Russian Sledges

Resos vs. Access Apps vs. Tix: More Than You’d Ever Care to Know

Ticketing for restaurants has been in the news a lot lately.  Here are just a few articles:

Ticket to dine – the restaurant reservation revolution

Are restaurant tickets the new reservations

Alinea’s ticketing system soon commercially available

It took a while for the media to catch up – and for start-ups to get in the game – but in fairness it was reported a while back as well:

Business Week

How Nick Kokonas is shaking up fine dining

New York Times

It’s been interesting to field the recent influx of emails and calls from the press, app developers, established software companies, and a handful of VCs.  Ticketing for restaurants – and more generally variable and/or dynamic pricing – is something that we’ve been wrestling with for years.

And the press articles have been frustrating to read, simply because they never include real data and they miss the differences between ‘tickets’, ‘reservations’, and ‘pay-for-access apps’… all of which are very different and have different implications for restaurants and customers alike.

This is my attempt to outline exactly what we’ve done with restaurant tickets, why it’s interesting, and the results of the experiment… along with real data from our restaurants.  People tend to treat business data as something that shouldn’t be shared, but I don’t really see the harm in openly examining the data.  So the numbers provided are the real numbers from Alinea, Next and the Aviary.

First, some background and psychology.

The Background Story – Warning:  Long

We began selling tickets right when Next opened in 2011.  It seemed, at the time, risky and speculative to open a restaurant and at the same time pioneer a new way of booking customers.  But after watching the absurdity that was the Alinea reservation telephone lines day after day for years it seemed worth the risk.  There were massive problems with the traditional methods of taking reservations over the phone:

• A high volume of calls, especially around the days we would open a month’s reservations book, meant that callers often could not get through.  One time so many people called that the entire 312-867 exchange went down.  AT&T asked us if we were running a Groupon.  Ha!
• 3 full time employees answering phones, mostly to say ‘no’ to potential customers since 70% of people request the same times:  Friday and Saturday prime times.  This was costly payroll, costly phone lines, and, most importantly, frustrating to the callers.  Saying ‘no’ to a potential customer is never a good thing.
• No shows running at around 8% or more, depending on the time of year, meant that both potential customers on the wait-list and the restaurant itself were unfairly penalized by a small and thoughtless minority of diners.  This cost the restaurant several hundred thousand dollars per year in revenue.  And unlike an airline a restaurant cannot double book a table (or should not, some of course do just that).
• Voicemail boxes with 100+ messages meant that it was a full-time job just to retrieve and call back customers… often to say that nothing was available or to play phone tag for days.
• Customers felt like they were being lied to.  How could you be booked 2 months out on a Thursday?  There was no transparency to the system.

As an outsider to the restaurant industry this seemed to me a very antiquated way of doing business.  There were of course software programs to address the management of information about a customer and their booking, most notably OpenTable but also some small, less known start-ups.  Back in 2004 the process of purchasing the software, setting up the system, leasing hardware (!), training staff, and using the system felt very much stuck in the 1990’s – today it feels even worse!  It was a bit like an IBM salesman from an 80’s movie coming to sell you enterprise software complete with the sales brochure, your ‘package’ options, a wink and smile.  And of course these systems were ‘sticky’ in the sense that once you became a user you tended to stick with the system you bought – after all, your customer information and reservations for the next several months, as well as your customer history, are already in that system.  That bodes well for the business selling the software, but very poorly for any future innovation or features, an open API option, extensibility, or adoption of new hardware such as tablet computers.  Change would be slow to come and would only happen if the business itself were threatened.

There was also friction from within our own company.  Alinea was the first restaurant I was ever involved in and our own managers viewed me as an outsider to hospitality – and in many ways rightly so.  When I said, “We should just sell tickets,” it was mostly laughed off completely.  The attitude was – that’s not fine dining, that’s not hospitality, that’s not soigné.

The concept of Next was so far afield of a normal restaurant that it was an opportunity to do something very different with the booking process.  Though I hadn’t the faintest idea how we would sell tickets, Grant and I included the line:  “Tickets, yes tickets, go on sale soon…”  in the announcement ‘trailer’ for Next.  That was meant to do three things:  1) gauge the reaction from potential customers; 2) create interest and controversy; 3) force us to actually follow through.

