Tock and New Reservation Paradigms
a chat with Nick Kokonas
As much fun as I have diving into the strategy of vertical companies in the early days, it’s a blast to zoom out and chat with founders that have been through the entire journey.
And it’s why it was great to chat with Nick Kokonas. For those unacquainted, Nick has had quite the expansive career. He started his career as a derivatives trader in Chicago, went on to help create one of the top restaurant groups in the world, and then started a restaurant tech company to solve some of the fine dining woes he saw.
The Evolution of Dining
Dining is an ancient activity. As long as there have been inns and the need to be away from home, there have been warm meals served. But as the world became increasingly interconnected with far more travel, dining has become far more than a warm meal. At its best, it is an art form.
And as Nick tells it, the logistics of dining really changed with the advent of telephones. Restaurants finally had a way to predict who was coming in and patrons could make frictionless reservations far in advance. The importance of dining in commerce, travel, and entertainment exploded.
Fast forward to the rise of the internet and you might expect there to be a completely new paradigm. After all the Information Age would seem to predicate completely new concepts of interaction, customer acquisition, marketing, and more.
But as Nick points out, that’s not exactly what happened. Instead the early days of restaurant software looked a lot more like skeuomorphism.
OpenTable
OpenTable was founded in 1998. Like many of the early software companies, OpenTable took a primitive, in this case phone ordering, and then essentially 1:1 digitized it. Instead of calling in for a reservation, a customer would simply pull up a restaurant’s website and book the reservation through software.
At base, this is a necessary step towards providing second-order insights and workflows. Except in practice, OpenTable’s system turned out to be overly simplistic and not take advantage of the Internet Age around marketing, new economic possibilities, and more. And in part, this was a design choice predicated on OpenTable’s model: OpenTable wants to own the customer relationship and be the engine for restaurant discovery (they’re not).
But since this dovetails into Nick’s foray into fine dining and realization that Tock needed to exist, let’s start there.
Nick had found success on the floor trading derivative products and went on to open his own firm at 26. And after spending a decade in the industry, Nick took a break to explore what was next. During that time, he kept finding himself at a restaurant in Evanston, Illinois being run by a young chef: Grant Achatz. Grant had trained under Thomas Keller and was easily the best chef Nick had ever witnessed. And Nick wanted to partner with Grant to open up a restaurant worthy of his talent.
Thus Alinea and the eponymous Alinea Group were formed. Soon Grant was the talk of Chicago and beyond.1 And after Alinea's success and renown, Nick and Grant were busy at work formulating additional concepts.
And this is where the Tock story begins as well. Nick was getting fed up with a lot of the traditional software in his restaurants. King among the grievances was reservation systems. Not only were they taking huge fees; they weren’t even reducing the number of calls Alinea’s hosts were receiving. Dual-entry shows up a lot in industries that have had bad software. You enter something in one system and you end up inputting the same information somewhere else. Customers were doing their own form of dual entry: calling into the restaurant even after they booked to ensure they were good to go.
And even beyond the operational headache, there were a host of other issues. Restaurants run on razor thin margins with limited seating inventory. In fine dining, this is even more acute, given the expense put into ingredients, real estate, and more.
In fine dining, a last minute cancellation might mean a seat going unfilled. That adds up to hundreds of thousands of revenue a year. And despite the hype, OpenTable didn’t solve this issue. As Nick puts it:
”If you don’t listen to the phones all day, you don’t get bothered by the outcomes of the software”
As Nick was mulling this all over, he was envisioning what became Next, a dining experience more like theater than anything else. The menu, the design, and the entire theme rotate throughout the year, each wholly different than the last. And in Nick’s ideal, diners could buy ticket to the experience for the year.
Nick was looking to innovate not only in the booking experience but in the economic model. Granting customers unlimited optionality to cancel their reservation with no cost was simply not the right model in fine dining.
There was a big problem though: there weren’t any software systems that could accommodate this. The closest iterations were in the theater software landscape, yet none of those could handle dynamic seating or the nuances innate to restaurants. The only live option was to build the software himself.
Nick got to work on the first prototype and he even whipped up a video of the first home-brewed version during our discussion. And when he saw firsthand how transformative this could be for his own restaurant group, he knew that this tooling could be democratized for the rest of the fine dining industry. Tock was born.
Tock, Incentives, and Tooling
Tock’s platform is a completely new paradigm around the incentives of restaurants, their customers, and how the two should interact.
