Valentine's Day isn't the most popular day for eating out in America. (That would be Mother's Day, trivia geeks.) But it's still a significant annual test for major players in the restaurant industry. One-quarter of Americans report dining out on February 14, and in big cities, that means all the prime-time tables at hip restaurants are booked. And that means a lot of procrastinating patrons are pissed.
The holiday is not just big business for restaurants. It's also big business for OpenTable, the 16-year-old company that was acquired in 2014 by Priceline for $2.6 billion. Soon, it may also be big business for a whole bunch of scrappy tech startups vying for a piece of OpenTable's sizable revenues (nearly $200 million, when last reported in 2013).
"Restaurants are notoriously behind the curve, technologically. There's an incredible opportunity to change the customer experience of booking a reservation," Ben Leventhal, who co-founded New York City-based restaurant reservation app startup Resy with Gary Vaynerchuk, the notoriously brash investor, social media personality, and founder of Wine Library. "We aren't the first company to have this thought--by a long shot, obviously."
Leventhal is obliquely referring to Resy's much-discussed business model, which is based on charging consumers for hard-to-get--but formerly free--restaurant reservations. The company now employs 11 people--mostly technologists working on its mobile app, which has been likened to Uber for restaurant seats, and its in-restaurant tracking system. It's just one in a small-but-rapidly growing ecosystem of reservation apps taking on OpenTable, and creating their own waves of controversy--and stoking lots of publicity--while trying to create sustainable businesses. They also have backing from some of Silicon Valley's celebrity investors, as well as some actual celebrities.
Leventhal, who before Resy was best known as the co-founder of the food-geek website Eater, teamed up with CrowdTwist co-founder Michael Montero and Vaynerchuk last year. They launched Resy in June in Manhattan and December in Los Angeles, and today work with dozens of restaurants, including hip and lively Charlie Bird in New York's SoHo neighborhood and the more classically styled Minetta Tavern, in Greenwich Village. The app allows anyone to browse open restaurant reservations--and snag them last-minute, many free, and others at prices ranging from $10 to $50. The company splits profits from these transactions with its restaurant partners.
The company is backed by $2 million in seed funding from its co-founders, along with New York media-and-retail powerhouse investor Lerer Hippeau Ventures, and A-Grade Investments, which was founded by actor Ashton Kutcher along with Ron Burkle and Guy Oseary, among others.
The latest competitor in the field to get a major cash infusion is called Reserve. It is perhaps the most like OpenTable, only it charges a flat, $5 fee per reservation. It fancies itself a "digital concierge," says Greg Hong, who co-founded Reserve alongside Joe Marchese, the CEO of online ad company True[x].
Last Wednesday the company, which was incubated in Uber co-founder Garrett Camp's Expa startup accelerator, announced a fresh $15 million investment from First Round Capital, Human Ventures Capital, Lowercase Capital, Sherpa Ventures, and others. (For good measure, it included "individual investors"--a.k.a. potential celebrity endorsers Jared Leto, Jon Favreau, and Will.i.am--in the round as well.)
While Reserve isn't getting the same sort of criticism for charging the equivalent of inflation-prone convenience fees (or something akin to Uber's "surge pricing") for its services as its competitors are, its path to steady revenue seems less clear. Five bucks per table isn't much to work with. However, it has another arrow in its competitive quiver: It works directly with partner restaurants to automatically pay diners' checks with the credit card they keep on file with Reserve. Instead of a bill, diners who have booked their table through Reserve are simply presented with their receipt and a sleek black card that says, "The check is paid."
Not only does controlling the check in this fashion give Reserve much-coveted access to a customer's credit card, it also might delight its customer. "You've got Valentine's Day coming up; some people have second or third dates coming up, and this takes away all the awkwardness," Hong says. "Because it's already done. And diners love getting those cards--so many of them Instagram them that we know we are onto something."
Word-of-mouth has been an important growth factor for companies in this space, including Resy. And following the theory that any press is good press, it now seems happy with early controversy it generated for being an "elitist" way to book a table. Early on in the company's existence--mid last year--the din in the dining establishment was roaring with debate over the ethics of charging for a table. The New York Times had four reporters and critics opine on the matter. Were they opening up a black market, and turning it into a real business? Or simply adding a layer of convenience to something that used to require hard work?
John A. Gordon, principal of the Pacific Management Consulting Group, a firm specializing in restaurant analysis, says adoption of the idea of a reservation coming with a price tag may vary, city to city. "Charging for reservations in Toledo is elitist," he says. "But in Manhattan, probably not." (Though it's the Manhattans--and Chicagos and L.A.s--of the world that have the critical masses of monied diners and hot restaurants to interest any new version of OpenTable.)
Vaynerchuk, co-founder of Resy, maintains his company has "democratized" posh reservations."People who were complaining that this was elitist--they weren't getting tables in the first place!" he says. "There was this misnomer that these tables were available. They weren't available to anybody but VIPs."
He doesn't bemoan the early bad press, and, amid this current wave of mobile-first, convenience-enhancing startups that have become some of the fastest-growing companies of all time (think Uber and Airbnb), he is banking on Resy having a real shot at widespread adoptions. And he thinks applying premium pricing to the restaurant industry--which has become an entertainment industry in some cities--is overdue.
