How Does OpenTable Make Money? Business Model of OpenTable


How Does OpenTable Make Money

OpenTable is an online restaurant reservation service. Their business model is focused on helping restaurants easily manage their reservations.

OpenTable primarily makes money via subscription fees that it charges to restaurants. The company also makes money on booking fees, referral fees, and its own restaurant.

OpenTable was founded in 1998 by Chuck Templeton, Sid Gorham, and Eric Moe. The company first started operating a real-time reservations system for San Francisco restaurants. Their service has since expanded to over 80 countries.

The company went public in 2009 on the NASDAQ exchange under the symbol OPEN with a successful IPO. In 2014, OpenTable was purchased by the Priceline Group for $2.6 billion. OpenTable’s parent company later changed its name to Booking Holdings in 2018.

Booking Holdings (BKNG) is a public company that trades on the NASDAQ exchange. It primarily owns travel sites, including Booking.com, Priceline.com, Kayak.com, Cheapflights, and Agoda.com. Booking Holdings was founded in 1996 and is based in the US.

What is OpenTable & How Does It Work?

OpenTable is an online site where individuals search for and book reservations at restaurants. The company helps 31 million monthly diners [1] make reservations with their 60,000 partner restaurants located across the globe.[2]

Restaurant reservations can be booked online or via OpenTable’s Android or iOS apps. Users can either search for a restaurant specifically or look for available reservations based on dates, times, cuisine, or price range. This helps users book reservations at the last minute or in cities where they aren’t familiar with the local restaurant scene.

Reservations can be easily booked, modified, and cancelled. Users are able to see things like the restaurant’s menu on the app. They can also invite friends to their reservation in-app. OpenTable gives users personalized recommendations based on their past dining activity, dietary preferences, and dietary requirements. This helps diners discover new restaurants in their cities.

OpenTable users are prompted to review restaurants after completing a reservation. They can rate the restaurant from one to five stars on their overall impression, the food, the service, the ambiance, and the value. They can also submit a rating on the restaurant’s noise level, leave a written review, or recommend that restaurant for certain occasions.

This rating system helps other diners find the right restaurant for their needs and occasion. Since it also verifies that diners have actually eaten at the restaurant before they submit a review, OpenTable’s rating system protects restaurants from false reviews.

Users receive points after dining at restaurants they book through OpenTable that can be used for discounts in the future at OpenTable member restaurants. The company’s most active users eventually earn the title of VIP. This gives users a Booking.com Genius membership which provides them with discounts at hotels and other businesses.

For restaurants, OpenTable helps increase their reservation numbers by giving them access to OpenTable’s network of local and traveling diners. OpenTable claims to have seated 1.6 billion people in restaurants in 2019 and generated 100 million verified reviews.[3]

OpenTable also claims to have lower non-show rates than other reservation channels like phone reservations and partner reservations. Part of this might be because of OpenTable’s automated systems which email diners to remind them of their reservation.

Restaurants can also send their own automatic email and SMS confirmations to guests so they don’t have to do that work themselves. They also get notified immediately of reservations or cancelations via email or push alerts.

Using OpenTable also increases restaurants’ average per person revenue from diners. The company claims that OpenTable diners spend 24% more than the average diner.[4]

 

Business Model of OpenTable

OpenTable’s business model revolves around simplifying restaurant reservation booking systems and processes. By providing a centralized platform where diners can search for restaurants, read reviews, and make reservations, the company cultivates a user base that they can then market to restaurants.

The service is free for diners, who can even earn rewards points or loyalty programs for booking frequently on the site. This incentivizes diners to book through OpenTable rather than directly on the restaurant’s website.

It also standardizes diners’ experience booking reservations at restaurants. Booking reservations on the site is simple, and diners get notifications and reminders. They can also easily change the time of their reservation or cancel if their plans change.

OpenTable has over 600 affiliate partners who use their site to book reservations. These negotiated partnerships are critical for increasing their value to restaurants and drive reservation numbers.

With 50,000 restaurants available on the platform and thousands of reviews, OpenTable is the first place many users go when they’re planning a night out. Their large network of global restaurants makes it hard for other reservation companies to compete.

It also means that their users are global and use OpenTable when traveling. This is important to their value proposition since travelers are more likely to eat out, and they’re more likely to be looking for recommendations about where to eat.

The size of OpenTable’s network is a critical part of the company’s strategy. They originally just provided reservation software to restaurants. It wasn’t until they had a critical mass of restaurants in their network that they launched their consumer-facing website allowing diners to easily book reservations online for restaurants in their network.

While many restaurants previously took phone or online reservations, OpenTable reduces the work involved in taking reservations and allows customers around the world to make 24/7 real-time reservations. That helps restaurants maximize their seatings, simplify their reservation process, and make more money.

For this reason, many companies have abandoned their own online reservation systems and just link to OpenTable on their websites. But the company’s software allows restaurants to do more than just manage their seatings and reservations in their app.

