Restaurant reservation specialist OpenTable (NASDAQ:OPEN) was recently acquired by Priceline (NASDAQ:PCLN). As a result of this merger, the likes of Groupon (NASDAQ:GRPN) and Yelp (NYSE:YELP) will now face serious threats to their business. Let us see what OpenTable will bring to Priceline's business, and why it is a smart acquisition.
The rivalry is heating up
OpenTable is seeing good growth in its business. When the company reported its first-quarter results in May, it revealed an 18% jump in revenue and a marginal increase in the net profit. However, this improvement is nothing when compared to Yelp's impressive revenue jump of 66% in the first quarter. Now that Yelp has announced that it will allow restaurants to take bookings without charging any fee through Yelp Reservations, OpenTable is under threat.
Yelp had acquired restaurant reservation service SeatMe last year for $12.7 million, and it is now leveraging it to strengthen its presence in the market. Restaurants will need to just "claim" their Yelp profile page in order to use Yelp Reservations for free. Yelp believes that this will bring more restaurant partners into its fold, and they will eventually use other services.
OpenTable has more than 31,000 restaurant partners across the globe, with the majority being in North America. Restaurant reservation accounts for around two-thirds of its total revenue, so the move by Yelp looks like a big threat. In addition, earlier this year, TripAdvisor (NASDAQ:TRIP) also made a big move in restaurant reservations by acquiring European restaurant reservation service LaFourchette in a deal worth $140 million.
This acquisition brings a network of more than 12,000 restaurant partners across Europe to TripAdvisor's table. In addition, LaFourchette will add new content and features to TripAdvisor's platform and allow it to tap new markets. TripAdvisor has already integrated the acquisition into its platform by providing restaurant availability search in its city pages for destinations.
Why OpenTable is a smart acquisition
So, OpenTable will help Priceline extend its lead into a new market. The company seems to be doing well already as it seated 46.7 million diners in the first quarter, a 25% increase over last year.
To sustain this level of growth, OpenTable is focusing on adding more features. In late February, it began selling Guest Center, its next generation cloud-based hospitality solution for restaurants. The company says that this feature has become quite popular among new and prospective customers, driven by an elegant design as well as a flexible structure to deliver an intuitive, reliable, and fast experience.
Moreover, Guest Center takes half the time to setup as compared to its other solution, Electronic Reservation Book (ERB). OpenTable also says that Guest Center customers are a third less likely as new ERB customers to contact for additional support after the initial setup. So, OpenTable's cloud-based solution seems to have got off to a good start and might help it compete effectively against TripAdvisor and Yelp.
OpenTable is making strong moves in marketing. It has hired a number of domain experts in the areas of acquisition, engagement, and mobile marketing. In the second half of last year, OpenTable started testing performance marketing push up its organic reservation growth. Due to this initiative, it has seen some strong improvements in efficiency, while steadily increasing the scale of its campaigns. For example, it lowered its cost per booking by more than 20%. OpenTable is also testing new acquisition channels such as re-targeting and paid social advertising.
Also, as reported by CNN Money:
"OpenTable is a great match for The Priceline Group. They provide us with a natural extension into restaurant marketing services and a wonderful and highly-valued booking experience for our global customers," said Priceline CEO Darren Huston.
OpenTable will operate as an independent business led by its current management team within The Priceline Group, according to the companies."
Groupon under threat
Groupon will now come under direct competition with Priceline. Groupon had added restaurant reservations to its portfolio last year. According to a Bloomberg report:
"Groupon Inc., the biggest daily deal website, is adding an online restaurant-booking service offering discounted meals as the company seeks to bolster revenue amid waning demand for its Web-based coupons.
The service, called Groupon Reserve, will let customers use Savored.com's reservations engine to find tables, Chicago-based Groupon said today in a statement. It's starting in 10 cities including New York, Los Angeles, San Francisco and Washington and will expand in the U.S. and overseas by the end of 2013.
Groupon, which started out promoting discounts via e-mail alerts, is challenging existing reservation services by companies such as OpenTable Inc. as consumers are buying fewer daily deals. Unlike other Groupon discounts, the restaurant platform will give users a discount off their bill without requiring pre-payment or vouchers."
Hence, Groupon's restaurant reservation business will now face threat due to Priceline's scale and size, as it will be able to leverage OpenTable's technology into its own business. It provides online hotel reservation services across the world with approximately 425,000 properties in 190 countries.
There is no doubt that OpenTable is doing well and it is trying to get better with new features. The company's focus on marketing and making its products better should assist Priceline increase its addressable market. Moreover, Priceline's size and the scale of its operations will allow it to use OpenTable's technology to its advantage, and hurt Groupon going forward.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.