(see  the 1:17 mark for the ticket announcement, in full vaporware form)

I assumed at the time, about a year before we opened, that I would simply adopt the ticketing software from a theater system, sports ticketing software, or event tickets to use at Next.  But it was immediately clear that none of these would work.  Restaurants have a very different type of seating template than a theater show or sporting event.  None of the ticket software systems met even half of our needs.

I then contacted a number of the existing reservations software companies to ask if they wanted to either open their API to us, or partner on creating a ticketing extension to their system.  All said no.  Actually, no is too kind a word.  Dismissive is far more accurate.  One of the big players told me, “We studied that years ago and concluded no one wants or needs it.”

Finally, I contacted several developers I knew personally.  They all found it to be an ‘interesting problem’ but also a difficult and expensive one to solve without a clear business plan.

About six months before Next was due to open I hired a single programmer and laid out visually, as a flow chart, what the system needed to do.  Talk about a lean start up model!

Fast-forward to a few days before Next’s opening night and we still hadn’t fully tested the system.  Building the software proved to be far more involved than either of us had imagined.  As well, 18,946 people had signed up to be notified when tickets went on sale, the press was hounding us about the opening, the usual pressures of building the restaurant and the opening night (just like the TV shows depict!) were on our shoulders, and one really important guy – chef Grant Achatz – kept calling me to ask how many people were going to show up for our first service.  All I could say was “Plan for a full house,” but really I had no idea.  When Grant pointed out to me that we didn’t even know if anyone would buy a ticket, ever, for a restaurant all I could say was, “What do we have to lose?  If no one buys a ticket we just open the phone lines and take reservations.”  That we had no phone lines ready was something we neglected to talk about.

Despite bugs, website propagation issues, and everything else that could possibly go wrong on a software launch – on the very day of the Next opening – tickets went on sale.  So many people logged on and bought tickets so quickly that I simply couldn’t believe it.  The table codes would turn from GREEN (unsold) to RED (sold) on a page refresh literally the instant I ‘unlocked’ a table.  I immediately called Grant:  “You have to come to my house, now.”  Grant responded, “We’re opening a restaurant tonight, I can’t.”  “Please come now.”  “No.”  “You must.”  He did.

I showed Grant how to click on a table on the calendar page to ‘turn on’ a ticket for a table.  He did and it turned from YELLOW to GREEN.  I then refreshed the page and it was RED.  “What happened,” he asked?  “It sold.”  He did it again, this time 2 months out on a Wednesday night at 9:30 PM.  Same result, instant sale.  “There are 8,432 people on the system hitting the refresh button right now chef.  As soon as you unlock one, it sells.  Here, look.”  I opened another window with our credit card processing transactions listed.  $ 57,293  in sales in the first hour of the system.  $ 358,483 in the first 24-hours.  Two days later $563,874 of revenue was in our bank.

It seemed that patrons would indeed buy tickets to a restaurant.  A few months later I took this video of 72 tables being sold for the last few weeks of our Paris 1906 menu.

(There is no way anyone could ever do that over a phone.  It would take an army of reservationists and a totally new kind of reservations software.)

Alinea moved to ticket sales in August of 2012.  Aviary, essentially an a la carte restaurant for cocktails, began selling tickets in November, 2013.  Trois Mec in Los Angeles and Elizabeth Restaurant here in Chicago have been beta testers for over a year each.

About our system and what it does right

That background story is important to understand because it illustrates the problems we are trying to solve and the process of getting there over many years.  As I’ll show below, the current batch of ‘tickets for restaurants’ apps attempt to solve only the customer-access-to-busy-venues issue.  That’s important to keep in mind as it does little to nothing for the restaurants themselves and it feels ‘off’ to the customers.  And the way to get tickets right for restaurants and patrons has as much to do with human psychology as it does with economic practice.

Here’s what our ticketing system does right:

1.  It creates transparency of process for customers and builds trust and loyalty.

I like to say that traditional restaurant reservations are predicated on two people lying to each other.  The restaurant says to the customer, ‘you’re all set for 8 PM for 4 people this Saturday night’ knowing full well that they won’t have turned the 6 PM table by 8 PM… at which time the arriving customer is told to wait at the bar (as depicted so well in the Sex and the City episode below).  In fact, this is actually a strategy for many restaurants.  Let the customer buy a drink before being seated – it’s an upsell and everyone has experienced it.  The customer, having been lied to so often doesn’t feel terrible about not showing up.  After all, there are plenty of people to ‘fill that table’ anyways.  This creates a cycle of subtle mistrust and becomes a problem for both the customer (bad service) and the restaurant (no shows, partial no shows, bad service).

