Urbanspoon Rez vs. OpenTable: The Pros

In my last post I focused on some of the problems Urbanspoon will encounter as they launch their new online reservation service – Rez.  While the theme of the post is that Urbanspoon can’t take on OpenTable alone, there is still a lot of upside in the service from a restaurateur’s point of view.  In this post I’ll focus more on the positives of Rez and how they could potentially unseat OpenTable as the leader in online reservations.  Let’s take a look at a few key aspects of Rez:

1. From my understanding Rez was built for one purpose and one purpose only – to drive online reservations.  That being said, it doesn’t seem as if the folks at Urbanspoon will be building the ability to manage a restaurant’s floor plan within Rez’s module.  While that is an obvious chink in its armor, Rez is still the biggest threat to OpenTable on the market today.  Why?  Because OpenTable’s entire model is based on an absurdly high Pay Per Cover (not to be confused with Google’s PPC – pay per click) fee that it charges restaurants when the restaurant is sent “new” business.  Restaurants pay between a couple of hundred dollars to thousands of dollars per month for these online reservations!  If Rez can help diminish those costs than it’s already a leg up.

   

   Image via CrunchBase

2. No table management, No problem. From everything I’ve heard and read, Rez won’t offer a console to actually manage your restaurant’s books.  By not offering a floor management module, Urbanspoon leaves it up to the restaurant to determine which Table Management solution they’d like to use to run their restaurant.  While OpenTable does have a better functional dining room management system than most software on the market, there is software on the market that is exponentially cheaper and much better.  Henceforth, Rez’s flexibility is another benefit to their model.
3. Urbanspoon has the online traffic to pull this off.  While Urbanspoon doesn’t attract quite as many users as TripAdvisor or Yelp, it does attract exactly the same amount of users as OpenTable.com and should easily surpass them soon due to their array of iPhone apps and a much better functioning website.  In fact, Urbanspoon’s web traffic has increased by over 400% over the past year while OpenTable has only increased by 40% despite getting a lot of PR for their IPO in January. The graph below is pretty self-explanatory and indicates that Urbanspoon is making much larger strides than OpenTable when it comes to attracting users/diners.
4. Restaurants like saving money. If you’ve ever dealt with a restaurant you know that it can be maddening at times.  They are notorious for their negotiation tactics, and the industry as a whole has accepted this.  While vendors can give restaurant’s significant price breaks on beer, wine and food – OpenTable has not shown any interest in offering price breaks when dealing with online reservations.  Whether your restaurant gets 1 online reservation or 1,000 – you generally pay the same online booking fee (at least $1/cover).  I assume Rez will either be packaged together with other Urbanspoon online advertising fees or simply charged on a separate basis.  Either way, it has the potential to save a very busy restaurant thousands of dollars per month.

Over the last couple of months I’ve met with the top restaurateurs in the DC Metro area in regards to switching from OpenTable to a more advanced and economical Dining Room Management solution.  The one constant in the restaurant’s response was “how will leaving OpenTable affect my business?”.  The answer is it would affect it slightly, but not nearly as much as you would think.  The fact of the matter is that OpenTable books most of its diners either directly from a restaurant’s website or from a third-party website referral (eg: Zagat.com, Washingtonian.com, TripAdvisor, etc).  The only drop-off you should really expect are the client’s that OpenTable labels as VIP’s.  These are OpenTable power-users that make 12 or more online reservations per year.  The assumption is that if you’re not an OpenTable VIP, but booked a reservation through OpenTable.com than you already knew where you wanted to dine and OT merely facilitated the reservation.  OpenTable leads the restaurant to assume that the reservation originated from OpenTable.com, so the average restaurateur wrongly thinks that OpenTable is responsible for driving them all their reservations.  In reality those online reservation could have come from any one of the hundreds of affiliate websites that OpenTable has partnered with.

