Expert answer:Case Study Questions
Answer & Explanation:Case StudyRead the Case Study, called OpenTable, at the end of the chapter, then answer the questions below (the paper should be no shorter than one full page).Why will OpenTable competitors have a difficult time competing against OpenTable?What characteristics of the restaurant market make it difficult for a national reservation system to work?How did OpenTable change its marketing strategy to succeed?Why would restaurants find the software-as-a-service model very attractive?Case Study- Open Table.docx
case_study__open_table.docx
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CASE STUDY: Open Table: Your Reservation
Is Waiting
OpenTable is the leading supplier of reservation, table management, and guest
management software for restaurants. In addition, the company operates
OpenTable.com, the world’s most popular Web site for making restaurant
reservations online. In 13 years, OpenTable has gone from a start-up to a successful
and growing public company that counts around two-thirds of the nation’s
reservation-taking restaurants as clients. And, in the second quarter of 2011, an
average of 8 million diners per month made reservations using OpenTable.
Today, more than 20,000 restaurants in the United States, Canada, Mexico, the
United Kingdom, Germany, and Japan use the OpenTable hardware and software
system. OpenTable also owns and operates Toptable.com, a leading restaurant site in
the United Kingdom, which it acquired in 2010. This system automates the
reservation-taking and table management process, while allowing restaurants to build
diner databases for improved guest recognition and targeted e-mail marketing. The
OpenTable Web site, OpenTable for Mobile Web (its mobile Web site), and
OpenTable Mobile (its mobile app), provide a fast, efficient way for diners to find
available tables in real time. The Web sites and app connect directly to the thousands
of computerized reservation systems at OpenTable restaurants, and reservations are
immediately recorded in a restaurant’s electronic reservation book.
Restaurants subscribe to the OpenTable Electronic Reservation Book (ERB), the
company’s proprietary software, which is installed on a touch-screen computer
system and supported by asset-protection and security tools. The ERB software
provides a real-time map of the restaurant floor and enables the restaurant to retain
meal patterns of all parties, serving as a customer relationship management (CRM)
system for restaurants. The software is upgraded periodically, and the latest version,
introduced in August 2010, was designed to provide increased ease of use and a more
thorough view of table availability to help turn more tables, enhance guest service,
personalize responses to diners, coordinate the seating process, and maximize guest
seating. The ERBs at OpenTable’s customer restaurants connect via the Internet to
form an online network of restaurant reservation books. For restaurants that rely less
heavily on reservations, OpenTable offers Connect, a web-based service that lets
restaurants accept online reservations.
OpenTable’s revenue comes from two sources. Restaurants pay a one-time fee for onsite installation and training, a monthly subscription fee of $199 for software and
hardware, and a $1 transaction fee for each restaurant guest seated through online
reservations. The online reservation service is free to diners. The business model
encourages diners to assist in viral marketing. When an individual makes a
reservation, the site “suggests” that they send e-vites to their dinner companions
directly from OpenTable.com. The e-vites include a link back to the OpenTable site.
OpenTable is a service-based (software as service, or SaaS) e-commerce company. In
other words, customers don’t buy software and install it on their computers, but
instead go online and get the software functionality through subscriptions. OpenTable is also an online service that does not sell goods, but instead enables diners to
make reservations, like social networking sites provide services.
The restaurant industry was slow to leverage the power of the Internet. This was in
part because the industry was, and continues to be, highly fragmented and local—
made up of more than 30,000 small, independent businesses or local restaurantowning groups.
The founders of OpenTable knew that dealing with these restaurants as a single
market would be difficult. They also realized that the Internet was changing things for
diners by providing them with instant access to reviews, menus, and other
information about dining options. And there was no method for making reservations
online—we all know reserving by phone is time-consuming, inefficient, and prone to
errors. In order to make the system work, reach and scale were very important. For
diners to use an online reservation system, they would need real-time access to a
number of local restaurants, and the ability to instantly book confirmed reservations
around the clock. If customers were planning a trip to another city, OpenTable would
need participating restaurants in those cities.
The company was originally incorporated in San Francisco in 1998 as Easyeats. com.
In 1999, its name was changed to OpenTable.com, Inc. When the company was
founded, most restaurants did not have computers, let alone systems that would allow
online reservations made through a central Web site. OpenTable’s initial strategy of
paying online restaurant reviewers for links to its Web site and targeting national
chains for fast expansions got the company into 50 cities, but it was spending $1
million a month and bringing in only $100,000 in revenue. Not exactly a formula for
success. The original investors still felt there was a viable business to be built, and
they made a number of management changes, including installing investor and board
member Thomas Layton, founder of CitySearch.com, as OpenTable’s CEO. Layton
cut staff, shut down marketing efforts, and got the company out of all but four cities:
Chicago, New York, San Francisco, and Washington, D.C.
The company retooled its hardware and software to create the user-friendly ERB
system, and deployed a door-to-door sales force to solicit subscriptions from high-end
restaurants. The combination of e-commerce, useful, user-friendly technology, and
the personal touch, worked. The four markets OpenTable targeted initially developed
into active, local networks of restaurants and diners that continue to grow. OpenTable
has implemented the same strategy across the country, and now includes
approximately 20,000 OpenTable restaurant customers. In 13 years, the company has
seated approximately 200 million diners through OpenTable.com.
