Open Table.com the Online Restaurant

Open Table.com

The online restaurant reservation industry is a growing industry wherein the companies in the industry act as intermediaries between customers and restaurants. The main company in the industry is OpenTable.com, with 90% market share. Thus, there are no credible competitors. The company has been able to carve out a group of restaurants that is attractive to customers, and a group of customers that is attractive to restaurants. The industry is a niche industry, and does not appear to have a significant offline corollary. The industry is not subject to heavy regulation. Technology in the industry is relatively simple, and could be matched by any tech-savvy firm with the money to invest in building the database capabilities.

For OpenTable.com, the company is a differentiated provider. Because it operates in a virtual monopoly, the company does not need to act as a low cost provider. The current conflict between some restaurateurs and the company derives from the fact that despite its positioning as a differentiated provider, it is unable to deliver a truly unique or memorable service. The company's main competitive advantages at this point are its database of customers, its marketing and its domination of the industry. The database of customers is attractive to restaurants, and many restaurants feel that a presence on OpenTable is an essential component of their marketing strategy. This brings customers to OpenTable. The company also has demonstrated considerable strength in marketing. Its sale pitch appears to be effective with its target audience, allowing the company to grow rapidly by signing up new restaurants. This also is made possible by the restaurant industry's high turnover. The company dominates the industry and therefore has considerable brand value. For restaurants, OpenTable is a powerful brand unto itself, capable of delivering customers. Restaurateurs often do not consider other alternatives for online reservations. In addition, consumers recognize OpenTable and its existing consumer base as an authority on restaurants. This expert authority lends weight to the restaurants that are listed on OpenTable.

Porter's Five Forces can be used to determine the pricing power of firms within the industry. The online restaurant booking industry is favorable for the incumbent, but unfavorable for other firms. OpenTable has a high level of bargaining power with its customers (restaurants), because it effectively controls access to a large volume of influential customers. This volume is important to restaurants, to the point where they are willing to pay uncomfortable amounts of money to secure access to it. OpenTable has lower bargaining power with suppliers (patrons). The company offers them incentives to remain with the service. This is because for the patron, the value that OpenTable offers is probably not worth paying money for. OpenTable has a moderate threat of new entrants. While there are going to be substantial costs associated with building economies of scale, many Internet firms are perfectly capable of financing such a venture. These firms could even use their financial clout to undercut OpenTable significantly. Thus while there is no current major new entrant, the threat still exists. The threat of substitutes is relatively high. For restaurants, they can opt out or install an reservation system onto their websites as a substitute. For suppliers there are also substitutes in other online restaurant information services. The intensity of rivalry in the industry is low, because OpenTable has a 90% market share. With no serious competitors, OpenTable is able to earn monopoly rents from its customers, especially in absence of any credible short-term threats. This monopoly power tilts the scale towards this industry being generally favorable, but the emergence of a strong new competitor would immediately reduce this industry to moderately favorable status, if not worse given the impact of oligopoly conditions on firm pricing power.

OpenTable has a number of strengths from which it derives its success. These include its brand, its marketing capabilities and its large base of restaurant customers. OpenTable does have some weaknesses, however. The company has a bad reputation among its customers, leaving its industry open to exploitation from a new rival. Another potential weakness for OpenTable is its customer service -- the company appears genuinely unconcerned about meeting the needs of its customers, something that creates risk. There are a few opportunities in the market for OpenTable. The first is continued organic expansion, as there are always new restaurants to sign up. Geographic expansion is another possibility, as the OpenTable concept can be used anywhere in the world. The third opportunity is to develop value-added services. An improvement in its service offerings would give OpenTable the ability to build an even larger market for itself. There are a few threats, however. The first is open revolt from its customers. While many customers see themselves as dependent on OpenTable, just as many only grudgingly use the service. A movement to walk away from OpenTable could cause the company considerable harm. Another threat is the threat of a new entrant. While the costs of setting up a rival are high, firms like Google, Yahoo, Amazon or others have more than enough money to build a rival to OpenTable and eat into the company's substantial revenue streams.

Using Hambrick's Business Strategy Diamond, we can see that OpenTable is a company focused on the Internet and on U.S. customers in terms of its arenas. Growth could be achieved by expanding arenas or adding new products for its existing arenas. The company is differentiated by its market dominance, strong brand and its other strengths. Its ability to keep competitors out of the market is a differentiator that allows it to succeed -- without this ability the company might struggle. The vehicles that drive success at OpenTable include its technology and its marketing expertise. The customer loyalty programs that it uses with consumers are also an essential facet of OpenTable's success.