There was one episode of Duckman in which the hero is grabbed by some nameless thugs and he screams something along the lines of “Who are you guys? The FBI? The mafia? Oh, God, Ticketmaster!”
I rather agree with this sentiment. Few firms are as infuriating as the gatekeeper to all tickets worth owning. I was consequently a little taken aback to see a New York Times article in which some link a firm I like a lot OpenTable with the unholy (The Online Reservations That Restaurants Love to Hate, Dec 12).
“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.) …
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.”
So just how much money is at stake here?
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.
One should note that the dollar per person fee is a little bit off. If a customer makes the reservation through the restaurant’s web site (as opposed to through OpenTable.com), that costs only 25 cents. So restaurants are arguably only paying a premium for reservations that they won when a customer picked them out of a list of restaurants. It is also worth noting that this break on reservations generated from one’s own site is a relatively recent change in their policy.
Now as anyone who has ever bought tickets through Ticketmaster can tell you, these fees seem fairly small compared to what Ticketmaster imposes on getting a pair of bleacher seats (those chumps charge you to print your own tickets!). But is OpenTable = Ticketmaster a fair comparison? There is one way in which it seems comparable. Ticketmaster has kept individual venues from having to create its own system for automating searching for seats and selling tickets on line. (It’s worth remembering that the real value in Ticketmaster is in that first step and that they were doing this before they went on the Web.) OpenTable similarly automates the quotation of table availability and allows restaurants to take reservations around the clock (fun fact: One-third of OpenTable’s reservations are made between 10 p.m. and 10 a.m.). The real value to consumers from OpenTable comes from searching multiple options at once. A customer can see who has tables at the right time at the right place at the right price point in one search. That is so much easier and more enjoyable than making multiple phone calls. The value then comes from having so many restaurants signed up to the system. There is not the same network value to Ticketmaster. If I want to see the Bulls, I have to see them at the United Center. I can’t shop for venues the way I can shop for restaurants. This network effect leaves some restauranteurs caught between a rock and a hard place (this point is nicely articulated in the Pastore post cited above). They feel that they are paying too much to OpenTable but fear losing too many customers if they leave it.
Let me offer that there may be better analogy than Ticketmaster: credit cards. Firms take credit cards because they lose sales if they only take cash but they are then at the mercy of Visa and Amex on interchange fees. Further, those fees fall on the firms not on the consumers and they create an incentive for card issuers to encourage customers to use their cards for everything — just as OpenTable at least implicitly suggests that consumers make every reservation on line. Not surprisingly, credit card fees also piss off retailers. Enough that the Feds are stepping up to limit what can be charged. Certainly, at some point, one could imagine something similar happening to OpenTable — particularly if they ever got involved in an acquisition (although there is currently no one else in their space worth buying). In the near term, I don’t see why they would change their pricing structure. Until there is credible alternative for restaurants, they are in the driver’s seat.