That mistrust continues to the online booking process.  When you go to most traditional reservation systems online to book a table you are met with a default which represents the most popular choice:

DATE  /  7:00 PM /  2 People   :   Find a Table

More often than not when you hit that button the reply is:

There are no tables within 2 hours of your requested time.

<or>

The time you requested is not available.  9:30 / 2 People.

As a customer you see that and do what?  Almost every time I ask that question everyone immediately answers:  I call the restaurant. 

Why?

Clearly, customers have figured out that:  1) the entire ‘book’ is not in the online reservation system;  2)  a host on the phone can be cajoled into giving up a table;  3)  there may be no-shows;  4) restaurants don’t put prime-time tables online using the system to book shoulder times…early and late.

Here’s a typical example.  No tables within 2.5 hours of the standard request.  But even more interesting is the fact that for the whole week only the shoulder tables are available to a standard OpenTable user.  VIP users might see some prime time tables, but more often than not restaurants hold back the prime time for phone reservations so they do not need to pay the money to OpenTable for reservations that they know will for sure sell. (I use Girl and the Goat as an example because it is a popular, hugely successful restaurant and because I like Kevin and Rob… not to pick on them).

A ticketed system that shows the entire evening’s available tables and let’s a user select a table to purchase completely upends these trust problems.  Customers can see the seating template, understand which tables are already sold and which are available, and decide how to act.  They are not asked a question – ‘what is your desired time?’ – and then told “nope… you can have this instead.”  Saying no to potential customers over and over is a terrible thing – just really bad business.

From a restaurant’s perspective it is of course important to ‘hold back’ a few tables.  Inevitably there will be requests from visiting people in the industry, truly regular customers, press, personal friends, and relatives.  Or simply the delivery of xyz product did not arrive this morning and so we can’t service as many people this evening.  When every night is show time you need some pressure valves.  However, I argue that this too should be transparent.  We’ve always said that we hold a few tables back – and then like a theater we sell them as same-night or next-night tickets via social media.  This also allows for out of town guests and spontaneous diners to purchase tickets.

As well, eliminating that follow up call when there is nothing available saves a restaurant time, labor dollars, and yet another moment of distrust – the ‘gatekeeper’ syndrome.

2. It acknowledges that there are better / worse table times, and shifts demands accordingly.

Saturday at 8 PM is by far the most in demand table.  Tuesday at 9:45 PM is definitely not.  Is this at all surprising?  Why don’t restaurants acknowledge this and price accordingly?

Of course, the blue-plate-early-bird-special is nothing new.  Nor is the time restricted Groupon, 10% off Mondays, 1/2 priced bottle of wine on Tuesdays, and a myriad of other promotions designed to get diners in on a slow day of the week.

But such promotions are one-offs and are not a systematic, measurable way of moving demand in the long term or increasing demand slowly over time.  They also do nothing to address the busy times, the need to overbook Friday’s and Saturday’s to ‘make up’ for other days of the week, nor the stress on both staff and customers on those nights.

3.  It moves pricing in TWO directions, which is key.

Discounted nights feel like a desperation move by a potentially failing restaurant and that carries a stigma with the promotion all the way through to the customer.  The “early bird” special is used as a pejorative for dining early with the ‘senior citizens.’  The Groupon for a restaurant is often indicative of ‘soon to close’. Both promotions will get you on the death-pool list quickly.

Conversely… and even more importantly…

Charging a premium simply to get into a restaurant feels wrong as well.  Saying – “we’re so busy on Saturday nights that you can buy your way in” – is a throwback to slipping the old maitre d’ a $50 bill for a table.  Sure you can do that now on an iPhone app but it’s still the same – it feels schmarmy to me (is that a real word?).  You’re forcing a customer to pay for access…. And that’s my big problem with a host of new ‘ticketing’ apps that purport to give you access to the hard to get tables (see below).