As the company grew, investors began making plans for it to go public. Layton
stepped down from his position as CEO in 2007, though he remains a board member.
He was replaced by Jeffrey Jordan, former president of PayPal. Jordan had some
experience with public companies from working with eBay on its acquisition of
PayPal. In 2009, he chose an aggressive strategy—going ahead with an initial public
offering (IPO) despite a terrible economy and worse financial markets. So far, the
gamble has paid off. On its first day of trading, OpenTable’s shares climbed 59%.
The share price at the end of September 2011 was in the mid-$40 range, more than
double the $20 IPO price.
Despite the challenging economy, OpenTable’s numbers at the time of the IPO were
strong, and since then, it has continued to grow. Revenues for 2010 increased by 44%
compared to 2009, from $68.6 million to $99 million, and net income almost tripled,
from $5 million to $14 million. Results for the first six months of 2011 continue that
trend, with revenue increasing from $43.7 million to $68 million, and net income
almost doubling, from $5 million to $10.5 million.
The company has benefited from having e-commerce revenue streams from
subscription fees and per-transaction charges, instead of from advertising. Further,
more than 50% of OpenTable’s revenue comes from B2B subscriptions, which are
typically part of long-term contracts. Restaurants that have invested in OpenTable’s
software package are less likely to want to incur the switching costs associated with
changing to a different reservation management package.
Another reason for its success is that OpenTable has a large number of satisfied
customers. Restaurant owners report that they and their staff members find the
software easy to use, and it helps them manage their business better. Specifically, it
streamlines operations, helps fill additional seats, and improves quality of service,
providing a concrete return on investment. This has led to both high customer
satisfaction and high retention rates.
OpenTable has also taken advantage of the interconnected needs of restaurants and
diners. Restaurants want cost-effective ways to attract guests and manage their
reservations, while diners want convenient ways to find available restaurants, choose
among them, and make reservations. By creating an online network of restaurants and
diners that transact with each other through real-time reservations, OpenTable has
figured out how to successfully address the needs of both.
OpenTable’s market is susceptible to network effects: the more people use it, the
more utility the system delivers. OpenTable’s growth continually provides diners
with expanded choices. More diners discover the benefits of using the online
reservation system, which in turn delivers value to restaurant customers, and helps
attract more restaurants to the network. Diners serve as a source of viral marketing, as
the OpenTable Web site encourages them to e-vite their dinner companions to the
meal. When they do so, the e-mail provides links back to the OpenTable Web site.
And the OpenTable link appears on the restaurant’s Web site, linking directly to the
reservation page. OpenTable has been able to improve its efficiency even as diners
are staying home more often.
While OpenTable is the biggest, most successful online player in the restaurant
reservations market, it does have competitors. MenuPages.com offers access to
restaurant menus and reviews, but visitors to the site can’t make reservations, and the
site covers only eight U.S. cities. Urbanspoon.com offers a reservation service, but its
technology is not compatible with OpenTable, so those reservations must be entered
manually into the OpenTable system. Like OpenTable, Urbanspoon charges $1 for
each diner. Foodline.com and SavvyDiner.com offer similar services; however, only
OpenTable and Foodline provide the option for restaurants to track customer
behavior. Looming on the horizon is Google, which recently purchased online
restaurant guide Zagat, raising the specter that it might try to compete with
OpenTable, although Zagat does not yet possess that functionality.
While some may argue that there are better ways to make reservations that don’t take
visitors away from restaurant’s Web sites (once someone clicks on the OpenTable
link, they navigate away), restaurant owners like the OpenTable software, and diners
have an enormous range of dining choices. Those two factors make this argument a
relatively weak one.
The company is committed to innovation when it makes sense. For example, it has
both a mobile Web site and mobile applications that work on just about every
smartphone platform. These applications help users find restaurants with the use of
GPS and make reservations. OpenTable also launched Facebook Connect, allowing
users to share their reservations on Facebook, as well as a Facebook application
called Reservations, which allows partner restaurants to offer reservations directly on
Facebook.
Along with innovation, OpenTable continues to use its tried-and-true business model
that combines technology with old-fashioned door-to-door sales. Using this model,
OpenTable’s North American markets have grown over time, and this growth is
projected to continue. OpenTable plans a selective international expansion into
countries where there are large numbers of online consumer transactions and
reservation-taking restaurants. The company currently has operations in Germany,
Japan, and the United Kingdom, each supported with a direct sales force, and has
signed on approximately 1,000 restaurant customers in these markets.
The company’s international strategy is to replicate the successful U.S. model by
focusing initially on building a restaurant customer base. OpenTable believes the
localized versions of its software will compare favorably against competitive software
offerings, enabling them to expand across a broad selection of local restaurants.
The company is well-positioned for future growth. Its size, track record of growth,
and high customer satisfaction rates should continue to work in its favor.
(Traver 630-634)
Traver, Kenneth Laudon and Carol G. E-Commerce 2012, 8/e for DeVry University.
Pearson Learning Solutions, 10/2012. VitalBook file.
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