OpenTable and the First Mover’s Advantage

ogimage

One of the most fascinating companies I have looked at over the past few years is OpenTable, the online and mobile restaurant reservation service. For those of you who haven’t used OpenTable, it allows you to see which tables are available at which restaurants at which times.  Essentially, instead of calling a restaurant on the phone and checking for availability on a given night, you can book a reservation for free in about a minute using the app on your phone or tablet.  So what is so attractive about it that prompted Priceline to buy it for $2.6 billion this past June? Simply, it is their lack of competition in their market because of their profit structure and the first mover’s advantage.

OpenTable was the first company in the door in the mobile reservation market, and that has allowed them to set their price for restaurants wherever they want.  Since the app is free for diners like you and me, the restaurants are the ones shouldering the cost. For a one time installation fee, plus a one dollar profit per diner, restaurants have access to OpenTable’s software, which allows them to seat more customers on more nights in an organized manner. However, OpenTable has rubbed certain restaurants the wrong way with the prices they charge, prompting some have attempted to use competitors. One competitor is Evoo, which managed to wrest a solid amount of market share from OpenTable in restaurants in Minnesota by charging cheaper prices– for about two months, then they switched back to OpenTable.  The restaurants said that while Evoo was cheaper for them, diners were only using OpenTable, so they ended up losing diners and losing profits, prompting them to switch back. This is the first mover’s advantage that OpenTable has taken advantage of so well, by establishing themselves as the first online and mobile reservation service, restaurants have no choice but to use what the diners are using, or potentially lose those diners to other competing restaurants.

3 thoughts on “OpenTable and the First Mover’s Advantage

  1. I’m curious if the restaurants cooperating with Evoo made any attempt to help advertise their use of this app instead of OpenTable. OpenTable may be protecting its market share throught the FMA, but in the tech business the first firms often lose their market share to later entrants through the second move advantage. A good example is Amazon which followed books.com into the market and than became the largest through successful advertising. Would advertising in this situation be unsuccessful because it’s just an App? If that’s the case, is it possible for any firm to challenge OpenTable?

    • One benefit of OpenTable is they actually advertise for you. Not only is it a mobile reservation service but it also points you toward certain restaurants and features local restaurants and even specific meals on the app. For a restaurant to have to worry about advertising not only their own restaurant but also a new company (Evoo) ends up costing more than it is worth. Groupon actually also made a mobile reservation service that many expected to challenge OpenTable because it has brand recognition. However, restaurants actually didn’t like using the Groupon service, because it was focused on discounts and deals for restaurants, who didn’t want to continuously be giving meals away for a cut price.

  2. Classic example of first to market in tandem with networking implications that play out for big profits. VHS was only successful because it provided the information allowing other companies to produce VHS players. Just as Open Table created a network of users that ultimately allowed for success and maintained market share, the VHS network was instrumental in JVC’s victory over a superior product in Sony’s Betamax.

Leave a Comment!