In this way, OpenTable’s business model is similar to a software-as-a-service company (SaaS) that provides a software product or service in return for a monthly or annual fee. Restaurants can integrate their other software with OpenTable’s and keep track of their revenue, reviews, and other data that they previously held across multiple restaurant platforms and software applications.

Their higher tier subscriptions have additional software functionalities. These include things like automating table statuses and access to a relationship management software that helps restaurants cultivate regular diners and increase loyalty.

The company has expanded into a number of different connected businesses, including food delivery. This service is only supported in certain markets, including the US, Canada, Mexico, the UK, Italy, and Australia.

The company does not manage the deliveries themselves but allows restaurants to connect with their delivery partners to arrange the delivery portion. Some of these partners include Uber Eats, Just Eat, ChowNow, Skip the Dishes, Postmates, and Olo.[5]

This was particularly helpful when the COVID-19 pandemic hit and many restaurants were forced to close down or switch to delivery for months at a time. During that time, OpenTable created a site to show how the pandemic was affecting the restaurant industry.[6]

During COVID-19, the company also allowed restaurants to list their cleaning and safety procedures along with their restaurant. They also worked with restaurants to help verify diners to ensure they were vaccinated to help them meet local restrictions around indoor dining.

Despite being the leader in reservation platforms, OpenTable has a number of competitors. These include Reserve, Yelp Reservations, Eat App, and Table Agent. This competition has had an impact on the company’s growth by requiring to allocate far more money towards advertising and aggressively expanding their territory to win market share over their competitors.

In 2018, a company employee was found to have booked false reservations at their rival Reserve to make the case that OpenTable had a lower no-show rate.[7] This was determined to have been done without the company’s knowledge.

Since OpenTable is a subsidiary of a much larger company, it is hard to determine the company’s finances like its expenses. In all likelihood, the company has significant operating costs including things like advertising, development costs, hosting costs, and administrative expenses connected with running the company and expanding its restaurant network and partnerships.

Booking Holdings, its parent company, is a public company and lists its expenses in aggregate. In 2021, the company had operating expenses amounting to $8.4 billion. Of this, $2.3 billion was spent on salaries and $3.8 billion on marketing expenses.[8]

The online travel and booking business is extremely competitive so it’s not surprising that advertising is such a huge expense for the company. While the majority of Booking Holdings’ income does not come from OpenTable, the company brought in $10.9 billion in total revenue in 2021. That equated to $1.1 billion in net income after operating expenses.[9]

This was an increase over the company’s 2020 results. They made just $59 million during the height of global lockdowns. However, it’s important to note that pre-COVID in 2019 the company had a net income of $4.8 billion.[10]

While these numbers hint at the potential profitability of OpenTable’s business model, it isn’t clear how much the company actually makes.

 

How Does OpenTable Make Money?

OpenTable makes money in six different ways. These revenue streams are subscription fees that it charges to restaurants, cover fees, referral fees, experience fees, advertising fees, and revenue from its own restaurant.

Unfortunately, because OpenTable is a subsidiary of a larger company, the amount of money that the service makes from each of these revenue streams is not publicly known.

Subscription Fees

OpenTable primarily makes money via subscription fees from restaurants. These are a SaaS offering that doesn’t just allow companies access to OpenTable’s network of diners but also gives them access to their booking and restaurant management software.

The company offers three different tiers of subscriptions:

  • Basic: This tier gives restaurants access to OpenTable’s networks and allows them to manage their reviews on the OpenTable platform. They can also create a guest database, custom profile and listing for their restaurant, post-dining surveys, takeout orders, direct messaging, and more. This plan costs $39 per month.
  • Core: This tier gives restaurants added functionalities that allow them to do things like automate their table statuses, streamline their operations, track revenue with POS integrations, maximize their seatings, and more. This is the most popular subscription and costs restaurants $249 per month.
  • Pro: This gives restaurants all the same features as the other plan but also gives them access to relationship management software and user data. This can be used to market to diners who have already ate at a restaurant with the goal of increasing loyalty and driving return visits. This plan costs $449 per month.

With 50,000 global restaurant partners, OpenTable likely makes a significant amount of recurring monthly income. However, that might not be reflected in OpenTable’s recent performance as the company gave its restaurant partners a subscription holiday during the pandemic to address how it affected the restaurant industry.

 

Booking Fees

On top of requiring restaurants to pay a monthly subscription to be on their website, OpenTable also charges what it calls a cover fee. This is a fee for every guest that is seated at a party. For example, a table of four has four covers.

They charge a different cover fee based on which kind of subscription a restaurant has.

  • Basic: Free for the first 30 days, then $2 per cover and $0.30 per cover or $49 per month for reservations on a restaurant’s website.
  • Core: $1.25 per cover and free for reservations on a restaurant’s website.
  • Pro: $1.25 per cover and free for reservations on a restaurant’s website.

