OpenTable’s (Slow) Move into Restaurant Advertising

Like it or not, OpenTable and the US restaurant industry are entwined in a way that may be near impossible to unravel. Yet, unlike Yelp, OpenTable has been somewhat conservative in incorporating advertising into their business model.

Certainly, OpenTable, which has a similar conflict in interest as Yelp, can learn from Yelp’s mistakes that played out in the national media.

Still, OpenTable only earned a modest $4 million in advertising in 2010. Most of that was from restaurants who paid the exorbitant $7.50 per customer who reserved on OpenTable rather than the normal rate of $1. These promotional listings give OpenTable bonus Dinner points which they can redeem to get Dinner Checks. The jury is out on the effectiveness of these promotions in the long run.

Let’s talk about OpenTable promotional listings for a second as it is important to restaurants. The real issue is not however the price as many restaurant can stomach the charge because as customers need to make a reservation to receive bonus Dinner Points, thus committing themselves to actually dine at the restaurant. We are more concerned about whether OpenTable provides these promotional listings to customers who already have reserved at the restaurants that advertise or are the promotional listings only available to new customers. There is really little point for restaurants to go after customers who already dined at that restaurant for a fee of $7.50.

But OpenTable has other possibilities. OpenTable, however, has not incorporate 3rd party advertisements in their website. This is of little relevance to restaurants except that it may offset the charges the restaurants absorb through reservations (or keep them from rising). What is more critical is if OpenTable, like Facebook, starts using targeted advertisements based on the reservation behavior of the OpenTable user.  OpenTable has all the necessary information to take this step, and it would greatly increase the effect and desirability of advertising through OpenTable.

Cities are big places with numerous options (so are the suburbs nowadays too), but if an algorithm by OpenTable picks up a pattern from a particular customer, such as a customer loves sampling Italian restaurants in south Boston, it will multiply the potential of the the customer taking up the offer and placing a reservation. Indeed, promotional newsletters that vary based on the customer can also be places where customers’ dining preferences are anticipated.

What would be a mistake is if OpenTable shared this information with third-parties. Facebook and Google, being Internet giants, were able to weather the storm of privacy blunders (after humiliating apologies). OpenTable is much more vulnerable, and would be better off if they created products and services from this information, diversifying their revenue.

It is only a matter of time before OpenTable will catch on and expand their advertising capabilities. With that in mind, restaurants should pay attention for opportunities because if a restaurant pass a chance up, the advertising wills soon become defensive and ineffective when your competitors are placing advertisements alongside your own.