I think the key going forward for Rez is to make the system open-source so that developers can make a back-end specifically designed to help manage the restaurant’s floor plan.  If Urbanspoon is to take one lesson from the current OpenTable monopoly it should take a page from Google’s famous quote of “Don’t be Evil”, otherwise you’ll risk alienating the paying customers, which in this case is the restaurant.  OpenTable has created a monopoly in the hospitality industry over the last decade or so and from my earlier post you can see that this is wearing thin on restaurateurs.  Similar to the current theme of Microsoft vs. Google, the move of online reservations from OpenTable to Urbanspoon is just further proof that web-based software continues to overtake traditional software applications.  Expect this trend to continue..

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Urbanspoon Rez vs. OpenTable: The Cons

As per the Seattle Times description of Urbanspoon’s new online reservation service it has dubbed ‘Rez’:

It’s pulling Urbanspoon into the business-software market and challenging the dominant online reservation company, San Francisco-based Open Table, which had sales of $55.8 million last year.

Rez adds a yellow button that pulses if one has reservations available. You can use the button to focus a search for restaurants with reservations available, and reserve with a few more taps.

Rez is a nice concept, and Urbanspoon will get restaurants to join just because Urbanspoon and Citysearch have a lot of clout and are recognized brand names.  But the fact of the matter is that restaurants will only be using Rez in order to get some free publicity on Urbanspoon – not because they really plan on using the system, which may deem Rez not very useful because restaurants won’t be able to manage the reservation data properly.  Consider that at least 20% of a restaurant’s business comes from walk-ins – how does Rez plan on capturing this info?  Unless Rez actually helps restaurants manage their dining rooms, eg: waiting list management, electronic reservation book, and most importantly – an interactive floor-plan, than it doesn’t have a whole lot of utility for an upscale dining establishment.

Image via CrunchBase

Here is just a small list of the foreseeable problems Rez will encounter when trying to expand their business:

1. Internet entrepreneurs & engineers don’t understand the way restaurants operate. Unless you’ve owned, operated or managed a restaurant you it’s very tough to build an application that dictates the way a restaurant should run its books.  Think of it this way – Theo Epstein is a genius when it comes to crunching saber metrics and finding the right players for the Boston Red Sox to build a championship team, but I seriously doubt if Dustin Pedroia were to ask Theo Epstein how to hit a curve ball.
2. Advertising professionals sell ads, not software.  Ad men know a lot about site sponsorship fees and CPM rates, but the integration of a table management solution for restaurants is not in the same category.  Citysearch is a great way for Urbanspoon to sell advertising, but an online reservation service is more of a software sale an online marketing service. 
3. Clients (Restaurants) don’t value Free. Ethan Lowry was quoted as saying that the key differentiation is going to be that “It costs you [restaurants] nothing when we send you business”.  Even if Urbanspoon plans to give Rez away for free, restaurants wouldn’t use it like they use OpenTable.  This has more to do with the psychology of a sale.  Good, reliable client needs to feel that they’re paying for something, and OpenTable gives their clients thousands of reasons (otherwise known as dollars) to use their software to its maximum capabilities.
4. Online Reservations aren’t as simple as clicking the button that says ‘Reserve a Table’. As per the article on Rez, “Restaurants use a special app that they tap and slide to notify Urbanspoon when tables are full or open. They can also use the system to add online reservations to their Web site”.  If it was only this easy.  What this article fails to note is that OpenTable has a rather sophisticated operating system behind the actual reservations.  Restaurants utilize this to manage their floor and waiting list so that their kitchen doesn’t get swamped, their servers are given the right client information, and a plethora of other details in regards to the reservation and how the restaurant can best utilize its floor in order to maximize covers and revenue.  Sending an email or text message to the restaurant saying that they can expect a party of four at 8 pm is pretty much worthless unless there is a very intricate system to help manage that data.

   

   Image via CrunchBase

The irony of the situation is that I’ve spent the last couple of months bashing OpenTable and singing the praises for Urbanspoon, but you have to give credit where credit is due – OpenTable has a good operating system and from all indications Rez doesn’t have such a system, and doesn’t really plan on building one.  The fact is that when OpenTable went public in January 2009 a bunch of innovative entrepreneurs said “I can do what they do”.  New players are jumping into the online reservation world without fully understanding the needs of the restaurant, which deal more with floor management, turning tables, maximizing revenue, etc.  The online reservation aspect is only one piece to the puzzle.

