How OpenTable Could Actually Matter
Sunday, May 3, 2009; 10:02 AM
Dot com meltdown survivor and restaurant reservation software company OpenTable had been a rumored IPO candidate for a while. Still, it shocked many when it finally filed its intention to debut on the Nasdaq back in January. What? Does this company just have a thing for market meltdowns?
There?s still no word on when OpenTable will actually price, but so far, the IPO is still on, signaled by the company filing its first quarter earnings with the Securities and Exchange Commission on Friday. What?s more: It had an OK first quarter. Revenues increased from $13.2 million a year ago to just under $16 million, and the quarter had a modest $366,000 profit. Last year?s first quarter came with an $87,000 loss.
Now that the markets have recovered, I?m betting on a pricing later this year. That's good for me: I've been promised a sit down with the CEO once the quiet period is over. (Send me your burning questions!) And it's certainly a much better thing for OpenTable?s very patient investors and venture capital as a whole. The National Association of Venture Capitalists is so concerned about the lack of IPOs in venture land that it recently laid out an ambitious proposal to change the rules.
But OpenTable is hardly an Internet homerun. It?s frequently described as a consumer Internet company, when really it?s a software-as-a-service company. The good news ?for this moment in time?is that that means Open Table doesn?t have an ad model. It actually has paying customers in the form of restaurants using its reservation software and paying it monthly subscription fees.
But what software-as-a-service companies gain in predictability of revenues, they lose in big blowout quarters. In other words: Don?t expect this IPO to set the world on fire. Netsuite?a company with a far bigger addressable market, a better growth rate and more than three times OpenTable?s annual revenues¿ hasn?t fared well since its 2007 IPO, and so far Salesforce is one of the only SAAS companies to get to $1 billion in annual revenues. A business like OpenTable?s takes a lot of investment in sales and marketing to close a modest deal, and that will be harder as the company strives for more international reach.
But there is one way OpenTable could use this IPO to its advantage: Forget international expansion for now and use the IPO proceeds and new stock currency to acquire a real consumer Internet company or at least some star UI talent.
I?ve long criticized OpenTable for catering only to the restaurants, and not caring much at all for the actual diners. Just look at the so-called loyalty rewards system: You practically have to eat out every day of your life to get a $20 dining voucher, and points expire without any notice. They?d do better not to have a loyalty program at all. In short, for diners OpenTable has been a convenience but not much more. And since many restaurants call you to verify the reservation and insist you call them back, it?s not really even that convenient. Can you imagine having to call United after you?ve already bought your ticket online or call Amazon to verify you really wanted to buy that book?
But increasingly OpenTable seems to be inching in the user-friendly direction, and it turns out being the only player who knows exactly where you?ve dined, when, and what availability there is in restaurants near you at every moment can be a pretty formidable advantage.
Consider user reviews, a feature idea OpenTable only recently launched. My initial reaction was it?d be near impossible for OpenTable to compete with Yelp?s edge, community and UI savvy. But unlike Yelp, OpenTable knows where you?ve dined, when. Like NetFlix or Amazon can prompt you to review a rental or purchase as soon as the transaction has occurred, OpenTable now sends out an email asking for your thoughts. With some UI help and a one-click-from-the-email rating system, the company could get people in the habit of quick reviews and build a library of your tastes, tailoring recommendations in other cities for you, or even sell that data back to restaurants. It shouldn?t aim to get the same depth of reviews that Yelp gets. Instead, it should aim for breadth. A simple, one-click yay or nay on every place you dine that no one else can replicate, because no one else owns the reservation engine.
Here?s another edge that isn?t new, but was new to me: Because OpenTable?s software is at the host stand, diners can search for real-time reservations. Say it?s a Friday night in San Francisco and you?re wondering what restaurant you can get into in ten minutes. Before you?d have to call around blindly asking how long the wait was. On OpenTable you can search for immediate openings in a given neighborhood. Most online reservations sites have an hour cut off because the systems have to sync together. But OpenTable is the restaurant?s system. It?s the first time I?ve seen OpenTable actually do something for me as a diner that I couldn?t have done any other way, and the new location-aware iPhone app makes that functionality all the more powerful.
These are baby steps to the applications OpenTable could develop on top of its in-restaurant software edge if it hired some crack consumer Internet talent. Here?s hoping the IPO is a means to that end, and not just the final destination for a company that?s mostly spent the last decade playing it safe.