Given that OpenTable drives a significant amount of business to restaurants, they can potentially make a lot of money off these fees.

 

Referral Fees

OpenTable has partnerships with a number of food delivery services such as Uber Eats, Just Eat, and ChowNow. The company charges restaurants a 2% fee for every order it refers via its website to delivery companies.

Food delivery companies likely also pay OpenTable a commission or referral fee as part of their partnership agreement.

 

Experiences Fees

OpenTable encourages restaurants to showcase dining experiences like tastings, seasonal menus, or classes to its users. They then help the companies customize and market these experiences. These can be anything from a happy hour special to an expensive ticketed wine dinner.

Experiences are pre-paid and restaurants can upsell customers by suggesting that they add something like a wine paring with the tasting menu. OpenTable charges a 2% fee on all Experiences bookings.

 

Advertising Fees

OpenTable runs advertisements where restaurants can purchase promoted listings and appear higher in search results. The company advertises this as a great way for restaurants to fill their slow days and shifts.

Companies control when they want to advertise and can launch a last-minute campaign if they are having a slow seating. They can also choose which diners to target their ad campaign to such as those who are booking last minute or first-time diners. OpenTable does not list how much they charge for ads.

 

Restaurant Earnings

In 2021, OpenTable launched its first restaurant. Layla is located inside Kayak Miami Beach, a hotel owned by Kayak. Kayak is a travel booking site that is also a subsidiary of Booking Holdings.[11]

This move seems like it could be an attempt for Booking Holdings to move from just booking travel services and reservations to providing them. The restaurant is Bedouin inspired and serves things like baba ghanoush and tailored cocktails.

OpenTable sees this restaurant as an innovation lab. They use it to develop new technology. For example, if a customer tweaks a cocktail to include a preferred spirit, OpenTable will have that data the next time they visit, and the customer won’t have to ask for the tweak.

It’s unclear if the restaurant was designed to make a profit or simply as a research and development lab.

 

OpenTable Funding, Valuation & Revenue

OpenTable is currently a subsidiary of Booking Holdings (BKNG) which is a public company listed on the NASDAQ exchange. Formerly known as The Priceline Group, Booking Holdings had their IPO in 1999.[12]

Before it was purchased by Booking Holdings, OpenTable went public itself. In 2006, the company sold their IPO at an offering price of $20 but the stock was trading at $29 by the end of the day. That gave OpenTable a valuation of $626 million on its first day.[13]In 2014, Booking Holdings bought OpenTable for $2.6 billion.[14]

Prior to going public, OpenTable went through three funding rounds and garnered $48 million in venture capital funding.[15] Notable investors include Comdisco Ventures and Orange S. A.[16]

OpenTable’s parent company’s stock has struggled in recent years due to the pandemic. The company’s revenue fell from $15 billion in 2019 to $6.7 billion in 2020 and then bounced back to $10.9 billion in 2021.[17]

YearTotal RevenueTotal Ops ExpensesNet Income
2019$15 billion$9.7 billion$4.8 billion
2020$6.7 billion$7.4 billion$59 million
2021$10.9 billion$8.4 billion$1.1 billion

 

Is OpenTable Profitable?

OpenTable is likely profitable. Booking Holdings, OpenTable’s parent company, made a profit of $1.1 billion in 2021 on $10.9 billion in revenue. However, Booking Holdings does not break down their revenue by subsidiary, so it is unclear how profitable OpenTable could be.

There is also a chance that OpenTable lost money in 2020 and 2021 due to the struggles the restaurant sector faced and OpenTable’s decision to temporarily suspend subscription fees for restaurants as they experienced less business.

There is also a chance that OpenTable’s revenue might still be down as some remain wary of indoor dining.

 

Conclusion

We hope you enjoyed this blog post and learned more about OpenTable’s business model and how it makes money. 

The company has been around since 1998, when it launched its first website: easyeats.com. It was originally intended as an online reservation system for restaurants, but it quickly grew into something much bigger—and today, there are more than 50,000 restaurants worldwide that use OpenTable to manage their bookings and reservations.

OpenTable is more than just a company that helps you make reservations. It’s become a household name in the restaurant industry, and it’s helping to change the way we think about the dining experience.

OpenTable has shown itself to be a leader in the online reservation space, but it can’t rest on its laurels. There are plenty of competitors out there, and OpenTable needs to stay on top of the latest trends and technologies if it wants to stay relevant.

We’re excited to see what’s next for OpenTable—and you should be too!

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Sources

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  7. Eater
  8. Booking Holdings
  9. Booking Holdings
  10. Booking Holdings
  11. Food and Wine
  12. Yahoo!Finance
  13. TechCrunch
  14. Wall Street Journal
  15. Crunchbase
  16. Crunchbase
  17. Booking Holdings