I think Rez could be a great application if it were linked in to an active restaurant management solution, but unfortunately software to help restaurants manage their books is not as easy as programming an iPhone app.  My suggestion is for Urbanspoon to build a platform that is open-source so that more sophisticated Table Management solutions can easily be hooked into the Rez online reservation module.  This would be a win-win – for Urbanspoon, and the restaurants they hope to do business with..

Washington DC Restaurant Forum turns up the Heat on OpenTable..

I recently had the pleasure of sitting in on a Washington DC forum bringing together members of the Washington Area Concierge Association (WACA), the Restaurant Association of Metropolitan Washington (RAMW), and Destination DC. As per the invite to the event:

This is an opportunity for us to exchange ideas and information as to how we can achieve one common goal; better service for our guests. This will assist us in not only meeting our guest’s expectations but exceeding them. This forum will benefit our guests and all of us in the hospitality industry as we learn & grow from one another and become a more cohesive and effective team within the tourism industry in Washington DC Area.

The restaurateur panelists focused their desire for concierge’s to build a more personal relationship with their restaurants, and to stop booking reservations through OpenTable! Why? Because if concierges truly wanted to help their fellow restaurants, it could start by booking reservations from the restaurant’s own website so that the restaurant didn’t need to pay OpenTable’s exorbitant booking fees.

What was interesting to note was that none of the concierges even knew that the restaurants were paying the tab for all these reservations, and that for the most part concierges had a much better chance finding an 8-top at 9 pm on a Friday by calling the restaurant rather than using OpenTable. The restaurant panelists implied that the reason was because they want to vet their larger parties, and make sure it wasn’t just a bunch of teenagers ordering 7-ups. But they also implied that they’d prefer not paying OpenTable as much as they do for these large parties. The restaurant industry’s dislike for OpenTable became the main topic of discussion in the forum for a good 20 minutes.  More and more the message of the forum was “Let’s build a personal relationship”, which essentially meant don’t use OpenTable unless you have to when you book your guests at our restaurants.

It’s odd to see a company that is so widely used, yet so utterly despised in its own industry. This is more or less the equivalent of an Auto Shop bashing the Michelin Tires they’re about to sell you. Based on the above, one would think that people in the restaurant industry are starting to think differently about the perceived benefits of being an OpenTable member, and that OT’s arrogance and lack of client-oriented business initiatives is wearing thin amongst their clientele. Buyer beware..

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Urbanspoon vs. Yelp – clash of the restaurant review titans!

As per Michael Arrington’s initial story on Urbanspoon that appeared in TechCrunch in September, 2007:

Image via CrunchBase

Their [Urbanspoon's] goal: compete head on with Yelp and other user review sites, specifically around restaurants.

But they are approaching the market in a different way than Yelp and others. Instead of talking users into coming to their site and writing reviews, they’re taking a decentralized approach and aggregating available reviews from trusted sources around the web – local newspapers, citysearch, etc.

Advantage Urbanspoon

By aggregating ‘trusted sources’ along with user reviews, Urbanspoon is taking on Yelp’s biggest weakness – its perceived partiality to the end user over the business (restaurant).  By offering a more diverse and reliable restaurant review platform – restaurants will probably be more willing to invest significant resources  into Urbanspoon’s business platform over Yelp’s.

In some ways, Yelping has gotten somewhat out of hand from the restaurateur’s perspective – you have hundreds of reviews written by users that inevitably could harbor a gripe against you.  The perceived lack of control that the business has on Yelp diminishes the appeal to become active in the Yelp community. Restaurateurs aren’t PR agencies – they simply don’t have the time or desire to monitor every word that is being said about them.

Well, it seems like the restaurant community is taking notice as can be seen in the graph of users below:

Why Urbanspoon will reign supreme

Trusted content is the most valuable content for a visitor to a dining portal.  As an end user I don’t really care what Sally from Takoma Park, Maryland has to say about a specific restaurant in Washington DC, but I do care what the Washingtonian, and the Capital Spice food blog says about that same restaurant.  Because of its setup, Urbanspoon’s user reviews can only further legitimize a restaurant’s appeal, and any nasty comments made by users are mitigated if the restaurant’s more trusted reviews are positive.  In reality, they can probably do more good than harm considering that a any poor review from a noted media source can be trumped by a slew of positive user reviews.

