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Online scalping's next territory: High-end restaurants?

New York start-up gets buzz by providing a marketplace for restaurant reservations. But if the hospitality industry has anything to say about it, it won't become the norm.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
5 min read

NEW YORK--What if you could get that coveted table for two at one of the hottest restaurants in town...by paying $25 for the reservation?

New York's famed Restaurant Week is fast approaching, which means that black books and BlackBerrys are filling with reservations aplenty. But this year, a new start-up called Tablexchange.com might put a fork in the system. The New York-based company has a simple model: it's a marketplace for buying and selling reservations at chic, trendy restaurants. It's brand new, and it's already controversial.

"So let's have a show of hands. Who thinks this is genius, and who thinks this is evil?" Such was the question posed by Scott Heiferman, Meetup.com founder and host of the New York Tech Meetup, when Tablexchange co-founders Gabriel Erbst and Dwight Lee presented their site at the January edition of the event earlier this month. Tablexchange is still small; with only a thousand registered users so far, it doesn't exactly have eBay-caliber activity levels, but it's starting to quietly take off. A table for two on Friday night at Little Owl, a tiny West Village restaurant where reservations seem to sell out in minutes, is on the books for $20, and seats at the chic Italian restaurant Babbo are going for $40.

Gabriel Erbst described the site as a solution for busy New Yorkers trying to mitigate the tension between the city's competitive, see-and-be-seen social climate and hectic professional lives that make it unfeasible to reserve a table at a red-hot restaurant three weeks in advance. "I worked at an investment bank for two years as an analyst," Erbst said in an interview with CNET News.com several days later. "My friends and colleagues were constantly busy, constantly working all the time." He and some friends started Tablexchange, which also offers reservation auctions in San Francisco and the Hamptons, Long Island's upper-crust summer escape, for people who don't know when they're going to be free, or who may need to pull out of reservations with little notice.

For busy New Yorkers eager to savor the city's culinary culture, the concept makes sense on the surface. But at the New York Tech Meetup, there was no real consensus on Heiferman's "genius or evil" question. About half the audience, seeing Tablexchange as a smart new way to democratize the cutthroat business of fine dining, raised their hands in accordance with the "genius" option. The other half, billing it as just plain sleazy, opted for "evil."

Some prominent figures in the New York hospitality industry don't see much gray area. "I just find it distasteful and manipulative," said Richard Coraine, chief of operations for the Union Square Hospitality Group, which operates several dining hot-spots like Gramercy Tavern, Union Square Cafe, and Tabla.

"We want to know you. We want you to talk to our reservation people. We want you to know our staff," Coraine continued. "That's really what gets to me, is that we have no relation-building opportunity in (reservation reselling sites). There's an added price we can't control, and that skews the value to us. It's very parasitic in its nature, which I don't find to be in keeping with the hospitality business."

"Scalping," the practice of reselling tickets to hot sporting and music events, often at a shocking premium, has been going on for years and has only escalated with the conveniences offered by the Web. It's controversial, and in some areas there are laws and regulations against it: Several sports teams, like the Boston Red Sox and New England Patriots, have banned season-ticket holders from reselling above face value. And a brief legal flurry erupted last fall when prices for kids' music sensation Hannah Montana soared above the $200 mark on ticket reselling Web sites like the eBay-owned StubHub, and consumer protection advocates weren't too happy.

"I think, realistically, reservations at some restaurants in New York are very scarce, and it's not surprising that some capitalist folks have found a way to take advantage of that," said Ben Leventhal of the popular local restaurant blog Eater. "I don't really see it being that different from scalping seats to the Yankees or the Knicks, frankly."

But it is different, because restaurant reservations typically do not come with a price tag--and putting a monetary value on it can just look tacky. "I'm already down a hundred when you walk in the front door, and that's not something that I find palatable," Coraine said in reference to the fact that a site like Tablexchange means that people are spending money on a restaurant that the restaurant never sees. "I want to control the entire value equation."

Tablexchange doesn't mark the first time that restaurateurs have felt threatened, or even just repulsed, by a reservation-selling site: Last year, an online "concierge" service called PrimeTimeTables gained some negative buzz around New York restaurant blogs for daring to charge an exorbitant subscription fee for "guaranteed" reservations. But Erbst says Tablexchange is different. "What we are, we operate like a peer exchange," he said when asked about PrimeTimeTables. "We match up buyers and sellers, whereas they are just the sellers themselves."

Erbst added that Tablexchange, which makes money by taking a commission from each sale as well as through advertising revenue, doesn't operate in an auction format, so you won't see people bidding into the triple figures. Additionally, buyers and sellers are restricted to reservations on coveted Friday and Saturday nights (as well as weekdays during Restaurant Week). This may help Tablexchange save face by looking less sleazy, but it also could mean that another, more brazen site could come along and fill that niche.

All in all, there's a good chance that this sort of commodity could take off in New York--but don't look for it to become an epidemic on the scale of Hannah Montana tickets. "I think it's going to grow and get uglier in New York for sure. I don't see there being much opportunity in very many other cities," Eater's Leventhal said, adding that there just aren't many U.S. municipalities with such a high-demand restaurant industry. "But again, for me, I think it really comes back to scarcity. If the tables are not available, and people are willing to spend money on them, then chances are you're going to be willing to find someone willing to sell them."

And in the unlikely event that Tablexchange and potential rivals do manage to cause real headaches for the restaurant industry, there are some undesirable but nevertheless possible steps that could be taken: photo identification, or credit card verification, for example. And at the very least, a meticulous restaurant staff could keep tabs on potential opportunists: for example, if "Bill Gates" makes a reservation every Friday night but a different couple shows up each time.

"I think, to varying degrees, they already are paying closer attention to the names in the book and how the reservations are being secured," Leventhal said. "In a very basic way, the restaurateurs are not happy losing control of their reservations so they're going to do whatever they can to get it back."