Although companies like Airbnb and Uber own no real estate or vehicles, such platform companies have changed entire industries by making it easy for two or more constituents to connect and exchange value.
OpenTable, a two-sided platform for online restaurant reservations, is no different. OpenTable owns no restaurants and instead, plays as the middle player between restaurants and customers in various cities around the U.S. and other countries. Today, OpenTable seats more than 23 million diners every month in 43,000 restaurants around the world. Why did OpenTable gain such popularity?
Before OpenTable’s existence, consumers used to have to call a restaurant and ask whether a particular time was available for their party number. If they were unable to make the desired reservation, they would repeat the process for another restaurant. This process was possibly repeated many times until the desired outcome was achieved. On the other hand, restaurants used to have to devote resources to taking phone calls, of which many did not even result in a successful reservation. In addition, before restaurants had computerized systems and the sophisticated software they use today, employees had to record the reservations by hand into a bulky book.
Then, along came OpenTable, which promised to change the way customers secured restaurant reservations. See figure below, showing OpenTable’s view of the transaction cost problem that it solved.
Figure 1. Open Table’s view of how it solved the problem.
OpenTable sells online tools and services for restaurant reservations and customer reviews. It creates value for both the customer and the restaurant. Below is a more in-depth exploration of how OpenTable creates and captures this value.
How does OpenTable create and capture value for customers?
- Creates an easy, hassle-free online reservation system for customers
- Reservations are free for customers
- Customers can pursue multiple reservations for different restaurants at one time
- Customers can accumulate points for every completed reservation that can be used for future reservations or for Amazon gift cards
- Customer’s status can be upgraded after many successful reservations
How does OpenTable create and capture value for restaurants?
- Creates an “ERB” or Electronic Reservation Book, which is a computer terminal that comes with software that allows online reservations and helps run seating arrangements, waitstaff arrangements, etc.
- Increases likelihood that restaurants will have customers, as customers will see restaurant among list of many
- OpenTable suspends user accounts if there are too many no-shows, which provides assurance to restaurants that users are reliable
- OpenTable takes into account “prime time spots” for restaurants by requiring customers to use accumulated points in order to reserve
Figure 2. ERB system used by restaurants to be on OpenTable’s platform
Like any other platform model, OpenTable needs significant numbers of both customers and restaurants on its platform for it to work.
Therefore, OpenTable started as a one-sided business by providing ERB software to restaurants. After acquiring enough restaurants, it developed a platform for customers to make reservations. Although there are two sides to this platform, the two sides pay dramatically different prices. Restaurants pay a one-time installation and training fee, fixed monthly subscription fee that enables them to be on the platform, as well as a fee every time reservations are made through OpenTable. Customers, on the other hand, do not pay to use the platform and can actually earn modest rewards that help reduce future bills at participating restaurants.
So can this model survive?
Due to the dramatic asymmetry in price paid by the two sides, it seems that OpenTable may be more valuable to customers than to restaurants. In addition, many competitors have entered the space, meaning that customers can multi-home, while platforms like OpenTable are fighting to maintain spots in popular restaurants. Just last year, OpenTable lost two hard-to-book New York Restaurants to Resy, another online reservation system. For now, OpenTable remains the dominant player, but cheaper reservations software may threaten it in the future.
 “The Story of OpenTable”, https://www.coursera.org/learn/strategic-innovation-innovation-at-the-frontier/lecture/zVzVP/the-story-of-opentable
 “OpenTable Corporate Presentation”, https://files.shareholder.com/downloads/ABEA-2TKK09/0x0x750629/09e2ff42-91ea-4b5f-845e-350faecc8fd0/OpenTable%20Corporate%20Presentation%20(Q1%202014)%20FINAL.pdf, 2014
 OpenTable website, https://restaurant.opentable.com/products/guestcenter
 “OpenTable is making restaurants buy back their guests over and over again”, https://medium.com/tock/opentable-is-making-restaurants-buy-back-their-own-customers-over-and-over-and-over-again-c778abbbe135
 “Start-up looking to eat into OpenTable’s business”, https://www.washingtonpost.com/business/economy/start-up-looking-to-eat-into-opentables-reservations-business-in-dc/2011/11/14/gIQA928DLO_story.html?utm_term=.ccf62147f91a