Customer Acquisition
This starts with a new paradigm around the economics and incentives around customer acquisition. The simple truth is that OpenTable’s model doesn’t reward or even recognize a restaurant’s own customer acquisition efforts. If you’re a regular who happens to make your reservations through OpenTable’s website, OpenTable still charges the restaurant the same price.2
Nick thought the logic behind that was really faulty.3 The problem is that OpenTable views itself as a discovery engine for consumers and so they've historically priced accordingly, charging a fee for each booking.4 But the problem is that customers aren't actually using OpenTable as a discovery engine. A diner's journey to find a restaurant starts on Google not OpenTable and it has for years. And what's worse is that OpenTable will buy AdWords against the restaurant the diner might be searching for.
This means OpenTable is in effect competing against a restaurant’s own customer acquisition efforts, can charge at the same rate even if a restaurant has successfully retained the customer due to their own actions, and creates perverse incentives within the very business structure. And they still don’t remove any of the operational or economic complexity involved with reservations and cancellations.
Nick knew all that first-hand. But also as a semi-outsider to the industry was also thinking through how to solve this from first principles. And it’s why Tock gravitated towards a SaaS model with payments grafted in.5
Reservations
To solve this, Tock created a booking engine that looked far more like a ticketing platform than anything else. No-shows make up about 6-7% of reservations and a 6-top might only have 4 people show up. Diners need some skin in the game. And so Tock gives restaurants the option (and recommendation) to charge some amount to the diner upfront. At The Alinea Group, this is a fully pre-paid ticket. And to no one’s surprise, the no-shows quickly trend towards zero. That factor alone can add hundreds of thousands in revenue for a restaurant.
But this then quickly parlays into far better service.
When you know exactly who is coming on a specific night, you can optimize operations. Diners benefit too; they get diners get a more efficient and customer-obsessed dining experience.6 At the point of reservation through Tock, diners are pre-filling out tons of information relevant to their meal (allergy information, dining preferences, and more), service can be fully prepped for each individual diner and waiters can focus far more on the quality of the experience than upon simple information gathering.
All of this data is captured within Tock’s CRM and then empowers restaurants to own far more of their customer acquisition and retention efforts. Restaurants get minute detail around a customer. They can view how frequently a diner comes in, log important notes around a customer’s experience, and operate with far more data to increase the value of the experience.
This customer-specific information captured during service and reservation can then be used to retarget a customer in marketing campaigns, menu design, and more. Nick’s pitch has always been that restaurants shouldn’t rely upon reservation providers as acquisition channels. Instead, the tooling available on the internet: SEO, ads, and social media can be wielded by restaurants at very low costs when a great software partner empowers them to do so.
Scaling
One of the big challenges in vertical software is the decisive first-mover advantage for legacy firms. Often the first version of the technology skews the perception of what improvements are possible in later renditions. Skeuomorphism has its own gravitational force that’s hard to escape. And this is all amplified by a simple truth from Nick:
“Most brick and mortars don’t view software as critical to their infrastructure, which is wrong, but I get it.”
Often when Nick or Tock’s team would show a restaurant tangible data on how much they were losing out from bad booking software, restaurants simply wouldn’t believe them. In an industry that had been inculcated by skeuomorphism, a fundamental rethinking of how restaurant operations in the digital era was a lot to take in.
But like any great entrepreneur, Nick has had Benioff-level ways to bring the fight to OpenTable - some of which have gotten a cease-and-desist prior to implementation:
First, Kokonas created a meta-marketing plan that involved buying the URL opentablesaurus.com. Then, he hatched a scheme to have Tock employees hand out small toy dinosaurs emblazoned with that URL at the National Restaurant Association show this May. To greet passersby, he planned to put an inflatable, 22-foot-tall, 18-foot-long dinosaur outside the convention center, all in an attempt to show that OpenTable was stuck in the "late Jurassic period of skeuomorphic computer design."7
Hafner and Kokonas have had some good back and forth too:
Kokonas has no qualms about knocking the competition. Tock’s software, he says, can do much more than OpenTable’s, which can’t sell specific events such as a Mother’s Day brunch. “My ideal endgame is that I take over OpenTable,” Kokonas says. “They could buy us and make me the CEO, and I could run the industry the right way. They know this. I tell them this all the time.”
Steve Hafner, CEO of OpenTable… says he has, in fact, been told this multiple times by Kokonas. Hafner acknowledges that Tock has come up with some better software, but says it lacks OpenTable’s sales infrastructure. Not to mention a 16-year head start. “I don’t lose any sleep at night because of Tock,” he says.
