Fast Company has an article this month about the effect that Open Table has on restaurants. Open Table, of course, provides a computerized reservation service. According to the article, "Restaurants are charged $199 a month for each OpenTable terminal they use for table management and customer tracking, as well as $1 for every diner who books a seat through its site and 25¢ for diners who come through the OpenTable widget on the restaurant's home page." Like many smartphone users, I have the Open Table app on my iPhone, and I find it very convenient to examine reviews when I'm traveling and to make reservations. The article questions, however, whether restaurants actually benefit from Open Table. Do more people eat out, or eat at a particular restaurant, because it uses Open Table's reservation system? Do the benefits exceed the costs? The article explains the concerns of some restaurants:
"OpenTable's high fees in the restaurant industry's world of slim margins only raise the stakes in the debate. "When I look at other IT systems in my restaurant -- my point-of-sale system, my telephone system -- those take up about 0.1% of my annual revenue," says Mark Pastore. His blog post explaining why he doesn't use OpenTable at Incanto, his San Francisco Italian spot famous for its offal-heavy menu, kicked off an industrywide debate late last year. "OpenTable is going to cost me at least 2% to 3% of revenue." Many restaurants make less than 2% in pretax profits. OpenTable, Pastore says, is eating away at many restaurants' only income."
I think the question is not simply whether Open Table increases restaurant revenue or not. One also has to look at the cost side. Do the restaurants save money by using Open Table? The article points out that some restaurants believe that they save labor costs, because fewer reservations require a conversation with a staff member. Other costs may come down as well though. For instance, perhaps the use of Open Table, coupled with smart use of other social media and web technologies, can reduce marketing expenditures for some restaurants. If so, then the costs may exceed the benefits. Still, the article raises a very interesting question: Do intermediaries always facilitate transactions in a way that is beneficial to both parties, or might the costs they impose actually exceed the benefits for the seller in some circumstances?