dwarfed by their industry competitors but a look at certain ratios will show that OpenTable is near the top of the industry as far as performance ratios. Below are a few ratios compared against the industry competitors. OpenTable has seen steady to increased numbers year-over-year and with the company being somewhat young in its public tenure it hasn't yet gained the ability or size to rival the industry leaders.
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Human Resources
Company Executives and Compensation Structure
References
- ↑ http://www.opentable.com/info/aboutus.aspx
- ↑ http://press.opentable.com/
- ↑ http://www.marketwatch.com/story/wall-street-feasts-on-opentable-ipo
- ↑ http://press.opentable.com/releasedetail.cfm?ReleaseID=486176
- ↑ http://www.opentable.com/info/restaurateurs/software.aspx
- ↑ http://www.urbanspoon.com/about
- ↑ http://www.savvydiner.com/about.php
- ↑ http://www.restaurant.com/who_we_are.asp?pgn=who
- ↑ http://www.yelp.com/
- ↑ OpenTable Corporate Presentation 02/08/2011
- ↑ http://investors.opentable.com/annual-proxy.cfm
- ↑ http://www.companypay.com/executive/compensation/opentable-inc.asp?yr=2010
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