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.