OpenTable is making restaurants buy back their own customers over and over and over again

If you’re a popular restaurant using OpenTable, you’re likely paying them thousands of dollars a year more than they deserve. And I’m going to show you how they’re doing it.

It’s fairly well known in the restaurant world that OpenTable charges restaurants $0.25 for bookings made via their widget on a restaurant’s website. And that they charge restaurants $1.00 for bookings made via OpenTable’s website. OpenTable claims that this higher fee is because they’re bringing new customers to restaurants from the OpenTable “network.” It turns out that most of the time, this is just not true: They’re just selling your own customers back to you — at a premium.

The Age of Search

In 1998, Google launched — and later took over the search world — by building a search engine based on a simple and rather obvious concept: Figure out what people are looking for and get them there as quickly as possible.

When diners research restaurants to visit, over two thirds of them start at a search engine (such as Google, Bing) or a map search (such as Google Maps, Apple Maps, etc.).

“When researching restaurants online, what is your preferred method?”

Many restaurants (or, more specifically, their marketing consultants) spend a lot of money on Search Engine Optimization (SEO) to make sure that the restaurant’s website ranks first on Google, Bing, etc. You might think that when someone searches for your restaurant to make a reservation, they’re going to click on your restaurant’s website if it’s the first result. More often than not, you’d be wrong.

OpenTable’s Dirty Secret: Ad Arbitrage

Let’s take a look at what happens when someone tries to book a reservation at the hugely popular RPM Steak in Chicago.

Note that the very first link is a paid ad for… OpenTable! That link is the first one that guests see and it takes them directly to — yep, you guessed it — OpenTable. So there’s a good chance that this guest — the same guest who was looking to book RPM Steak already — will click the link and it will cost RPM Steak an additional $0.75 per person for that reservation. And on their monthly reservations report, OpenTable will take credit for sending them these guests by placing this booking under the “OpenTable Website” category.

The average table size booked is 2.9 covers. So the difference in cost to you for the average reservation is $2.17 more for one “from” OpenTable than one from the widget on your site.

That means that as long as the cost of getting someone to click their paid ad and make a reservation is less than $2.17, OpenTable has every incentive to buy more ads from Google for your popular restaurant. And pocket the difference.

And send you the bill.

Even if OpenTable loses money on these ads, they are still incentivized to arbitrage your guests. Why? When they send you traffic, you feel reliant on the covers they “send” you, therefore you stay with them. And you likely pay a monthly fee for hardware, and they retain an additional listing in their (fast diminishing) network of restaurants.

Does this all sound too familiar?

It should, because it is familiar: This process of rewarding a business for each customer they bring you is known as Affiliate Marketing, and it is frequently vulnerable to exploitation through arbitrage. And it’s a huge business on the internet.

One place that this kind of arbitrage is happening is the travel industry. Online travel agencies, resellers, and aggregators often have financial incentives to use ad arbitrage to intercept a business’s customers and deliver them to the business themselves (and take credit for — and profit on — the sale).

Airlines and hotels aren’t sitting back and taking this, so why aren’t restaurants similarly enraged?

It gets worse

Every time you see an link for your restaurant, it’s probably costing you money. Go to Google right now and search for your restaurant name and you’ll likely see OpenTable links show up. Why? Because they have a financial motivation to make sure their sites have good Search Engine Optimization (SEO).

Of course, you can pay an SEO firm to try and make your website appear above OpenTable, but there’s no guarantee there. And even if you’re successful at ranking your site first, Google has another trick up its sleeve and it’s over there on the right of the search results page: The Knowledge Panel.

Google’s job is to get you what you’re looking for and send you on your way, as quickly as possible. And so they create these great “Knowledge Panels” to allow guests to get information about a business as quickly as possible. That fast-track includes, of course, a link directly to your restaurant’s reservation page. And if you’re using OpenTable, that means, yep, you’re going to pay an extra $0.75 per cover.

How much is this costing you?

Let’s take a look: Let’s assume your restaurant books an average of 100 covers a night, six nights a week. If OpenTable’s ads, their links in the search results, and their link on the knowledge card grab even half of your covers, you’re looking at 50 covers a night that are costing you an extra $0.75 each. That’s $37.50 a day, $975 a month and — gulp — $11,700 a year that you’re paying… for your own customers. And this is on top of all the other fees that you’re already paying OpenTable.

WarGames had this figured out way back in 1983…

When a company charges you more to book a guest from their site, they have all sorts of incentive to engage in this sort of tomfoolery. But this all goes away if your booking service simply charges you a flat fee: the incentive for them to arbitrage you then becomes zero.

So What Can You Do?

Think critically, ditch the partners that don’t have your best interests in mind, and find a partner that does.

A partner like Tock.