OpenTable's (OPEN) near-monopoly over the online reservation business is just about over, thanks to new competition from two powerful competitors.
Last week, Groupon (GRPN) unveiled Groupon Reserve (http://www.groupon.com/reserve/los-angeles), an online reservation and coupon service for high-end restaurants. Purchasing a voucher through Groupon Reserve presents diners with a free reservation and up to 40 percent off their check, which is automatically priced into the bill. This not only provides customers with dining convenience, but also eliminates the embarrassment of telling the waiter “I have a Groupon!” in the presence of a powerful client or significant other.
"As Groupon has evolved, we've seen growing demand from our customers for upscale offers and exclusive experiences, said CEO Eric Lefkofsky. "Reserve provides these businesses with a yield management solution to bring customers through their doors at the times they need them the most.”
On Friday, a third major competitor entered the reservation mix after Yelp (YELP) acquired SeatMe, a web and iPad app service for restaurant and nightlife reservations. The company enables customers to book reservations and receive text messages when their table is ready, and is best known for skills in web design. The deal is believed to be worth $12.7 million in cash and stock.
“We believe SeatMe will add online reservation capabilities to a broader market while complementing our existing partnerships,” said co-founder and CEO Jeremy Stoppelman. “Additionally, SeatMe provides us with yet another way to close the loop between local businesses and consumers."
With the acquisition, Yelp is attempting to evolve itself into a one-stop destination for all things pertinent to restaurants. The acquisition may also mark the beginning of the end for Yelp’s cordial relationship with OpenTable, which helps power Yelp’s online reservation service. With a growing belief that Yelp's growth is accelerating and is on the verge of taking a bite into OpenTable’s reservation market share, Yelp shares jumped 6 percent to $42.13 on Friday, an all-time high.
While it may appear that Open Table is about to become overpowered by new competition, the company still has relative dominance over the entire market and still boasts respectable earnings growth. During its first quarter, total seated diners grew by 25 percent and revenue grew by 16 percent year-over-year, sending the stock up 64 percent during the period. Simply put, Oepn Table remains the king of a rapidly growing industry.
However, there’s no denying that Open Table is no longer the only game in town. On the news of the Yelp acquisition, investors speculated that Open Table could suffer from this heightened long-term competition. Consequently, shares fell 4.5 percent to $63.69 on Friday.