Image via CrunchBase

Add to this the fact that Urbanspoon has the most popular iphone app, and that they are owned by IAC, which boasts one of the largest local advertising networks through Citysearch , and I think the long-term advantage certainly is in their favor.

Did Sarah Lacy sell out with her softball interview of OpenTable CEO Jeff Jordan?

Sarah Lacy, a superstar blogger and Silicon Valley reporter wrote two scathing articles regarding OpenTable’s service right around the launch of their IPO in January 2009.  Given how clearly unimpressed she was with the company and its technology it came as quite a surprise when I viewed her uncharacteristically softball interview with OpenTable CEO Jeff Jordan last month on Yahoo Finance.  This leads to the question – is Lacy’s bark louder than her bite, did she get cold feet in the heat of the moment, or did she feel the need to tone her criticism down in light of OpenTable being one of the only tech stories of the year?

Image by lunaweb via Flickr

Lacy’s 1st article, titled “OpenTable: So Web 1.0 it Hurts” is a piece lambasting the user experience on OpenTable.com, specifically their rewards program.  She is pretty direct in her analysis and writes the following harsh critique of the service:

OpenTable makes thousands selling reservation software. I spend thousands of dollars in business dinners I book through them dating back to 2003 when I joined. The restaurant doesn’t get much, because I probably would have dined there anyway.  And I get less than $100 in a dining check that I’d probably never actually redeem. Pretty lame as rewards programs go.

She goes on to note:

I’ve long hoped Yelp might get into this game. I know they’d never get in the console/software business, but maybe there’s another way to use the Web to solve the reservation problem.

Actually Sarah, there is.  New reservation software is out there that seamlessly integrates with all social media platforms and portals alike.  Unlike OpenTable 1.0, the user would never have to leave the web page they’re on to make an online reservation.  In reality, Yelp could get into the game very easily – they’d just need to embed the relevant reservation widgets into the participating restaurant’s Yelp page.

Sarah’s next article was posted in Seeking Alpha, a finance site that offers commentary on the stock market.  In her typical no-nonsense fashion, Lacy titled the article “OpenTable: 5 reasons to hesitate before buying it”.  Her 5 reasons for not drinking OpenTable’s IPO Kool-Aid are as follows:

1. The crappy market conditions in early 2009.
2. Lacy interestingly points out that OT is a local business and writes “They have to conquer territory market-by-market, restaurant-by-restaurant. Local is one of the hardest and most expensive things to do well. It’s also one of the only things that the Internet doesn’t particularly make easier.”
3. OpenTable isn’t very profitable selling software-as-a-service.
4. “Restaurants are going to be closing and cutting corners as the recession wears on”.
5. The “Travel Agency Effect”, which she identifies as the notion that “[restaurants] don’t want to pay the fees, and why should they when building and maintaining a Web site isn’t exactly hard in this day and age? OpenTable may have brought restaurants into the online age, the way sites like Expedia and Travelocity did for the airlines, but increasingly vendors hate middlemen. Especially middlemen who control the customer relationship and take a cut of the proceeds.”

Based on these two articles, one from the consumer end and the other from the business end, I believe it would be accurate to say that Sarah Lacy is not a fan of OpenTable.  That being said, Lacy had  the platform to stick it to OpenTable CEO Jeff Jordan and instead she threw him an 85 mph fastball right down the middle.  Even a ballplayer not taking steroids can hit that one out of the park. Part of the reason might be due to the audience, which is geared more towards investors than techies. That being said, it would have been nice to see her touch on some of the points she so accurately pointed out in the past.

If you missed it, here’s a link to Sarah Lacy’s interview with Jeff Jordan.  Maybe after she’s done getting chased by baboons in Africa she can let us know why she went so light on a company she seemingly despised just months before..

SeamlessWeb – great service, questionable branding strategy

SeamlessWeb is a powerful business tool for automating the entire process of ordering food to the office. They have built a comprehensive web-based system that gives registered company employees easy access to some of the best restaurants, caterers and other providers while providing your company with a single electronic invoice for all purchases. Their technologies give companies budget controls and reporting tools, so that business rules and restrictions are observed by employees and managed by administrators.