"Think about the inefficiency of a restaurant that has tens of thousands of people trying to get into it," he says. "That is like charging for first class the same price as every other seat, and 1,000 people can't make that flight. There is no business sense to that model."
One of the buzziest startups in the space is called Killer Rezzy, which got attention by not operating quite so straightforwardly with restaurants. Or, rather, when a restaurant declined to offer reservations through Killer Rezzy, the app would book them, and sell the reservations to customers for about $25 anyway.
"It caused a lot of controversy. We put ourselves smack in the middle of the bull's-eye with that approach," says Sasha Tcherevkoff, the founder and CEO of Killer Rezzy, which he founded in March of last year. "I've owned six restaurants over the years in New York, and from that perspective I could see that would be a contentious line of action. However, what I mentioned earlier? As a consumer--I might not care as much."
There are a dozen others, such as Zurvu, Shout, Table8, and SeatMe--which is one of Yelp's two versions of a reservation system, the other being the simply-named Yelp Reservations. With a field of new competitors all so recent and so similar, it's worth wondering: Which, if any of them, can scale? Which, if any, can gain dominance in the market?
All this new competition has left some restaurateurs shaking their heads and declining all partnerships. Others are playing the field, looking for the best technological solution for managing their reservations or filling-in for cancelations.
Downtown Los Angeles's Alma is in the latter camp. It was working with OpenTable to manage reservations, but recently co-owner and creative director Ashleigh Parsons began accepting reservations through Reserve, and books one table in the restaurant through Table8, a reservation-app startup by Silicon Valley serial entrepreneurs that promises patrons great "last-minute reservations," but actually works through managing a few seats at each restaurant it works with.
"It's really exciting to see something competing with OpenTable, because honestly, it's really expensive for a restaurant to use," says Parsons, who, despite getting a few requests through Reserve, still takes most of Alma's reservations through OpenTable and her own phone line. "That said, it's going to take a while for these companies to insert themselves into a restaurant ecosystem that is so dependent on OpenTable."
For now, Parsons is happy to experiment, with both reservation apps and some for other parts of her business. Alma is also considering adopting payment-app Cover, and hopes diners will soon try valet-parking app Luxe. But for now, that sort of future-minded experimentation means a bit of extra hassle for a very busy restaurant. She's juggling a daily email from Table8, her existing OpenTable screen system, and a dedicated Reserve iPad.
Their own technology may not yet be proven, and certainly no front-runner is emerging, but already, some of the new crop of reservation apps are thinking of themselves more broadly.
"We don't just look at this as a restaurant reservation platform," says Tcherevkoff, the former restaurant entrepreneur behind Killer Rezzy. "This could be a way to monetize corporate events in a way owners never have been able to."
Consider, he says, the Grammy Awards. What if the National Academy of Recording Arts and Sciences decided to step up their money-making potential? Perhaps--Tcherevkoff dreams--Killer Rezzy could help carve out special viewing areas in the Staples Center and sell them. Or it could sell tickets to laypeople to walk the red carpet like celebrities.
Meanwhile, Resy is hard at work on an in-house inventory-management system for restaurants, furthering its mission to be a much broader technology-based back-end for the hospitality industry.
Greg Hong, Reserve's co-founder, would not divulge the company's future trajectory when we spoke on the eve of its funding announcement. But the company already refuses to be pigeon-holed as a simple reservation app, preferring to be known as a "digital concierge service." So, anything that desk at an upscale hotel might do, this app might someday, too.
One may as well say it: When it comes to leaping over boundaries, these guys have no reservations.
What's the deal? App and website for booking restaurant tables
How it's different: Pricing is based on a subscription model
Cost: Trial is $19.99; annual subscription is $250.00
What's the deal? App lets diners book tables on short notice--for a fee
Industry insiders: Two of the company founders are Ben Leventhal of Eater.com and Gary Vaynerchuk
Most famous backer: Ashton Kutcher
Cost for users: Free to $50 a table. Profit split with restaurants
What's the deal? App that suggests and books restaurant reservations based on a user's specifications
How it's different: Company processes payment of bill, eliminating paying the check at the end of a meal
Most famous backer: Tie between Jared Leto and Will.i.am
Cost: $5 per reservation
What's the deal? App and website offers reservations at hip restaurants, both through partnerships and under-the-radar bookings
How it's different: Company snags some reservations by using patrons' names--then selling them to other patrons
Industry insider: Sasha A. Tcherevkoff, previously co-founder of POP Burger
Cost for users: Typically $25 per reservation
What's the deal? Platform that lets you sell--and buy--spots in line or restaurant reservations
How it's different: Feels like scalping tickets. Sells other items, such as tennis shoes
Most famous backer: Startup factory YCombinator
Cost for users: Scalpers--excuse me, we mean sellers--set their own prices
What's the deal? Offers last-minute bookings at otherwise sold-out restaurants
How it's different: Feels classy; not in New York City yet
Most famous backer: Co-founder Santosh Jayaram, former VP of business operations at Twitter
Cost: Fees range from $0 to $30, depending on its dynamic pricing system
What's the deal? Website curates open tables from OpenTable, plus others, to ease booking. Automates restaurants' stand-by lists.
How it's different: Donates $1 of every reservation to the Grow for Good initiative
Cost for users: Free, $5 to $10 "convenience" fee, split between the company and the restaurant