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Take a look at the stock chart for restaurant industry solutions provider OpenTable and you're likely to assume that the world is a pretty good place for OpenTable right now. OpenTable has been a hit with investors since going public, and its 126 price-to-earnings ratio brings back memories of the .com boom.

But behind the scenes, questions are being raised about OpenTable's value proposition to the restaurateurs it serves.

Mark Pastore owns a popular San Francisco restaurant, Incanto. Last month, he wrote candidly about OpenTable and his conversations with other restaurateurs:

Only one of the dozen or so I spoke with said he felt that OpenTable increased the value of his restaurant and that he wouldn’t imagine opening a new project without it. The rest were less than happy. The recurring themes were the opinion that OpenTable took home a disproportionate (relative to other vendors) chunk of the restaurants’ revenues each month and the feeling of being trapped in the service, it was too expensive to keep, but letting it go could be harmful. The GM of one very well known New York restaurant group, which spends thousands of dollars on OpenTable each month, put it to me this way, “OpenTable is out for itself, the worst business partner I have ever worked with in all my years in restaurants. If I could find a way to eliminate it from my restaurants I would.”

In looking at the economics of using OpenTable, Pastore argues that the service is a loss to restaurants, and he also questions the wisdom of allowing a third party to own and exploit customer relationships.

On paper, a lot of what Pastore writes seems to make sense, even for those of us who don't run a restaurant. But lest anyone believe that there's a silent majority of restaurateurs who are dissatisfied with OpenTable but too scared to drop it, Dan Simons, a managing partner of a popular restaurant, Founding Fathers, offered a different perspective last week:

What those that participated in Mr. Pastore’s survey don’t mention (and the one member of the dozen that felt OpenTable increased the value of his restaurant probably knows) is what we have found to be the most important ingredient to OpenTable’s recipe: the software.

Simons goes on to explain that, when taken full advantage of, OpenTable's software "is a catalyst to optimize your FOH operations: the analytics, the metrics, data and health of the business" and he backs it up with numbers from his restaurant:

...the easiest conclusion we can convey is that at Founding Farmers, sales are up 15%, yet the monthly cost with OT is still the same.  Realize that this is a 15% sales increase in a restaurant that was already extremely busy.  The optimization utilization of the software was the catalyst for the sales increase; we could not have been as busy through this analytical lens without the OT software.

To obtain these results, Simons' restaurant brought in an OpenTable specialist, and made a concerted effort to learn the software. Only by doing that were Simons and his partners able to prove to themselves that OpenTable "is so much more than an expensive reservation system" and that the $6,000 they spend each month on OpenTable is a worthwhile expenditure. Unfortunately, as Simons notes, the vast majority of restaurants probably don't take advantage of the software the way his did, and for better or worse, OpenTable doesn't seem capable right now of making sure that all of its customers do.

This highlights a key point for all businesses: value is in the eye of the beholder. Your product may be questionably expensive to some customers while at the same a great value to others. How is that? In many instances, as may be the case with OpenTable, wildly differing perceptions about value are the result of different customer use cases. Happy customers may understand and be taking advantage of your full offering, while those who aren't happy may not know of and use the most valuable parts of your offering.

There are two general ways to address this type of situation: increase the number of customers who are in a position to take full advantage of your offering, or modify your offering to support different use cases so that what different segments of customers pay for and the value they receive from what they use are better aligned.

OpenTable's ability to thrive over the long haul will most likely require that it do one of these two things. After all, even companies that have wide moats protecting them from competitors should remember that few things promote long-term success like happy customers.

Patricio Robles

Published 17 November, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (2)

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Corrie Davidson

As a user of Open Table, I had no idea what they charged restaurants or how they made their money. I am a big fan of the service (as a diner) and use it to find restaurants to try. I like the unified format of info including things you wouldn't find on a restaurants main website. Many a restaurant has gotten my business just by being on the system and taking a reservation online. I also like tracking the places I've been and leaving little notes for myself on what I thought.

over 5 years ago

Corrie Davidson

Corrie Davidson, Social Media Manager at Sisarina, Inc

In addition to my comment above (don't know why it didn't log me in there...), I think you make a great point - businesses must invest the time and resources into really learning a new technology - or don't bother with it. What is the point of shelling out thousands of dollars each month if you aren't going to take full advantage of the service?

over 5 years ago

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