This is an unquestionably great service for businesses and restaurants alike – I’m sure they charge a premium for their services to restaurants but you can’t go wrong with having thousands of businesses having access to your restaurant’s carry out menu on a regular basis. That being said, what the heck is SeamlessWeb supposed to convey to the user? I know this is the Web 2.0 generation and all, but should I get some inkling of your service through your brand name?

As per marketing guru Seth Godin’s the brand formula post :

What’s a brand? I think it is the product of two things:

[Prediction of what to expect] times [emotional power of that expectation].

If I encounter a brand and I don’t know what it means or does, it has zero power. If I have an expectation of what an organization will do for me, but I don’t care about that, no power.

Ok, so let’s say I was an office manager and wanted to check out the best online ordering services on the market. For the purpose of this analysis I had no clue about such services and needed to do some research. So I Google “online food ordering” and… SeamlessWeb isn’t even in the top 10 results (click on the Google image below to see). I will note that they do appear in the “sponsored results” section but they are #2, and their are a plethora of other companies listed below them.

According to their website SeamlessWeb’s corporate clients include the nation’s largest investment banks, over 85 of the AmLaw 100 law firms, and thousands of businesses in dozens of industries. The company has been awarded distinctions by Inc. 500, Entrepreneur Magazine and Deloitte as being one of the fastest growing privately held internet service companies in North America, and was also named one of Time Magazine’s 50 coolest websites.

This is all great – but what if I’m not an investment banking firm, but a small legal firm/accounting office, etc.,  and don’t have SeamlessWeb’s sales team knocking on my door, my chances of finding out about this great service is probably less than 50%.  And even if I do, SeamlessWeb will be paying handsomely for me to do so either via Google or some other advertising campaign.

I’m not saying that you should brand your business based on where you’re going to show up in Google searches, but if you have the option, it can’t hurt..

Is FohBoh a glorified Facebook group or a legit social network?

The last couple of years more social networks have popped up than zits on a 14 year old chocolate-holic.  I have been exploring the social media waves as never before since I launched Reservation DC , and my latest addiction is FohBoh – the creatively named social network for restaurateurs (front of house, back of house).

Image via CrunchBase

As those who have read my blog can clearly see from my first post, I don’t shy away from controversy – so I pose the question.. is FohBoh simply a glorified Facebook group with way too much funding or does it actually have a purpose?  As per CEO and Co-founder Michael Atkinson:

MySpace and Facebook are clear leaders in generic social
networking today and have educated the market, but they are entirely horizontal, so they don’t cater well to niches of specific interest. This is where FohBoh excels.

First off, I won’t address the MySpace blurb as lumping them with Facebook is akin to comparing Chrysler with BMW, and while Mr. Atkinson makes a valid point, he fails to mention that Facebook and LinkedIn created a nifty tool called “Groups”, which essentially cater to the verticals.  But this doesn’t merit writing FohBoh off entirely, as I personally have never spent much time on LinkedIn or Facebook groups, but I have recently spent a good amount of time perusing around FohBoh.

In my opinion the bottom line with FohBoh is their user base – if I know that every general manager, chef, service provider, etc. in the restaurant industry is on FohBoh, similar to everyone I’ve ever known is on Facebook, than that makes it a worthwhile tool for any and every one in the hospitality industry.  Let’s take a look at the numbers:

Ok, so they reached their peak of 30k uniques in February and have dipped every since leveling off at about 17k unique users/month.  Consider as you must with all social networks that 25% of those users are spammers that post hot chicks as their profile pics, and you’re looking at between 10-12k unique users/month.  Their current Alexa ranking is 174,498 which basically means that they get a couple of hundred users/day at most.  That being said, that’s pretty good progress in one year, but it’s not at the tipping point quite yet.

