A.J. Gilbert, the owner of San Francisco restaurant Luna Park, began using OpenTable (OPEN) in 2003 to let customers book reservations online. He says the site is now responsible for about 80 percent of reservations, but it comes at a price: In October his OpenTable tab ran to $2,351. “The market is ready for some price competition,” he says. “OpenTable has kind of stumbled into this monopoly. They support their product really well. They’re just really expensive.”
OpenTable dominates the market for online reservations in the U.S., with more than 16,000 restaurant subscribers. They pay commissions of 25¢ to $1 on reservations and a monthly fee for software to manage table bookings and customer profiles.
Now the competition is picking up. Livebookings, Europe’s largest online reservation provider, has unsuccessfully tried to gain on OpenTable since it entered the U.S. market in 2009, but in November it introduced a free service that’s winning fans. Google’s (GOOG) September purchase of restaurant-review company Zagat Survey has some wondering whether it is readying a push into reservations, according to Clayton Moran, a senior vice-president at Benchmark, an investment bank.
The threat of competition is part of the explanation for OpenTable’s sagging stock price, which has tumbled 67 percent from a record $115.62 in April. The sluggish economy has also taken its toll as fewer people eat out. And in cities such as San Francisco, where OpenTable estimates it has signed up 64 percent of reservation-taking restaurants, growth may be stalling, according to Justin Patterson, an analyst at investment bank Morgan Keegan. OpenTable’s revenue this quarter will increase 7 percent over last quarter’s, according to analyst estimates, compared with 25 percent growth in the same period last year. “We’re not seeing that we’re running into any kind of wall relative to growth,” says OpenTable Chief Executive Officer Matthew Roberts. He estimates the company has signed up only 37 percent of the 35,000 reservation-taking restaurants in the U.S.
Livebookings’ free competitor lets restaurants manage reservations through their own websites and Facebook pages. The company plans to charge for premium features such as e-mail direct marketing. It has doubled its U.S. restaurant customers in the past 30 days, says spokeswoman Chandni Patel.
The two are also going head-to-head overseas. OpenTable bought its way into Europe in 2010 with the acquisition of Toptable, a service then based in London. Although it still lags Livebookings, CEO Roberts says OpenTable is working on a redesign of Toptable’s website and expects it to start generating more growth in the U.K. in the second half of 2012. In the meantime, all eyes are on Google. “If we were to get any sense” that Google doesn’t plan to do reservations, “it would help the stock,” says Moran.