Why Are Restaurants & Retailers Giving Away Their Customers?

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Prior to the late 1990’s, booking airfare and hotel stays required using a travel agent or dealing with the service providers directly. In 1996 Travelocity changed that when it launched its online booking service. Later that year Microsoft followed suit with its own online travel agency (OTA), Expedia. Then came Priceline, TripAdvisor, Ortibz, Kayak, and others.

Now it seems like everyone has an OTA. Google launched their own front end (though it appears they may be giving some power back to the hotelier), and booking is moving to new interfaces like smart watches and voice ordering. The customer is becoming further removed from the hotel and airline brands as they use third party services to find and book reservations.

If you were to ask hotels about the decision to partner with OTAs they would tell you it was a big mistake. To paraphrase many quotes you’ll see around the web:

We gave the OTAs they keys to the kingdom. We don’t own the customer anymore and they’ve been trained to go elsewhere first.

Even though we have had roughly 20 years to learn from the mistakes of the hotel industry, the brick and mortar industries of restaurant and retail may be too quickly ignoring this advice.

If you haven’t been paying attention, there’s a growing trend in on-demand convenience. One could fairly argue that this trend only exists at the scale and growth rates it does because it’s been subsidized by investors. Plainly speaking, investors are making the cost of Uber food delivery $5 when it would easily be $15 in a free market.

That might explain some of the short term growth but it’s foolish to disagree with the idea that people want things cheap and convenient. That the internet exists only underscores this truism.

The problem with these market trends is that a third party is the one representing restaurant and retail brands to consumers. Groupon. Opentable. Grubhub. Uber. Postmates. DoorDash. Yelp. Etc, etc.

As far as we’re aware, these companies are not openly sharing data with their partners. That means every time a consumer uses these platforms to engage in local commerce, the local business has no idea who the customer is. Not only does this deprive the merchant of amazingly useful data to power marketing, it also plants a third party brand in the mind of the consumer.

Why go directly to a restaurant’s site when I can search on XYZ and find many restaurants that fit what I need?

We cannot fault the customer logic and natural gravity towards aggregation. If any of you ever use a search engine you do so because it aggregates many choices into one common interface and saves time. No further explanation needed.

But what does this mean for merchants?

Truthfully, we aren’t sure. We think merchants should band together and use their collective mass to demand data sharing from these third party providers. Since that has about the same chance of happening as we do of getting struck by lightning while surfing on a shark, POS companies must fill this void.

POS companies should look at building analogous tools with consumer-facing portals through partnerships. The POS companies should be able to deliver solutions that are better integrated technologically and cheaper for the end merchant (since POS companies are already leveraging an existing relationship). There’s a large opportunity here so long as merchants keep getting taken advantage of.

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  • Chuck Ellis

    Some of the third parties you mention are far worse than others, crossing a fuzzy boundary between garnering the restaurant’s data and garnering their customers outright. Make a reservation on OpenTable via clicking the Reservations link on a your chosen restaurant’s website, and you will get consistently interrupted thereafter with a page, interstitial or other inducement to download the OpenTable app, which not only spikes the restaurant’s per-cover fee up to $1 instead of the 25 cents they would pay if you clicked on the Reservations link on the restaurant’s website…but from that moment forward it is OpenTable that owns the customer. For all practical purposes, that is customer theft, and OpenTable specializes in it. And of course, they get all the data from there on in as well…

    • Jordan Thaeler

      The real barrier has been distribution. OpenTable existed because POS companies were horrible at building software, and OpenTable found an opening. Now that the POS industry is moving to cloud – somewhat begrudgingly – they have the necessary pipes to make some real plays via partnerships.

  • Josh Jasper

    Far to many of the online ordering platforms have no real POS integrations, and there’s no apparent rush to do so. It’s a pain for merchants, and for companies like MarketMan (where I work) because we need to know what’s sold, and it should flow directly to the POS.