In my estimation FohBoh needs to reach 100k unique users/month to have any appeal to the mainstream industry professional.  As they clearly haven’t gone viral yet, and their organic growth isn’t huge, the only way they can do that is to somehow attract celebrity chefs that become active.  Does anyone remember that Ashton Kutcher vs. CNN Twitter Showdown? That marked the tipping point for Twitter as can be seen in the Compete stats below:

Although it won’t necessarily serve the ultimate purpose of FohBoh, this social network needs some kind of Emeril vs. Anthony Bourdain showdown to attract more industry users – otherwise it will continue to flounder as just another social network that probably should have just been a Facebook group.

"MySpace and Facebook are clear leaders in generic social
networking today and have educated the market, but they are entirely
horizontal, so they don't cater well to niches of specific interest.
This is where FohBoh excels." 

First off, I won't address the MySpace blurb, and while Mr. Atkinson makes a valid point, he fails to mention that Facebook created a nifty tool called "Groups", which essentially caters to the verticals.

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Facebook strategy to help build customer loyalty to your restaurant

More and more restaurants are beginning to discover the power of social media and realizing the potential that lies within.  With that being said, not many restaurants actually have a social media strategy beyond just adding ‘friends’ and spamming them with updates that most of them don’t find too interesting.  In this post I will disclose the strategy that helped make one of the top social networks in the world a sensation in Asia, leading it to acquire over 30 million active users, and how you can apply the same strategy at your restaurant to help build brand loyalty to your establishment.

Image via CrunchBase

First things first, if your restaurant doesn’t have a Facebook page than you’re already behind.  It’s not hard to start one, so get on top of it ASAP.  Now to those of you who already have a Facebook page – listen carefully.  The reason that social media sites like Youtube, Facebook and Twitter have became overnight sensations is due to one thing and one thing only – self empowerment.  People want to broadcast their personal experiences to the world – whether it be a video of your child’s first steps on Youtube, or photos posted in Facebook from a girls night out.  Moreover, many people are simply addicted to commenting on friend’s status updates, photos and random material posted on their profile.  In short, social media enables you to go viral – a message can literally spread like wildfire and be seen by thousands of people in a matter of seconds, and the best part is that this is all free!

Now let’s get down to it.  This is how you transform your bricks and mortar dining venue into a social media powerhouse.

Step 1:  Hire a professional photographer.

Step 2:  Have this photographer walk around your bar during busy hours or private parties snapping beautiful pictures of your guests – with their approval of course.

Step 3:  Give the recipients of the photos a card with your Facebook page listed.  Tell them that they can view the pictures on your Facebook page in X amount of days.

Step 4:  Post the pics taken from your venue to your Facebook page.

That’s it.  From here on out the process is pretty much automated.  Everyone want to see photos when they go out.  For one, they’ve spent time and money making sure they look good.  But more importantly, they want their friends on Facebook to see them – so they tag themselves.  Once they do pictures of people having fun at your dining venue are spread across hundreds of profiles!  This is the viral effect.  What better endorsement of your restaurant than people posting pictures on their profiles highlighting how much fun they’re having there.

This strategy help Perfspot become one of the fastest growing social networks in the world.  They started posting pictures from clubs throughout their site and gained more than 30 million users in less than a year.  While I can’t guarantee you get 30 million fans on Facebook, I can guarantee that this will be a much more interesting way to engage your customers, and people will definitely notice!

Cornell University study analyzes online reservations via OpenTable, Dinnerbroker, Magellan and Guestbridge

In March 2009 Sheryl E. Kimes, the Singapore Tourism Board Distinguished Professor of Asian Hospitality Management at the Cornell University School of Hotel Administration, wrote a comprehensive study on How Restaurant Customers View Online Reservations.

Here is the executive summary of her study:

Restaurant customers appreciate the convenience of being able to make restaurant reservations online, but they also like the personal touch of telephone reservations. A study of 696 restaurant customers found that nearly one-third had made an online reservation. Those who made reservations online tended to be younger than those who did not, and online users also ate out more frequently. Those who made online reservations considered those reservations to be significantly more convenient than telephone reservations, and the online users also thought that websites gave more information about a restaurant than what they learned by calling on the telephone. At the same time, those online users felt that they had a better personal connection with the restaurant when they made telephone reservations. This tradeoff between efficiency and service perceptions points to a strategy of offering reservations via both methods. Emphasizing the convenience of online reservations may encourage customers to use the website, and that will give restaurant operators more information about their customers. Whether a restaurant uses a third-party reservation service or builds its own website, one key to ensuring a successful reservations process is to make the electronic process as straightforward as possible.