Having either static or dynamically variably priced tables by day of week and time – in a fully transparent manner – simply gives customers the option of paying a bit more for a prime time table or saving a bit of money for an off-prime table.  It acknowledges the obvious.

No one pays $ 275 for a good seat at a Cubs game, looks up at the nose bleed seats and complains that it’s not fair that those guys up there only paid $ 25.  People accept the difference so long as the choice to buy either was their own.

4.  It supports the notion that table management should be visually simple for the restaurant managers and the customer alike. And ticket systems need table management!

Here’s a screenshot of our admin-side table management page for Alinea.  It’s so visually simple and informative that I won’t even bother to explain it:

If you want to block a table for any reason, just click on a GREEN table.  Want to unblock, click on the YELLOW tables.  Want to see the pricing matrix?  Just click View Prices.

Here’s the table sales page that a customer sees:

Pretty easy to see what’s available, the price of each, and the dates.  It’s also easy to see what IS NO LONGER available, which is equally important.  In the next version of the software we will keep every sold table and it’s price as an ‘x’ on this page.

And here’s the thing:  easy clear table management, simple template creation, and ticket sales and pricing management is precisely what all of the old reservations systems and new ‘access’ apps lack.  If you try to create templates for a restaurant using a leading system you know how frustrating that can be.  I’ll post a video of doing a whole year of template creation on our system soon.

5.  It creates a direct connection between restaurant and patron.

The ‘network effect’ of OpenTable and other reservation systems that aggregate restaurant reservations on a common network is on its way out.  I don’t see the advantage of joining such a network or the disadvantage of not being included for one simple reason:  Google owns search.

At one time it was definitely the case that if I were looking for an Italian restaurant in a certain neighborhood I would consult OpenTable, read the reviews, and book directly. Now I just use Google or Google Maps.  Google of course knows this and that’s why they bought Zagat.  I’d bet Google will soon begin the reservations game as part of Zagat ratings.

As a customer I get a broader overview of ALL restaurants by not using ANY ONE SYSTEM or APP.   Embedding within one of those systems AND paying the ‘toll’ of a per reservation referral charge is no longer necessary or desirable.  I also don’t want to crowd my phone with 10 different restaurant reservation or access apps.

What is critical is having a direct and AUTHENTIC connection with customers.  This is better accomplished through social media as people can opt-in to following or ‘liking’ your restaurant – and then you exist passively in their social media stream.  This is why for the past 3 years our content for Next has been posted to Facebook and Twitter rather than to our own website.  It is a strategy that has resulted in nearly 100,000 aggregate unique followers who are engaged and passionate about what we do.

The new Apps coming out such as Resy, Table8, FoodForAll, Killer Rezzy, and others (those are just the ones mentioned in the WSJ article) exist as yet another layer between the customer and the restaurant.  They are essentially yet another gatekeeper even though they ‘get you in’ for a fee.  As a customer I’d rather just deal directly with the restaurant – I’m then known to the restaurant personally, get better service, and the restaurant and not a third party app receives the benefit of my spending.  As a restaurant I can better engage with customers, do not have to pay yet another third-party service, receive 100% of the proceeds, and can better control both my image and sales pricing.  The restaurant also should not need to enter information on customers into multiple systems, resulting in increased labor costs for only marginal dollar gains.  I mean, selling a table for $ 20 on an app doesn’t get me much but could incur bad will, extra labor, and an unknown customer.

6. It does not penalize success

Most reservation and ticketing systems charge by the number of customer transactions, the number of restaurant admin users, for equipment, or a combination of all three.  The more business a restaurant does, the more they end up paying.

As a business owner I hate such models.  Adding an incremental user on my end costs a software company nothing – especially one that has a cloud based system.  Leasing touch-screen equipment in the age of the iPad seems downright stupid.

Our system is hardware agnostic.  The only thing we are biased against is Internet Explorer.  Other than that, you can use any platform as a customer or restaurant owner.  And you can have as many tickets sold or users as you wish.

The Results from our Restaurants – And Real Data

I hear a great deal from restaurateurs that “Sure it worked at Next because you’re changing the restaurant every 4 months.  And yes, sure it worked at Alinea because, well, you have so much demand.  But my restaurant is totally different.  We’re not Alinea.”

