How OpenTable created a monopoly by offering restaurants a "single player mode"
The domain of OpenTable in the market for online restaurant reservations has been based on its ability to attract a critical mass of restaurants and customers to its platform.
The simple online interface of OpenTable It offers a convenient way to make a reservation at a restaurant, while also offering these establishments a more efficient way to manage their reservations, attract more customers and deal with the complex margins of this sector.
While most products with client network effects are not useful until there are many people on the network (such as the phone), OpenTable It started by building and selling software that delivered value even without any customers involved, a strategy often referred to as "single player mode."
“The first million people who bought VCRs bought them before movies were available to watch. They just wanted to change the time they watched TV shows, which is what we use DVRs for today. Once there were millions of VCR owners, Hollywood began to see that it was worth starting to sell and rent movies to watch... Thus, a product that eventually had a network effect of very strong customers got their initial traction from a 'use standalone', where there is no need for proprietary VCRs or add-on products to exist.
Application OpenTable Original for Restaurants was basically an electronic restaurant reservation book that made the daily work of rotating customers and tables easier and with fewer errors.
The app would become the basis for the later reservation tool, as very few restaurants had a centralized digital system. When the OpenTable team successfully launched this software to restaurants, they also laid the groundwork for the successful launch of putting a networked computer inside the restaurant.
The more restaurants I used OpenTable, the more attractive became the idea of an online reservation system for both market demand and supply. More restaurants meant more options for consumers. More options attracted more consumers, which gave restaurants more business.
The idea took off, and when OpenTable was made public in 2009, the company claimed that a third of the 30.000 restaurants that accept reservations in the United States were customers of OpenTable.
OpenTable it also profited from making its product a critical part of daily operations for restaurants. The company has installed proprietary software in the thousands of restaurants that have signed up to use the service. This equipment was used for regular operations (not just OpenTable), creating a significant barrier to entry for other companies hoping to enter this reserve market.
to give up OpenTable, a restaurant would have to scrap a significant piece of its infrastructure, not to mention a significant source of customer traffic.
The difficulty of switching to a competing platform has allowed it to establish a very favorable acceptance rate: OpenTable it charges restaurants $249 per month for the platform, and $1 per reservation. OpenTable it even charges a 25-cent fee to customers who make reservations through a restaurant's website directly.
Although these rates fueled the significant growth of OpenTable in the early 2000s, have also sparked a wave of disruptive competitors such as resy, launched in 2014 and acquired by American Express in 2019.
Although OpenTable continues to be the preferred tool for making reservations at restaurants of reference, such as Michelin stars, resy and other tools are gaining traction when it comes to smaller, newer restaurants, suggesting that the competitive advantage of OpenTable it has some vulnerabilities among new restaurants that are not yet linked to its platform.
But even when new competitors emerge, OpenTable it still has a huge advantage when it comes to the scale of supply and demand. For about a decade, OpenTable it was essentially the only player in the restaurant booking market, giving it a huge advantage in customer and restaurant acquisition.