Professor Kimes offers this chart as a reference to the different options at a restaurateur’s disposal:

Amongst the Professor’s most interesting points is that “restaurant customers appreciate the convenience of being able to make restaurant reservations online, but they also like the personal touch of telephone reservations”, which leads to her conclusion that “this tradeoff between efficiency and service perceptions points to a strategy of offering reservations via both methods.”

Coincidentally, this is vision that led us to the creation of Reservation DC.  By partnering with the first and only full-service Restaurant Call Center, and the most cutting edge Table Management and Online Reservation software, we are able to offer restaurants a solution that increases service, decreases labor costs, and grows business. Instead of being bogged down with demanding phone calls in the middle of your lunch or dinner rush, you can now focus solely on your in-house guests, and let Reservation DC take care of all the rest.

Call Center Cost/Benefit Analysis

The fact of the matter is that restaurants can actually reduce their labor costs by up to 50% by using a professional call center to deal with all their dining inquiries.  How is this possible?  Let me explain.  Instead of paying a host/hostess between $12-$15/hr a restaurant can now employ a full-service call center that will handle all dining inquires at between $4-$6 less per hour.  This approach enables your in-house staff to focus on giving your guests the best experience possible, all the while running a more efficient operation that will increase covers and revenue.  While Professor Kimes is spot on with most of her analysis, the above statistics show that her claim that dedicated call centers are “probably the highest-cost solution” is way off the mark.  As she points out in her study, a dedicated call center improves a restaurant’s level of service and operational efficiency by offering:

• increased reliability
• reduced wait time
• more staffing flexibility
• and improved record-keeping

So far, so good.  Now let’s move on to the online reservation aspect.  As the professor notes, online reservations provide customers with the following benefits: (1) increased convenience, (2) increased control, and (3) a more consistent and reliable reservation experience.  She goes on to write that while online reservations certainly have benefits, many restaurant operators have been concerned about the loss of a personal connection with the guest, the costs associated with the reservations, and the potential loss of business. Let me weigh in on this analysis.  In terms of a loss of a personal connection, my view is that if the online reservation is completed via your own website, and not a 3rd party portal, than the effect of that loss of a personal connection is mitigated dramatically.  As for the costs, let me say categorically that if your restaurant is paying over $500/month for a table management and online reservation solution than you are paying way too much! As for the potential loss of business, this is in the restaurateur’s hands.  Look at this as you would an investment in the stock market – DIVERSIFY!  My recommendation is to explore social media, along with search engine optimization.  Building a Twitter page, maintaining your Yelp profile, and a Facebook presence cost you nothing, and shouldn’t take up more than 5 hours a week.  Furthermore, there is no substitute for a high ranking in Google, so invest in search engine optimization.  If you’re an Italian restaurant in Dupont Circle and you don’t show up in the top 10 search results when someone types “Italian restaurant Dupont

Image via CrunchBase

Circle” in Google than that is a major problem!  Google is viewed by consumers as the #1 trusted brand in the world – your restaurant’s listing in their search results will not only drive you traffic and guests, but it will improve your image dramatically in the eyes of the beholder.

Yelp vs. OpenTable – where should restaurants spend their marketing dollars?

Image via CrunchBase

Since its founding in 1998 restaurateurs have been fed a steady dose of PR in regards to how many diners OpenTable (OT) is responsible for bringing through the front door of their dining venues.  Essentially OT has been telling us that their Web 1.0 portal is the reason your restaurant thrives – well, it’s not like they’re completely lying to us, but do you really believe them?  With the advent of Web 2.0, the ability to cut and paste web applications and place them on 3rd party websites became a breeze.  OT took advantage of this technology to the fullest, now you can see little OT reservation buttons on just about every dining portal, which in turn enables users to make “FREE” reservations.