That’s definitely true.  It’s obvious now, in hindsight, that tickets will work for a certain kind of restaurant – small, chef driven, limited seating per night, high demand, etc.  Next, Alinea, Trois Mec, and Elizabeth are all of that type.

And that’s why we did tickets for the Aviary.

The Aviary

The Aviary is a cocktail lounge… but at its core it runs more like a restaurant for drinks – in fact that’s how our business plan framed the concept.  We have a kitchen not a bar.  The service team runs just like a restaurant.  We can do upwards of 330 covers on a busy Saturday night while doing about 150 on a typical Wednesday.  And the menu is predominately a la carte.

We ran the Aviary for nearly two years without tickets and so we have a ton of data on what our nights looked like before we offered tickets.  And now we’ve got thousands and thousands of tickets sold so we can compare both the guest experience and the restaurant operations in a statistically meaningful manner.

Before Tickets:

• System was walk-ins, emailed / phoned reservations.
• Percentage of customer no shows:  11.8%
• Percentage of customers ordering prix fixe menus:  8%
• Common complaint:  I have no idea how long the wait is on a weeknight so I’m reluctant to go all the way to the west loop only to find out it’s an hour.

Ticket Implementation strategy:

• offer tickets as a DEPOSIT against the cost of the check.  This will allow the customer to know for sure they have a table at the desired time.  This will let the restaurant know that the customer will indeed show up, so we can more tightly manage our seating templates and confidently handle walk-ins.
• offer tickets for our 5-course and 3-course tasting menus.  We consider this the best way to experience the Aviary.  By highlighting them on the ticketing site people can consider the experience before arriving instead of being confronted by the idea on a menu or from a server.  If all regular tickets are sold out, this is another way to get in without waiting.
• keep 50% of all seating as walk-ins.  We want people to feel free to arrive and have a drink or two whenever they wish.  We have lots of capacity every evening and it’s far different than a small restaurant like Alinea where things need to be tightly controlled.

Ticketing Results:

• Percentage of customer no shows:  < 1%.
• Average per customer check: up 13.8% year over year by month.
• We implemented the ticketing system in November of 2013 and the results were instantaneous.
• Our customers liked the ease by which they could book a table.
• Far more customers become aware of our premium tasting menus and ordered them.
• We have almost zero no-shows every night.  Basically, if people buy a ticket to a show they go see the show, even if the deposit is only $20 per person.  This allows us to hold a table for them and eliminate any potential wait they may have had with a traditional reservation.  Thus we can serve them better.  We can also more confidently template the night of service delivering better experiences to every customer while maximizing the potential number of covers and revenue to the restaurant.
• Number of customers has gone up 18% in aggregate and far more than that on weekdays when we had excess supply to demand.
• Revenue is up 22%.  And as anyone who owns a restaurant knows, incremental revenue gains on the ‘back end’ fall to the bottom line more readily than the first money through the door.

Here are some interesting stats:

As you can see our 3-course, 5-course menus year over year have skyrocketed. This is largely because it is easier for people to read about the choices and decide ahead of time.

We’ve had so much success that we’ve begun tweaking the system to charge a larger deposit on Friday’s and Saturday’s and increase the percentage of tickets vs walk ins for those nights.  Note that this is a deposit not paying for access !  People commit to spending at least $20, $35, or $50 but they get that at the same price as any other customer.  They are committing to showing up… but not paying a premium for access.

And that’s one area where the economists, VC’s and access-App creators are wrong.

It is incredibly important for any business, no matter how great the demand, not to charge a customer more than the good or service is worth – even if the customer is willing to pay more.

Economists looked at our demand for Next shortly after we opened and concluded that we should auction tables.  I’m convinced we’d be doing terribly now if we had done that.  All of those early customers would have had a great experience, but would in my opinion have been willing to pay too much… they would have left Next thinking – yeah that was great but it wasn’t worth $ 2,000 – even if they were the ones who chose to pay it.  The same goes for paying directly for access but getting no other good or service in return.

http://cheaptalk.org/2014/01/06/nick-kokonas-is-still-wrong-about-not-using-auctions-at-next/

I really, really disagree with those guys even though I like their blog and thought process.

Variable pricing within a range of value is fair and accepted by a consumer… as illustrated by every form of live entertainment selling tickets or premium seating for travel.  But paying for access alone is not because the discretionary dollar does nothing to improve the overall guest experience, and people know that intuitively.

