No, Resy hasn't won yet
It’s the wrong time to declare a winner in the reservations business
Last week, Eater New York declared, “Resy won,” effectively ending the so-called reservation wars. (I hadn’t been keeping score.) The argument is that Resy, which launched a little less than a decade ago, had finally wrestled control of the New York dining scene from incumbent dinosaur OpenTable. Resy has become more relevant and attractive to restaurants through a mix of branding and pricing, Eater argues. At the same time, reservations have never been hotter or harder to get.
In this version of winning, the reservation company’s success is tied to the type of restaurant that uses it. That assigns far too much emphasis on the tech company, and not enough on the restaurants themselves. Plenty of restaurants, by their own admission, are using reservations services because customers are booking more reservations.
It’s possible Resy is riding high on a cloud of customer demand from diners and restaurants. My own observer bias confirms it; most of the restaurants I chose to book on a recent visit to New York do, in fact, use Resy. In the public eye, the company is doing well. But there are considerations beyond these surface-level observations, and tech trends outside of restaurants worth understanding. The patterns are familiar, but the game is changing.
Reservations have become more common — and popular — since the pandemic.
This has been well cataloged. But it’s short-sighted to consider any pandemic-induced trend a permanent behavioral change. Tech companies from Amazon to Zoom adjusted investor expectations around their performance, conceding that they misjudged long-term demand. It’s become clear that many Covid changes aren’t permanent. Reservations could prove the same — remember when it was cool to go out without a plan?
It’s not just the pandemic. We discover restaurants differently now. Social media tells us where everyone else — friends, celebrities, the dreaded influencers — are eating. We create and follow “hit lists,” collecting appearances and cataloging experiences on Instagram. Google makes it easy to find a restaurant on the street, and once we’re committed, we’re beholden to whatever reservations system the business chooses. Did that new restaurant choose Resy because of its perceived cool factor, or because a gifted salesperson offered an operator the right deal?
When Chuck Templeton founded online reservations service OpenTable in 1998,
…he was trying to solve a personal problem: his wife struggled to make reservations over the phone. (That’s the story, at least. Why weren’t you making reservations, Chuck?) In its earliest days, the company lost a reported $900,000 every month, spending ten times its monthly revenue. It’s standard operating procedure by today’s measures: Spend aggressively to win over customers and achieve product-market fit, hooking us on something we didn’t know we needed.
OpenTable was acquired by Priceline (which later changed its name to Booking Holdings) in 2014, the same year that Resy launched. Priceline paid $2.6 billion for the company, a 46 percent premium over its stock price. Two years later, Priceline took a huge hit on OpenTable’s value, determining it was worth nearly $1 billion less than it paid. The long-term value of the biggest digital reservations service in the world — the winner — was worth significantly less than a lot of people thought it was.
To put this in perspective, Elon Musk’s offer to buy Twitter last April was, by his account, a 54 percent premium over the day before he started investing in Twitter months earlier. By the time the deal closed months later in a very different economic environment, a prominent analyst called Elon’s purchase “one of the most overpaid tech acquisitions in history,” pegging Twitter’s value around $25 billion, well below the $44 billion Elon paid.
In the years since OpenTable became part of a huge travel technology company, the reservations business has changed.
When Resy showed up and later established itself as a direct competitor to OpenTable, it aimed for the weak spots — pricing and marketing. Tock, the reservations company that started as a restaurant ticketing service, went after the company’s business model. This is how competition is supposed to work; this is how progress happens.
Resy is no longer a nimble upstart, it’s a part of American Express, a huge financial services company. Tock was bought by website platform Squarespace for $400 million. The one-time challengers are now backed by corporations that can underwrite the expense of operating, including those robust (and effective) marketing efforts.
All three reservations company acquisitions say more about the buyers than the booking services themselves; it’s the large companies that are benefitting from the inclusion of “access” into their platforms with a network of restaurant customers. That’s what the big acquirers paid for, and that’s why these systems are valuable.