Last month, the online food delivery company Eat24, kicked-off its new iPad app with a rather interesting announcement on its website: Will OpenTable Survive? Eat24 Releases iPad App. More recently, Seamless and GrubHub announced their decision to merge, to be able to serve the online food ordering industry better. 
The admittedly cheeky headline from Eat24 and the merger announcement from Seamless got us thinking about how the growing popularity of online and mobile-based food ordering services in the country would impact business for the online restaurant reservation leader OpenTable (NASDAQ:OPEN) if at all. OpenTable is dealing with a fair share of competitors already with other online reservation players like Urbanspoon, Livebookings and SeatMe gaining prominence through aggressive pricing on online reservation systems similar to its own. And the idea that the company will also have to contend with another group of competitors does not bode very well for the company’s stock value.
In our opinion, OpenTable does not have much to fear from companies that focus on allowing diners to order food online – notwithstanding Eat24’s claim of bringing down the company. Why do we think so? Simply because both offerings target two completely different sets of diners, looking for two completely different experiences.
OpenTable’s rise over the last decade to become the leader in the online restaurant reservation industry can primarily be attributed to the popularity of the company’s Electronic Reservation Book (ERB) offering to full-service restaurants that rely heavily on taking reservations. Although the company has increased its product offerings over the recent years to rope in restaurants that depend on walk-in diners and only occasionally see reservations, the ERB remains the cornerstone of OpenTable’s business model and continues to bring in a majority of the company’s revenues. The strong growth in diners seated by the company is akin to the growth seen in online airline and hotel bookings at the turn of the millennium – with the convenience brought in by the Internet, and more recently smartphones, making this a business model that caters very well to the needs of diners as well as restaurants.
But while OpenTable helped bridge the gap between diners and full-service restaurants, the underlying system remains the same. For most diners, at a reservation-taking full-service restaurant, the meal is much more than just the food that is served at their table. It is about the service they get, the ambiance of the place and the overall dining experience.
Ordering your meal online so that it is delivered to you in the comfort of your house definitely is the best option when all you are looking forward to is primarily the meal. This is where diners have different needs. As we pointed out earlier: two different sets of customers looking for two completely different experiences.
But that is not to say that OpenTable will not be impacted at all by a marked increase in demand for online food-ordering services. After all, OpenTable’s pay-as-you-go OpenTable Connect service largely targets the same restaurants, which most likely figure among the 20,000 restaurant customers across the country for each of Eat24 and GrubHub, as well as Seamless’s 12,000 restaurant customers in the U.S. and U.K. While such restaurants would benefit from using both services, they might just be forced to pick one over the other owing to budget constraints.
To sum it up, OpenTable can be happy knowing that it can co-exist with the likes of Eat24 and Seamless, and can expect its strong diner growth over the recent years (as shown in the chart above) to continue in the future.Notes: