OpenTable App Purchase of $2.6 Billion By Priceline May Be A Win Based On Internet Trends
The recent announcement of the US$ 2.6 Billion dollar acquisition of the OpenTable app service by Priceline is once again raising a lot of eyebrows in the online tech industry. Analysts on both sides have given the pros and cons of the deal. One of them, Kevin Kelleher, a noted business and technology writer, is citing 5 trends in the internet industry that may explain the advantages for both Priceline and OpenTable. (Kelleher is described in the article he wrote for PandoDaily as ? a writer living in the San Francisco Bay Area. He has worked at Bloomberg, Wired News and The Industry Standard magazine and has written for Wired magazine, Reuters, Fortune, GigaOm, Popular Science, Salon, Portfolio as well as many others.?)
Reports indicate that OpenTable is being acquired by Priceline for a whopping US$ 2.6 Billion dollars, a 53 % premium above its current market value of US$ 1.7 Billion dollars. For those who have not yet heard of this app, OpenTable is an app used to book reservations in restaurants. It links up restaurants and customers in real time, to reserve tables.
Both Priceline and OpenTable are not doing exactly well on the valuation front, according to Kelleher, but together, it seems that they may just make sense out of this ?over-priced? partnership.
Priceline, analysts point out, seem to have a knack for making good acquisitions, as shown in their purchase of Booking.com in 2005. This allowed the ?Negotiator? to be the dominant online booking service for hotels, globally.
With OpenTable, Kelleher cites 5 internet trends in the internet technology ?merger and acquisition? history, that might prove the ?doubters? wrong. We at The Bitbag will try to present this in a nutshell:
- Strengths and Weaknesses. Big internet companies must pursue strengths of other companies, even in different ?turfs?. Priceline is a leader in the hotel booking and travel business, while OpenTable is a strong player in the restaurant ? reservation field. Together, they will complement each other’s strengths, and find solutions to their weaknesses in areas they are not in ? Priceline in the restaurant business, and OpenTable in the global market. Priceline will be able to give OpenTable access to its international customers, while OpenTable’s customers in the US, will bolster Priceline’s hold on the hotel reservation industry.
- Consolidation of mature web technologies and emerging business models. Like the way Google and Facebook are slowly acquiring new startups in the areas of AI and home automation, Priceline is following their strategy in its planned purchase of the emerging business of online reservation in restaurants. With OpenTable, Priceline is preparing for the consolidation of such services that cater to the ?same customers? who book travel and hotels online. For OpenTable, this is an opportunity not to be left behind when the big players eventually ?move in? to your field of service.
- Go local. Although the internet means tapping into a bigger market, many companies are seeing big bucks in local markets. Yelp, Groupon and OpenTable are proof of the advantages of serving the local market in a large e-commerce system. OpenTable gives Priceline the opportunity to tap into the local e-business while it takes advantage of the large electronic ecosystem that Priceline provides.
- The small-business gap. The internet has been acclaimed as the ?big equalizer? for many businesses as it gives small companies a bigger reach, and provides them the muscle to compete with larger companies. However, it is still without a doubt, that small business, especially those that serve local communities, still lag behind the larger national chains that can launch big budget promotions and e-services for their customers. Restaurants, like small groceries, book shops and hardware stores, still need to find ways to offer their customers with efficient online tools, without the massive costs. OpenTable is a service that has taken advantage of this need in order to help them provide better e-customer service. The growing trend in providing the growing base of mobile and internet users with such tools is something Priceline has identified, and with OpenTable, it may result in a good return on their investment in the near future.
- Mobile Payments. The trend of paying via mobile apps is gaining momentum, and the OpenTable mobile payment option is a good gateway for Priceline to ride on. OpenTable has recently introduced a seamless way where customers can pay for the services of various restaurants inside the OpenTable app. This means that customers don’t need to download a different app, or use a different e-payment system, for every restaurant that they book. Although it is still in the experimental stage, the tech used by OpenTable, if successful, can easily be adapted into the Priceline business for hotels and travel.
Critics may still argue that the 53 % premium on the acquisition price puts a big question mark on the deal, but the 5 arguments we got from Kevin Kelleher, and hopefully explained in an easy to read fashion, would give us a better view of why the deal may make good sense.
Only the future will tell if the gamble pays off for Priceline, but in the mobile tech industry, the future is generally uncertain. As Kelleher points out, ? as far as its strategic logic goes, this combination makes more sense than a lot of recent deals in the Internet space.?
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