These are not the best deal. There is a monthly charge after twelve months, devaluing the card by $2 per month if it has not been used in full. In the U.S., there is a proposed legislation before Congress making this charge illegal.
Restaurants.com started with the wrong business model. There was little demand for restaurants to pay for placing ads on the site. This is similar to PointCast, which also folded due to an incorrect business model.
Although it appears that restaurants.com had sufficient initial funding, they could not continue indefinitely without turning a profit, similar to the situations of Webvan and Kozmo. Similarly, Chemdex.com was closed down by its parent company because revenue growth was too slow and the online operation needed a new business model to thrive.
CitySpree had name and product brand recognition and was already operating with heavy marketing. The purchase gave Restaurants.com immediate recognition.
In the new model, restaurants pay no upfront monies for web advertisements. Fees are charged for every gift certificate sold. About 20% of gift certificates are never used. If the gift certificate is used, then the total bill is usually greater than the amount of the certificate, giving the restaurant added revenue. If gift certificate is used, and the customer enjoys the meal, they’ll be back. It’s a win-win situation for the restaurant.
In order to sustain its competitive advantage, Restaurants.com can offer the participating restaurants additional web space to display menus. For example, Restaurants.com can also offer the email addresses of purchasers as a “mailing list” to the participants, and offer them the opportunity to use l-commerce and target people in particular locations with advertisements.