Yesterday, OpenTable went public, one of less than 10 IPOs in 2009. Shares were priced at $20, opened at $24.50, and ended the day at 31.89, up nearly 60%. By any account, this was a very successful IPO and hopefully an indicator of better things to come in the public markets and maybe in the economy as a whole.
Part of the reason for OpenTable's great showing, I think, is pent up demand/need for good news about our economy–but OpenTable also did well because it offers a valuable service both to restaurants and to consumers. And there is ample growth potential, both within restaurants and beyond. There is some skeptism about OpenTable being able to hold at its current high price, but the business does appear to have solid footing as a business with a successful model, solid customers and appealing growth prospects.
As a consumer, it’s great to quickly find a restaurant and reserve a table while online. And over the years, the consumer experience has improved considerably. For most major cities in the US, and many international regions, there are dozens of options available through OpenTable, you can communicate with your entire party via the OpenTable interface, and they have recently introduced the ability to review restaurants. Like many of the hippest online services for consumers, OpenTable has a Facebook Widget to share your recent restaurant visits.
But OpenTable’s impressive success, which has enabled the company to manage a successful IPO during this down economy, is due not to its consumer-oriented features, but rather, what it can do for restaurants. Over 10,000 restaurants were paying for OpenTable’s Reservation System as of March 31, according to their filing. It is these small and medium business owners who are spending over $50M per year with the company.
What I love about OpenTable (besides the fact that they can book me tables at some of the best restaurants in all the cities I visit) is that their model is built on solid fundamentals, with a solid barrier to entry. Once a restaurant has implemented OpenTable, switching costs are high, and OpenTable is gathering unique and valuable data about consumer behavior, both within any one restaurant in the network and across the network too. They not only know all the people who dine at a particular restaurant, they also know if you have a pattern of making reservations that you don’t honor, or, in some cases, if you have an allergy to nuts. There’s so much potential for growth, that goes well beyond providing value as an operations tool. OpenTable for Restaurants can also be used for data mining and for increasing customer loyalty.
On the consumer side, OpenTable’s opportunity is largely untapped—they can build out restaurant loyalty programs for specific restaurants, or across their network. They can provide a robust source of restaurant reviews, conducted by people who recently dined at the restaurants. They can remind people who recently ate in a restaurant to complete a survey on their experience. As with any company that serves both consumers and the vendors who serve consumers, there are potential conflicts—will they be able to post negative restaurant reviews about their biggest clients, for example? On the other hand, newspapers have been managing the tension between advertisers and editorial for years.
It is refreshing to see a digital services company with a solid business model that really seems to be thriving—even now. Definitely a company to keep your eye on.
