Online restaurant reservations services entered the e-commerce scene two years with an offering that puzzled consumers. These restaurant patrons just couldn't understand why using the Web would be an improvement over placing a phone call. Logging on isn't any faster than calling. And the Web eliminates the personal give-and-take between a potential diner and the maitre d'.
About 20 Web companies have grappled with this same question, and a few have, unsurprisingly, gone by the boards. Chief among these was Foodline.com, which filed for bankruptcy right before the New Year, after burning through $13 million. ESeated.com was another casualty. Even OpenTable (dossier), a well-regarded startup that garnered $42 million in fourth-round funding last fall, announced that it was laying off 25 percent of its staff in December to cut costs.
It's tempting to read these failures as an extension of the trouble afflicting all startups. But boosters of online reservations services concede a more specific reason. "None of us are overwhelmed with the speed of adoption," acknowledges Amy McIntosh, new CEO of the Zagat Survey, a restaurant guide publisher that has invested in and partnered with several online reservations services, including Foodline.
Still, McIntosh remains "bullish" about prospects for this new kind of business - and for good reason: The offerings appear to be changing in ways that could substantially benefit consumers and consequently drive more traffic to the Web. Companies are infusing greater value into their reservations services with improved search functions, deep discounts, points programs and fee-based seating options - all the right reasons to kick the phone habit and go online.
Some examples:
Efficiency: OpenTable's search function has gone a long way in saving users time, especially when seeking last-minute reservations. It allows them to search simultaneously by neighborhood, price and desired hour, and the search results are presented in a single-page format to make comparisons easier.
Access: DinnerBroker.com provides scarce reservation time slots to customers (for a fee of $5 to $10 per seat)
Carrots: DinnerBroker.com also offers 20 percent to 30 percent off the bill for meals served at off-peak hours. "During a market downturn, we expect discounts to become even more important for upscale restaurants," says DinnerBroker CEO Ben Dehan. Meanwhile, OpenTable is currently testing a dining rewards program scheduled for launch later this quarter. Consumers reap the rewards of dining off-peak by collecting points for vouchers redeemable at any restaurant in the OpenTable program. And Transmedia Network (TMN), a credit card company that offers rewards programs, recently launched iDine.com, a site that lets members make online reservations for times when restaurants are seeking to increase traffic. IDine rewards can include a 20 percent discount on the bill, points for complimentary dining at other restaurants and airline miles.
Largely due to Transmedia's original offline business, iDine has 7,000 member restaurants in 50 metropolitan markets - arguably the biggest selection in the business - plus 4.1 million enrolled members. "I would say there is nobody else in the marketplace that does what they do," says Robert Renck, a New York equities analyst who has been closely monitoring the publicly held company's transition to the Net, along with its balance sheet. "There are people who compete in reservations. But there is no national direct competition (matching its reach and incentive offerings for both consumers and member restaurants). I think this transforms the business." Not to mention beating the hell out of being put on hold.