Still, Hafner enjoys the rivalry, quoting from the 2004 King Arthur movie in describing Kokonas: “Finally, a man worth killing.”8
To break a moat, you must break allegiance. After all, what makes legacy tech adoption lasting has very little to do with the existing technology’s value and far more to do with psychology. To break the psychological hold, you must convince a customers not only that software can be marginally better but that software can and should be core infrastructure. Both require articulating a transformational understanding of what non-skeuomorphic software can be.9
And so even after commercializing next-generation technology, the path to growth at Tock has not been easy. It wasn’t until the Covid era that things really accelerated.
The Covid Era
Before Covid ravaged the US, Nick could see what was about to happen. Tock data was showing that in any city where there was a case, reservations tanked 35-40% over night. When it hit Italy, restaurants across the country went to 0. And then Covid got to Seattle and Nick knew it was going to change everything. The Alinea Group and the entire restaurant industry were screwed.
Nick remembers calling his teams together and explaining how bad this was about to get. Nobody wanted to believe it. After all, government officials were still saying everything was under control. But within a week, all restaurants were shuttered. And Nick, Tock, and The Alinea Group faced a choice with what to do next.
In classic Nick fashion, he put it this way: “there were restaurants who decided to keep in business, there were others that decided to sue their insurance companies. I wasn’t going to sue my way out, I was going to innovate my way out.”
And the innovation was to convert their restaurants into production facilities for pickup orders. Rather than serving 100 diners a night at $400 a cover, Alinea needed to sell 1000 pickups at $40 each. That’s no easy feat and involved a massive rethinking of every aspect of the operations while maintaining the quality. And meanwhile Nick was tasking Tock with creating an entirely new pickup module to give every other restaurant on platform the same shot.
Nick didn’t sleep for about a week, but it worked.10 All the principles that Tock had been built on: restaurant empowerment and tooling to help restaurants innovate were amplified by the magnitude of the crisis. Tock was becoming indispensable infrastructure and thousands of restaurants were onboarding to save their business.
The Past Couple Years
Nick still hears about the Covid era. Recently a restaurant staffer came up to him and asked if he could give Nick a hug. He and his wife had been on staff at a restaurant during the pandemic. And Tock’s innovation kept the restaurant in business and 110+ staff in jobs
Since the Covid era, Tock has been busy at work entering the winery industry, all of whom have the same sort of reservation woes. It’s not uncommon to meander through Napa and see a Tock sticker. The industry loves Tock. All this growth didn’t go unnoticed, and in 2021 Tock sold to Squarespace for $400m to shore up Squarespace’s vertical penetration.
There’s still plenty of things to do and places to innovate. It strikes Nick as crazy that certain basic economic models in restaurants and services broadly haven't shifted. Dynamic pricing mostly hasn’t happened. Yet every other industry does it. Why would a Friday night prime reservation be charged at the same rate as a Tuesday dinner?11
Nick recently left Tock to take another break and explore what’s next. And while, he’s not sure what that entails yet, if the last career break birthed one of the greatest restaurant groups ever, a completely new software solution for the industry, and firsthand experience in helping an industry through a crisis, you have to wonder what Nick’s current sabbatical will hold for the future.
Grant’s story is quite incredible and there’s a great episode of Chef’s Table that documents it.
The important point here is that OpenTable does have a lower fee for bookings originated on a restaurant’s own site, but in practice this doesn’t actually happen.
He’s also written extensively on this over at his Medium site.
There’s also implicit overcharging that goes on. https://www.eater.com/2017/7/10/15949244/nick-kokonas-opentable-overpaying
The brilliance here is that payments fees are going to occur either at the restaurant or online. Tock’s economic model allows them to capture the payments flow while providing software with far better incentives.
Diners will often have to wait at a restaurant even with a reservation in hand. This stems from restaurants commonly over-booking tables in order to account for no-shows.
https://www.vice.com/en/article/4x5dxq/why-this-award-winning-restaurateur-trolled-opentable
https://www.chicagomag.com/chicago-magazine/august-2019/nick-kokonas/
My hope is that this might get far easier as we enter a completely new paradigm brought on by AI.
“When the Chicago lockdown was announced, the next day we did 300 Beef Wellingtons. Two days later, we did 800. And by the following week, we were doing almost 2000.”
Nick’s shown restaurants the data and most of them simply don’t buy it.