priceline.com

1
priceline.com

• A Closer Look

2
Agenda

• History of Priceline
• Business Strategy
• Business Model
• Markets Served
• Site Description, Navigation A Users Prespective
• Consumer and Analyst Opinions
• Expansion of Priceline
• Competitive Threat
• Future for Priceline and its Business Model

3
The Evolution of Priceline

• Founded in March 1996 by Jay Walker
• First site to setup a buyer driven commerce
  system.
• Their model of buyer-driven commerce was invented
  by Walker Digital, a high-tech marketing
  laboratory.
• Initially Priceline enabled consumers to name
  their own price for airline tickets.
• This was soon followed by Hotel Rooms, New Cars
  and Mortgages.
• Patent Awarded for Business Model in August 1998

4
Business Strategy

• Tap the Perishable goods markets by
  communicating the consumer needs to qualified
  sellers.
• Make money on each transaction!
• Patent the Business Model

5
Business Model

• Based on Buyer-Driven E-Commerce System
• Guaranteed Consumer requests are collected on an
  individual basis and forwarded electronically on
  a one-to-one basis to qualified sellers in a way
  that can't be seen by other retail customers.
  Sellers then selectively (and privately) choose
  which offers to accept.
• Priceline gets a fixed percentage from the
  sellers for each transaction
• Based on the fact that over 205 million airline
  seats are not used each year, in the U.S. alone!

6
Business Model (Contd.)

• For many goods and services, there is
  significant, unfilled "open" consumer demand in
  the marketplace, at prices below the retail
  price.
• This creates a "catch-22" for sellers. On one
  hand, they want the increased sales revenue,
  particularly if the product is perishable (like
  airline tickets). However, if they publicly
  discount their retail prices, or sell their
  products through a liquidator, sellers risk
  harming their retail channels and profitability.

7
Business Model (Contd.)

• Priceline provides a transaction medium which is
  beneficial to both the consumers and sellers.
• The sellers have a new channel to market their
  excess inventory, and perishable goods like
  airline tickets, hotel rooms, without damaging
  their cost structure and the value chain.
• Priceline.com issued U.S. patent 5,794,207

8
How Does the Model Function?
Unreserved seats. Willing to sell at
significantly lower prices
Name Price for a service/product
Unreserved Rentals Willing to rent at consumer
demand prices
Unreserved Hotels Willing to rent at consumer
demand prices
Electronic Networks
Allow consumers to choose mortgage. Minimize
hassle to consumers. Thereby increase business
9
Airline Ticket Navigation
Enter Cities and Duration of Stay
Enter Departure and Arrival Cities. Name Your
Own Price
Select Localities From Map Provided by Priceline
Enter Dates, Airports Connections, Times
Select Quality Level, Name Your Price
Enter Dates, Airports Connections, Times
Select Bonus Money Option
Select Bonus Money Option
- Navigation is Quick and Easy - Logical Flow of
Information - Six pages before placing order -
Requires around 15 minutes to complete
transaction
Agree to Terms and Condition
Agree to Terms and Conditions
Enter Credit Cards Information
Enter Credit Cards Information
Pass Request to Qualified Sellers
Pass Request to Qualified Sellers
10
New Car Purchase Navigation
-Navigation is Quick and Easy - Logical Flow of
Information - Ten pages before placing order -
Requires around 15 minutes to complete
transaction - Sufficiently detailed to pass
information to dealers. - 200 Fee if consumer
doesnt show up at dealership, after
placing order. - 50 Transaction fee - Currently
service available in New-England areas only
Enter Model and Your Area Code
Confirm Agreement
Select Specific Model
Submit Payment Information
Select Optional Equipment
Pass Request to Factory Authorized Dealers
Select More Options
Obtain Dealer and MSRP Prices
Enter Your Price
Specify Pick-Up Counties and Date
11
Home Financing Navigation
- Navigation is Cumbersome - Logical Flow of
Information - Seven pages before placing order -
Requires around 30 minutes to complete
transaction. - Sufficiently detailed to pass
information to financial firms. At times the
process of entering the information becomes
cumber- some - 200 Fee towards closing
cost - 50 Transaction fee - Little information
regarding other costs involved in these types
of transactions
Enter Information Regarding House ( Type Price,
Location), Down Payment
Enter Information About Applicant
Enter Income Related Information
Enter Payment Information
Enter Other Assets
Choose Rate
Pass Request to Financial Institutions ( Only
Lending Tree at This Time)
Agree to Terms and Conditions
12
Priceline.com Expansion of Services
Airline Tickets
April 6th 1998
Time-Line
Cars and Trucks
July 6th 1998
Hotel Rooms
October 28th 1998
Hotel Rooms
November 16th 1998
Mortgage
January 25th 1999
Car Rentals
September 27th 1999
13
Consumer Reports

• Consumer opinions regarding Priceline.coms
  ability to provide cheap deals varies from
  Amazing to Disgusting depending on weather the
  flight, hotel room met their expectations
• After distilling the information, it appears that
  its services are targeted for the leisure
  traveler One who has the time to be flexible,
  such as students and senior citizens. Anyone who
  is NOT flexible is likely to be disappointed
• For the more picky traveler, especially regarding
  air tickets, Priceline.com cannot very often come
  up with even reasonable deals.
• People have had pretty good experiences with the
  hotel service as there are fewer variables
  involved.

14
Analyst Reports

• Wall Street obviously loves Priceline.com
• During the period from launch through June 30,
  1999, 5.1 million airline tickets were sold,
  representing approximately 1.1 billion in total
  consumer demand.
• This demand resulted in sales of approximately
  762,000 airline tickets by priceline.com,
  representing approximately 165.2 million in
  revenue.
• Still Priceline.com has been in loss since its
  inception. The main expense is advertisement-relat
  ed expenses.
• Priceline.com has licensed its models to a couple
  of companies, which should support revenues.

15
Competitive Threat

• Internet travel agents such as Travelocity,
  Preview Travel and Microsoft's Expedia.
• Traditional travel agencies.
• Consolidators and wholesalers of airline tickets
  and other travel products, including online
  consolidators such as Cheaptickets.com.
• Individual airlines, hotels, rental car
  companies, cruise operators and other travel
  service providers and operators of travel
  industry reservation databases such as Worldspan
  and Sabre.
• In short Any online dealer of Airline Tickets,
  Travel Agency, Home Mortgage, Car Dealerships

16
Competitive Threat ( Contd)

• The foundation that priceline.com is based upon
  is that sellers AND buyers will compromise to
  complete a transaction of perishable goods.
  
• Obviously this is a Win situation for the seller,
  but what about the consumer?
• A consumer must be willing to take a Red-Eye or
  have a connection flight to simply increase the
  chances of getting the ticket.
• This combined with the no-cancellation policy,
  really can be a big deterrent to business
  travelers, families with children and aged
  relatives. Doesnt this include a majority of
  travelers?
• Internet was supposed to make things easier for
  the consumer. In priceline.coms case, it might
  not be the case for the above reasons.
• Other companies which can overcome this
  shortcoming, can deliver a fatal punch to
  priceline.coms business.

17
The Future of Priceline.com and Its Business
Model

• Buyer driven commerce has certainly forged a
  fundamental change in the way business is done
  over the web.
• As of now, this involves the consumer making a
  few compromises. Sooner or later some other
  company/business model is going to find a way
  around this.
• pricceline.com, could take preventive measures by
  offering regular travel agency type of
  services, where the consumer can get the service
  he/she requests, although at a premium.
• Which company makes the first move remains to be
  seen!