OT sidesteps the whole issue by not telling restaurants where their traffic originates from, whether it be Zagat, Washingtonian, Washington Post, etc.  The reason is simple – if OT actually told restaurants where their OT reservations were originating from, restaurants would realize that OT isn’t responsible for most of their guests, even though they charge restaurants as if they are.  This article attempts to bring some clarity to this issue by comparing OT with Yelp, and poses the question should restaurateurs start looking elsewhere to get more bank for their buck?

The Yelp-olution

Image via CrunchBase

Before we dig in to study the effect Yelp has had on the restaurant industry, a few things you should know about this social media powerhouse:

1. Yelp was founded in 2004
2. As of June 2009, more than 22 million people visited Yelp in the past 30 days
3. Every business owner (or manager) can setup a free account to post offers, photos and message her customers
4. Yelp makes money by selling ads to local businesses – you’ll see these yellow, clearly labeled “Sponsored Results” around the site

Basically, Yelp and OT cater to the same end users, albeit at a completely different scale.  A modest estimate has Yelp’s internet traffic at more than 20 times that of OpenTable.  So basically, if I’m a restaurateur, I’m asking myself why I spend an absurd amount of marketing dollars for OT when I could be reaching a much wider audience by advertising on Yelp?!

Let’s take a closer look at the numbers:

Unique Visitors for yelp.com – from 06/2008 to 06/2009				Unique Visitors for opentable.com – from 06/2008 to 06/2009
Date	Unique Visitors	Growth		Date	Unique Visitors	Growth
Jun-08	16,158,308	9.77		Jun-08	1,128,049	-5.44
Jul-08	17,750,595	9.85		Jul-08	1,206,221	6.93
Aug-08	17,651,211	-0.56		Aug-08	1,261,788	4.61
Sep-08	17,287,940	-2.06		Sep-08	1,161,884	-7.92
Oct-08	20,358,188	17.76		Oct-08	1,119,624	-3.64
Nov-08	20,015,289	-1.68		Nov-08	1,207,076	7.81
Dec-08	21,319,137	6.51		Dec-08	1,481,462	22.73
Jan-09	22,853,534	7.2		Jan-09	1,898,623	28.16
Feb-09	20,524,120	-10.19		Feb-09	2,134,914	12.45
Mar-09	25,304,719	23.29		Mar-09	1,645,418	-22.93
Apr-09	23,979,266	-5.24		Apr-09	1,657,138	0.71
May-09	25,287,091	5.45		May-09	1,805,237	8.94
Jun-09	25,689,067	1.59		Jun-09	1,641,762	-9.06

Basically, there’s no comparison.. Yelp dwarfs OT in total eyeballs + it is growing at a rapid pace with just about 10 million new users over the past year alone.  Now for the kicker..  Not only does OT attract far less users than Yelp, but most of the end users actually originate from your own website or 3rd party websites that link to OpenTable!  Essentially, by linking up with the OT button on your website, you’re driving traffic away from your own site – a BIG NO-NO in the advertising world.  Why let your potential customers go to a portal that offers reservations at hundreds of other restaurants in your direct area?  Not only are you driving your users to a portal where you can actually lose them, but you’re helping OpenTable build brand loyalty to YOUR customers.  So let’s get this straight – not only are you being charged $1/cover for OT diners, but that diner is no longer loyal to your establishment.  The most ludicrous thing about this is after you pay OT for that diner, they in turn give that user a gift certificate to a restaurant of their choice.  This is clearly a Win-Win situation, for OpenTable of course..

Now with all that being said, why do restaurants continue pouring so much money into a solution (OpenTable) whose value proposition is vastly overrated.  There is only one answer – FEAR.  The notion that you will lose your current OT customers if you jump ship to another table management solution is a farce.  The fact is that in this day and age of search engine optimization through Google (SEO), and all the social media outlets out there such as Twitter, Facebook, and YouTube, you can launch a viral campaign that will cost you peanuts and get you an equal amount of butts in your seats, if not more.  The numbers above don’t lie, and with the dark days of the recession still looming, it’s time for restaurateurs to reconsider their options.

Related articles:

• LetsEat.at Helps Local Restaurants Build Targeted Websites (mashable.com)
• How to Get Your Free Business Listing in Yelp (growmap.com)
• The Changing Face of SEO (ducttapemarketing.com)