Alinea

Alinea moved from 7+ years of traditional reservations to tickets roundly 2 years ago.

Every year from April 14 until our Christmas break in December we were 96% booked – in case you’re wondering that’s the exact moment the busy season starts in Chicago, largely due to tourists returning to the city after a long, cold winter.  The waitlists for Thursday through Sunday often exceeded 150 requests even though we told people that they were so far down the list.  We spent roundly $ 140,000 per year on payroll simply to answer phones, enter customer information into a reservation system, and attempt to manage a wait list.

We also lost over $260,000 per year, on average, on no shows alone… with most of those being partial no-shows – so called “Short-Sat Tables”.  A party of 4 that books not knowing who they’ll be bringing along… then brings no other couple is just as bad for a restaurant as a party of 2 that does not show up at all.   That customer doesn’t feel ‘guilty’ because they showed up.  But they don’t realize that we held a table of four instead of a table of 2… and that we can’t simply call one of the 100 people on the waitlist with 10 minutes notice and expect them to show up.

Our ticket implementation strategy at Alinea was to create a “higher-touch” system than we had previously used at Next.  Every customer buying a ticket at Alinea must include a cell phone number where we can reach them.  About a week before they dine with us we call every customer to thank them for buying a ticket to Alinea, ask if they have any dietary restrictions or special needs, and generally get a feel for their expectations and whether it is a special occasion.  We can, in fact, spend more time (not less) with every single one of our customers because we are only speaking with the customers we know are coming to dine with us.  Previously, we answered thousands of calls from people we had to say ‘no’ to.  Now we can take far more time to say ‘yes’.

The results on Alinea’s business are staggering.  Bottom line EBITDA profits are up 38% from previous average years.  No shows of full tables are almost non-existent and while partial no-shows still occur they are only a handful of people per week at most.  That allows us to run at a far greater capacity with less food waste and more revenue.

Here are the numbers of no shows for 2013:

20,050 diners served for the year.

302 No shows or 1.48%.  Almost all of those were ‘partial no shows’.  And of course as the restaurant we collected that payment for the food up front.

And here’s the resulting chart that shows the CHANGE in the number of Short-Sat no-shows at Alinea

Definitely a dramatic improvement at the very moment we switched to tickets.

These are remarkably similar to Next’s numbers:

• 23,288 dined
• 364 no shows, or 1.54%.  Again, very few full table no shows… only 5 on the year.

The restaurant was losing hundreds of thousands of dollars simply from people not showing up.  We’d far rather people come, eat and enjoy and this system encourages that.  Keep in mind that we can actually charge everyone less and create a better experience through this efficiency.

And if you think that pricing variability does not matter on the high end you’d be wrong.

During January – April the percentage of out-of-town diners goes way down in Chicago and along with it demand plummets.  It’s pretty miserable here in February and dining at 9:30 on a Wednesday night when it’s -22F outside is not really on anyone’s bucket list.  That’s when we move our pricing downward to inch demand upwards.  Doing so has resulted in the best Q1’s we’ve ever had by far… in fact, I can’t give you a percentage because a typical January for us was break even at best.  Now it’s not July, but it’s running 12% to 15% to the bottom line each month of Q1.

Finally, Super Bowl Sunday.

This past year we had 28 diners booked on Super Bowl Sunday.  Makes sense.  There are always a few days per year when dining at Alinea is not a priority for people.  Oscar’s Sunday.  July 4^th.  And the Super Bowl.

As of noon that day it looked like a losing day for us.  We still have about 30 chefs in the kitchen working, and the front of house is doing their side work and cleaning up.  Our costs have not changed.

At about noon I tweeted “Don’t care about football tonight?  Come eat at Alinea instead.  $ 165 super bowl special.”  We re-priced the tickets at roundly 35% off and did 74 covers that evening.  $ 23,800 of incremental revenue, after food and beverage sales, and service.  Not a normal night, but not a disaster.

And here’s what most restaurateurs and chefs don’t think about.

There’s an old saying that you don’t take percentages to the bank.  Most restaurants look at food costs as a percentage of gross revenue.  And that can be useful so long as you don’t bog yourself down in it.  Our food costs run far higher when we lower ticket pricing, but our revenue and bottom line go way up.  Incremental revenue increases are far more important than running a constant or low food cost percentage.

