Competitors Look to Topple OpenTable With Low Fees

by Trefis Team
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Over the years, OpenTable (NASDAQ:OPEN) has transformed into the Goliath of the online restaurant reservation business. The company boasts of having nearly half of all full-service, reservation-taking restaurants in North America as its customers. That, coupled with the popularity of the website and the OpenTable mobile app among diners, has given restaurants a compelling reason to do business with the company. However OpenTable has received some criticism on its way to remarkable success. A severe criticism of its fee structure is generally at the top of that list. We believe that OpenTable will likely have to pay heed to the growing discontent among restaurant customers who perceive its services as too expensive. With competitors mushrooming across the country and selling their services by focusing almost entirely on significantly lower costs, this is likely to be a persistent source of concern for the company.

That said, we still believe that OpenTable’s stock is heavily undervalued for now, and we maintain a $55 price estimate for OpenTable, which is about 30% above the current market price.

See our complete analysis for OpenTable

OpenTable charges restaurants 25¢ per diner who reserves a table through the restaurant’s own website, and $1 per diner who reserves through the website or using the OpenTable mobile application. This allows OpenTable to pocket a handsome 70¢ per diner average reservation fee.

But competition in the online restaurant reservation industry is picking up, and competitors are trying to undercut OpenTable by capitalizing on the growing dissent among restaurants over the 25¢ per diner that OpenTable charges for reservations through the restaurant’s own website. Restaurant owners believe that OpenTable does not bring them these diners and are hence reluctant to pay these charges, which bigger competitors like Urbanspoon and Livebookings have waived.

And the threat is growing, with newer competitors like UReserv making inroads in OpenTable’s established market. UReserv’s tagline of “U Can Afford” is a clear take on OpenTable’s expensive service.

While there is nothing wrong with calling the shots as the dominant market player, when competitors start gaining ground by exploiting customers’ biggest complaint, it may be time to rethink one’s strategy. So is OpenTable listening?

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