priceline shatner

The Negotiator must be hungry. Priceline is paying $2.6 billion for OpenTable, the app we fire up when we’re too lazy to call a restaurant to make reservations.

True to the trend of recent Internet M&A, the valuation is pricey. OpenTable closed yesterday with a valuation of $1.7 billion. That means a company whose stock has flatlined this year is buying a company whose stock had, until then, been slumping this year. At a 53-percent premium to the value investors believed it to be worth.

Priceline is a company that prides itself as a shrewd negotiator of discounts. But here it is paying a crazy premium for OpenTable. This deal had better make some good strategic sense.

On paper, it does. Priceline is that rare thing in the Internet industry, a company that turned itself around. It did so by buying Booking.com in 2005, allowing it to build a lead in the underserved market for global hotel bookings. Despite the high price tag, Priceline may be seeing another opportunity in OpenTable. Here are five trends in the Internet industry that suggest it may be right.

Mission bloat, or the inevitable expansion into adjacent markets. Being successful in the Internet industry these days means not being complacent with the business model that brought you success. Instead, the biggest companies keep pushing onto each other’s turfs. Acquisitions are a quick way to do this, provided the two companies involved are a good fit.

Most of the analysis of the Priceline-OpenTable deal argues that this is a comfortable fit. It’s not so much that Priceline, an online travel company, and OpenTable, an online restaurant reservation company, necessarily belong together. It’s more that the strengths of both companies complement weaknesses in the other.

For example, Priceline will be able to expedite OpenTable’s plans for international expansion, thanks to its deep presence overseas and its ability to cross-promote offerings. The market for online reservations in Europe, the biggest market for Priceline’s Booking.com business, is still fragmented. With Priceline’s backing, OpenTable has the potential to become a market leader there quickly. Similarly, OpenTable’s customers, and the data it’s collected on them, can strengthen Priceline’s hotel reservation business in the United States.

Consolidation in mature Web models. Twenty years after the browser was introduced, the Web has become an industry divided into a bunch of established, maturing business models and a still nascent set of emerging technologies. Companies like Facebook and Google are making acquisitions on the latter camp, buying startups focused on, for example, automated homes or artificial intelligence.

The OpenTable acquisition is in the other camp. It’s part of a very slow wave of consolidation that may gain momentum in the coming months. As companies with established businesses in mature Web markets expand into adjacent areas, they are more willing to merge with other companies that are also seeing a gradual slowdown in their growth rates.

When consolidation hits an industry, it often begin slowly. Then, after a few high-profile deals it picks up momentum. Other acquirers don’t want to be left out of the trend. And candidates for acquisitions don’t want to be the lone remaining standalone player, competing with relatively scarce financial resources.

Local is now a feature. A few years ago, there was a debate over whether social networking was an industry unto itself or a feature for the Internet industry at large. As it turned out, it was a little of both. Now something similar is happening in local e-commerce. There are, and will be, companies that succeed by focusing on local, but increasingly local will become a feature of many larger Internet companies like Priceline.

In some ways, local means tapping that part of the ecommerce market that covers small businesses. It’s much more than that of course. The companies that have thrived on that business model – like OpenTable, Groupon, Yelp and others – have done so by building their initial success through serving small, local businesses.

This trend will likely accelerate the consolidation of publicly traded, local-focused companies. The stock market was telegraphing as much today after the OpenTable acquisition was announced. Yelp closed up 14 percent, Grubhub up 7 percent, and Groupon up 4 percent.

Small businesses are still underrepresented online. E-commerce was one of the first online business models to succeed on a large scale. It’s already mature by the hypergrowth standards of the Web. But there is one corner that is still lagging behind: the legion of restaurants, mom-and-pop retailers and other small businesses that are often owned by people who are still naive enough to believe a well-designed yet untrafficked Web site matters to their customers.

OpenTable and its peers changed this, offering services that made customer interactions online less passive, and more practical. There is still a long way to go, and there are good reasons for larger companies to get involved. Small, local businesses are a valuable source of consumer spending data. Connecting mobile consumers with nearby merchants, or enticing them with targeted deals and discounts, is a longstanding ecommerce dream. Do that without creeping out your customers and you may be golden.

Even though small-business owners may not be great with technology, they often find themselves at the intersection of local and mobile, one of the hottest corners in the Internet industry right now. The companies that can bridge that gap, that can make it fruitful for small businesses and their customers to interact online, have some growth in their future. Priceline is betting that it can become one of those companies.

Mobile payments remain an unclaimed prize. There’s no shortage of options for local retailers to make digital payments. Yet there is not one that is broadly embraced by consumers and retailers alike. You can visit a dozen restaurants or stores in a day, and each point-of-sale can have a different technology for digital payments. Cash still remains a popular option.

OpenTable recently introduced a mobile-payment option inside its reservations app that tries to get around this. Instead of using a dedicated payments app, OpenTable users can digitally pay for their meals inside OpenTable’s app itself. Customers may or may not take to this option, but it’s is more intuitive and seamless than a restaurant asking its customers to download yet another new app in order to pay digitally.

This may be another example of OpenTable addressing one of Priceline’s needs. OpenTable’s digital-payment technology is still in the experimental stage. If it succeeds, it could also be introduced into Priceline’s hotel and vacation-rental reservations, and other businesses. Digital payments will succeed when they scale, and maybe now Priceline can offer just that.

Whether Priceline is overpaying for OpenTable is a separate question. On the one hand, a 53-percent premium is unusually high. On the other, Priceline has a history of making smart acquisitions that pay off in the long run. Whether this deal pays off remains to be seen. But as far as its strategic logic goes, this combination makes more sense than a lot of recent deals in the Internet space.