So if this is so great why is no one else implementing the idea?

I fully expected OpenTable to copy the tickets once I saw how readily people adapted to them and how beneficial it was for our restaurants.  And I knew that they could crush us… tons of developers, multi-billion dollar market cap, and a huge install base.  So we built it for our own restaurants and concentrated on servicing our customers and making our money that way, not through software.

When that didn’t happen I started to think about it more critically.  And I looked at their Annual Report.

Here’s all you need to know – 2012 Year End:

• Total revenue:  $161.6 million
• Revenue from Reservations, North America:  $ 78.9 million.
• Revenue from Reservations, International: $ 12.1 million.

If OpenTable changes its model they miss out on roundly $ 91 million in revenue… or put another way, about 56% of their revenue stems from charging restaurants for booking reservations.

It is very much NOT in their interest to have restaurants connect directly with customers through social media.  It is not in their interest to have tickets reduce the number of no shows.  And with about another $15 million in revenue (from what I can tell, it’s not specific) from equipment leases they won’t be selling iPads independent of old servers and touch screens any time soon.

As for the rest of the start-ups they are trying to carve out a niche to add a layer on top of OpenTable rather than compete directly with them.  A few have created new and better systems that touch on the ticketing concept… I’d put SeatMe on that list – and that’s why they recently got bought by Yelp.  But for the most part the reservation systems that try to compete directly with OpenTable lose.  So the VC’s back companies and apps that try to layer on top of OpenTable.  And as a restaurant owner it strikes me that very few of these people have ever owned and operated a restaurant because if they did they’d be concentrating on a different method entirely.

It also strikes me that they’re only trying to solve their own problem of ‘access’.  The thought is:  yeah, I’d pay $ 50 extra to go to Per Se on short notice this Saturday night.  And certainly a lot of people are willing to do that.  But that’s only applicable to a minority of restaurants and their willingness to share that incremental revenue.  I’m not so sure why, other than convenience and a few extra dollars, they’re willing to do that.  Perhaps no other good option yet exists?

So what’s our strategy?

Too much software suffers from feature bloat and too broad a focus.  We’re going to be offering restaurants a narrow, powerful, and affordable system that measurably decreases their labor expense line while increasing overall revenue in immediate and measurable ways.  It will be:

• web based, hardware agnostic system to quickly template restaurant reservations that offer a mix of sales options ranging from traditional, no cost reservations for customers, to deposit-based tickets like we use at the Aviary, to full-on tickets for daily reservations or only private events – or any mix thereof.
• CRM is a mess on most reservations systems.  On many it’s just a glorified post-it note for info about customers.  We’ll have that if that’s all you need, but will also be able to ‘off load’ ticket sales data and customer information to other CRM’s.  In our mind CRM is a totally different problem to be solved than reservations.  At our restaurants we’ve built a custom Salesforce App that integrates with our ticketing system to handle CRM across all 3 (soon to be 4!) of our restaurants.  See addendum below.
• Several methods and tools to automatically or manually dynamically price tickets and analyze the results.
• Social media integration for customers and the restaurant.
• No central network branded by us.  The ticket system is yours to use and you can promote your restaurant as you wish… but you won’t be lumped in our App or limited to our network of affiliate restaurants.
• Flat monthly fee regardless of use, charged by restaurant location – one fee per restaurant.
• Pass through web-hosting costs.  You pay exactly what it costs to host your traffic and data in the cloud on AWS.

Over the next several months we have several amazing restaurants that will begin using the current version of our software.   They include restaurants across the US as well as in Europe and Asia.  Most of them you’ll recognize and a few are switching from other ‘ticketing’ software… while one is giving the middle finger to no-shows in the best possible way instead of their usual way!

Concurrently we are rebuilding the entire system from scratch using what we’ve learned by selling over $ 60 million of restaurant tickets to patrons, having dozens of our staff members use the system, and feedback from our beta restaurants and our customers.  I won’t give a date (I’ve learned that lesson) but when we launch our platform a restaurant will be able to integrate our ticketing and table management software with their web site, on their own, in just an hour or two.

We welcome questions, analysis, and feedback of all types and will do our best to provide more information.