“He who exercises no forethought but makes light of his opponents is sure to be captured by them.”
The largest publicly-traded company that offers on-line restaurant reservations is OpenTable (NASDAQ:OPEN).
Prior articles have detailed potential competition in this growing market niche -- which is becoming even more compelling now that mobile search is growing rapidly. Google now says "40% of mobile queries are related to location." OpenTable recently seated its 15 millionth diner via mobile.
However, OpenTable's business model -- which is “free” to diners -- actually costs the restaurants about $1.00 per seated diner, plus monthly fees depending on which plan is chosen.
In other words, restaurant diners pay indirectly for online reservations through higher restaurant overhead.
FREE RESTAURANT RESERVATIONS PLUG-IN
On-line restaurant reservations just got substantially less costly – It’s now truly free.
The second largest restaurant bookings company in the world has unveiled their Freebookings.com offering which appears to be a totally free restaurant reservations plug-in. (This means both free for the diners and free for the restaurants).
This will dramatically change the competitive landscape for the likes of OpenTable and others who offer online restaurant reservations for substantial fees to restaurants.
A widely-available free reservations plug-in could stifle future growth of new restaurant clients using paid online reservations. And it could cause significant attrition among existing paid clients.
With over 20,000 restaurant clients -- mostly in the U.S. -- OpenTable is the largest online restaurant reservations company in the world. Thus, OpenTable has the most turf to protect. Freebookings is offered by Livebookings and is the second largest online bookings company in the world with over 9,000 restaurant clients, so it’s no small contender.
Apparently Freebookings hopes to attract customers to their more comprehensive pay-for-service restaurant offerings such as emailing specials to a list of frequent diners, for example.
So for those of us who've been wondering what's in it for them, that's the answer. It's no different than a store offering "price leaders" as bargains to entice customers -- only in this case, there is no price.
A US-ONLY FREEBOOKINGS OFFERING AIMS DIRECTLY AT OPENTABLE
On the Freebookings Facebook page, there’s mention that:
"... the service is only available to US restaurants, and at this time we have no schedule for launching the product outside of the US."
So it now appears Freebookings is NOT cannibalizing their core business in Europe where most of their 9,000 clients are. Rather, they’re taking aim at OpenTable’s primary turf in the US with their free reservations model.
"FREE" IS THE ULTIMATE IN PRICING PRESSURE
When competitors lower their costs, it causes pricing pressure -- and then operating margins subsequently decline.
With the new Freebookings development in the reservations niche, questions arise about whether it will be difficult for OpenTable's 10-year old pay-per-seated-diner model to overcome pricing pressure.
After all, "free" is indeed the ultimate in pricing pressure ...
Commentary here on the pros and cons of this latest development in the online restaurant reservation niche are welcome!
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GOOG over the next 72 hours. The author makes no warrant for the accuracy of the content herein other than the links provided to traditional online sources of information for verification purposes. Additionally, investors shall not take any comments stated herein as advice to buy or sell any equities and if investors do so, they acknowledge that they have done their own proper due diligence and proceed at their own risk.