OPEN TABLE & DISINTERMEDIATION

What it is, why millennials like it, why restaurants hate it, and how it spoils your dinner

By Ronald Holden

Our friends at Urbanspoon sold off their Rezbook business, sold it over a year ago to their arch-nemesis OpenTable! C'mon, Urbanspoon! Surely you remember why you started Rezbook in the first place, because OpenTable is a hated, predatory service that once required restaurants to "rent" their equipment and use their proprietary software. It might have seemed all warm and fuzzy until the bill came at the end of the month and the restaurant would find, g-gulp, that those hundreds in membership dues and reservation fees (about $10 for a four-top) added up to a hefty chunk of change.

And it's not just unsophisticated mom and pop restaurants that begrudge OpenTable (but fear that dropping the service will cost them business): top-tier dinner houses are also resentful because OpenTable's business model depends on taking the restaurant itself (any restaurant) out of the customer relationship.

Almost every restaurant uses its own computers these days, running plug-in, point-of-sale software to enter orders and ring up checks, so there's no revenue stream anymore from renting dedicated terminals. Instead, reservation services like OpenTable charge monthly fees to be displayed on the participating restaurants' home pages. That's about two-thirds of OpenTable's revenue stream, in fact.

It's OpenTable that's calling the shots, with loyalty points and newsletters and the lure of special deals for customers who use its service to make reservations. So OpenTable is constantly adding value for the consumers who use the site to make reservations. The consumer gets to see local restaurants by cuisine, by neighborhood, by price point, by popularity. And the restaurants? Well, they have to be there, don't they? On the same screen as their rivals. So it just makes sense, doesn't it?

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Last year, OpenTable shelled out a relatively paltry $10 million for a social-media app called Foodspotting. The draw was several million images of restaurant dishes taken by diners and displayed alongside the restaurant's listing. Not what the restaurants wanted to show, but what (often photo-challenged) eaters actually saw. Restaurants were not pleased, but Foodspotting was the least of their worries.

What happened mid-June was that Priceline-the discount ticketing and hotel reservation company-bought OpenTable for a whopping $2.6 billion, an $800 million premium over its share price, and mind-boggling for a company whose profits last year were about $50 million. Calling William "The Negotiator" Shatner: are you sure you can't do better?

In practice, OpenTable is considered a crutch by some insiders for restaurants that don't understand the hospitality business. It's part of a trend toward "disintermediation," which takes responsibility for hospitality away from the restaurant and gives it to a Big Data outfit (did you get in on the latest IPO for the newest BDO?). In return for a hefty fee or commission, OpenTable then sells the diner back to the restaurant where he or she wanted to go in the first place, but now the restaurant has just forfeited its $20 margin. This is a more sophisticated scam than Groupon (because neither party is aware of its cost), but a scam nonetheless.

It's just another dance move in the decline of actual, person-to-person hospitality. Going out for dinner has become a digital commodity, and more of a drain on restaurant resources (with steep commissions and fees that come right off the bottom line) than increasing the minimum wage.

Every major restaurant nonetheless feels compelled to use OpenTable, from tiny neighborhood spots like Bistro Turkuaz in Madrona to chronically empty joints like Fumaça in Belltown. Prestigious houses like Canlis and the Space Needle are on the list. Almost 500 in Seattle alone.

But wait, there's more.

The latest apps are end-runs around OpenTable. Gary Vaynerchuk, who became famous for his over-the-top online wine reviews, has just launched Resy, an app that lists and sells reservations at hard-to-book restaurants. The more demand, the higher the price. He sees restaurant reservations as a commodity similar to Uber's "congestion pricing." And if a foursome has actually paid upfront for the table, it's doubtful they'll cancel at the last minute, or fail to show up, notorious problems in New York City and Los Angeles. Resy is approaching a stratospheric IPO in a field that's suddenly crowded with competitors like Zurvu, Killer Rezzy and Shout.

In the New York Times, Julia Moskin acknowledges that, for many restaurants, "charging patrons for reservations feels like touching the third rail."

One solution is the Alinea model, as it's known in the industry: selling tickets to dinner as if it were a Broadway show. Specific table, specific time and date. Non-refundable. Alinea, the Chicago hotspot, is actually licensing the software. Here's a sample from the restaurant's Facebook page:

Offering the following table for tomorrow - Friday, June 20th:
9:15 pm - 2ppl - $265 per person - Pricing does not include tax, wine or service. Please visit the website and book through your account or email tickets@alinearestaurant.com with contact information. Thank you!

Looks simple enough, but it's no protection against scalpers buying up every ticket in sight and hawking them on Craigslist. Cheaper at 5 PM, by the way.

And as if that weren't enough, you've now got a whole online industry of "restaurant food" apps that deliver dinner to your door. The latest, whose arrival in Seattle later this year was announced in June, is called Munchery.com, and the venture capitalists couldn't throw money at it fast enough. Restaurant-quality dinners, they promise, cooked by actual chefs in local restaurant kitchens, delivered to your door chilled, ready to heat up in environmentally correct containers. The drivers will text you when they're close by. I haven't tried it (it's only available in San Francisco at this point), but it looks suspiciously like airline food. Upscale, business class airline food, but still.

Another new outfit called Bite Squad sends your order to a Samsung tablet that's mounted in the kitchens of participating restaurants, at which point the cooks are forced to prioritize between the online order and the impatient customers in the dining room. A less complicated site called GrubHub also sends orders to nearby restaurants. Of course, you could also just phone the restaurant and put in an order to be picked up later.

I should point out here that most restaurant cooks don't really want to do this. The restaurant itself doesn't charge less, but there's no tip involved, and the waitstaff (not surprisingly) doesn't take kindly to anything that interferes with orders from paying (and tipping) customers seated in their sections.

But the whole point of the online services is that the customer doesn't have to become personally involved (the online testimonials include quotes like "I didn't have to talk to anybody!"). Indeed, you don't have to deal with whichever harried server happens to be near the phone, or with a bored or inexperienced host. So what to do? Log onto another service, Blue Apron, which simply delivers you all the groceries for a meal that, g-gulp, you have to cook yourself.

And if you're too lazy even for that, how about TheGatheredTable.com, another startup (this one with financing from Howard Schultz, no less) that lets families plan a week's worth of meals based on stuff they like to eat and what's already on hand. One assumes this is for people who barely know how to open their fridge or cupboard and look inside. Why anyone considers this a good idea is beyond me.

July 2014

Ronald Holden is a Seattle-based journalist who specializes in food, wine and travel. He has worked for KING TV, Seattle Weekly, and Chateau Ste. Michelle; his blog is www.Cornichon.org.