OpenTable also offers a rewards program, which allows end users to collect points that can be redeemed at participating restaurants. To reach a wider range of end users, OpenTable has a popular mobile app that is available on iOS, Android, Windows and BlackBerry devices.
OpenTable’s site also features user reviews of its listed restaurants, which puts it in indirect competition against local business review site Yelp. OpenTable Inc (NASDAQ:OPEN) is also indirectly competing with Google and Facebook, which have both been expanding into localized review services.
Yelp, which generates revenue through display advertising, is younger than OpenTable and far less profitable. During its first quarter, Yelp remained in the red with a net loss of $0.08 per share, while revenue soared 68% to $46.1 million. Although Yelp boasts over 102 million monthly unique users, the company is trying to weed out fake reviews, and to defend itself against accusations that it extorted local businesses into purchasing display ads in exchange for removing unfavorable reviews.
When compared to OpenTable, Yelp’s foundations are far less secure. OpenTable has an established, focused reputation as the largest online restaurant reservation site in America, while Yelp is a sprawling all-in-one search site for local businesses.
OpenTable’s premium service is a valuable tool that restaurants can use to track all aspects of its business. Yelp, on the other hand, simply sells display ads. OpenTable Inc (NASDAQ:OPEN)’s business model is difficult for even Google to duplicate, and its partnered restaurants would be reluctant to hop on board with unproven competing services.
By comparison, Yelp’s localized review service and display ads business model can easily be copied by either Google or Facebook, both of which now offer location-based review services. Google’s service is integrated into Google Maps, while Facebook allows users to search for local businesses reviewed by friends, as opposed to strangers.
In 2011, Google realized that OpenTable Inc (NASDAQ:OPEN) was evolving into a major threat, so it purchased popular dining ratings authority Zagat. That purchase canceled out Yelp’s amateur reviews with professional ones, but only had a limited impact on OpenTable, since it still didn’t give Google a viable online reservations system to work with.
While Google Android users can search for local restaurants via Google Maps, read the Zagat review (if available), and then directly make a phone reservation, that process pales in comparison to OpenTable’s seamless one-click reservations from its mobile app. RegardingFacebook, it’s the same story. Facebook’s location-based reviews can link to phone reservations, but not online ones. Therefore, OpenTable is considerably well-protected from future disruptive threats from either of these companies, while Yelp could become completely irrelevant.
To further neutralize Facebook’s threat, OpenTable Inc (NASDAQ:OPEN) released a Facebook app earlier this year that allows users to share their dining histories across an interactive map. OpenTable also recently acquired popular food discover app Foodspotting for $10 million, which allows users to share and search for pictures of specific dishes. While Foodspotting will remain an independent app, Opentable is incorporating the app’s meal recommendation and sharing features into its mobile app to offer a more visual and social experience.
People flock to Facebook since that’s where all their friends are. They use Google because it consistently produces the highest-quality search results. In that same way, people are using OpenTable Inc (NASDAQ:OPEN) because it offers the widest selection of reviewed restaurants with one-click reservations.
OpenTable’s business model benefits both restaurants and end users, and is a difficult one to completely replicate. Therefore, with a strengthening mobile base, it will continue to hold its ground against other challengers, and eventually the only way to compete with OpenTable may be to acquire it. This could be a distinct possibility, since Google, Yahoo and Facebook all have much to gain from integrating OpenTable’s customer base.
Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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