Priceline.Com - Cutbacks And Falling Stock Prices Mark 2000

CUTBACKS AND FALLING STOCK PRICES MARK (2000)

Prior to the start of 2000 Priceline.com announced it would begin offering groceries on a name-your-price basis through a new venture called Web-House Club. The new service was introduced in the New York City area in November 1999, with some 600 stores participating. Customers could name their price for groceries and other non-food items, but they could not specify specific brand names. If their prices were accepted, customers would be quickly notified by e-mail, their credit cards charged, and they could print out a voucher that would be accepted by a nearby store. Participating retailers hoped the new service would boost store traffic and increase the average size of each consumer's market basket. Priceline.com planned to roll out the service nationally over the course of the coming year, with Philadelphia and the Baltimore-Washington, D.C. markets getting the service next. Although WebHouse Club had a specific financial relation to Priceline.com, it was set up as a separate privately held company and its revenue figures were not consolidated with those of Priceline.com.

One of the first indications that 2000 might be a difficult year for Priceline.com also came toward the end of 1999, when Microsoft Corp. announced it would offer reverse auctions for hotel rooms on its travel site, Expedia. After Microsoft offered its Hotel Price Matcher service for about a month, Priceline.com brought a lawsuit against Microsoft to defend its patent on buyer-driven commerce. The news caused Priceline.com 's stock to fall to just one-third of its previous high.

At the beginning of 2000 Priceline.com launched several new services. The company announced it would add domestic and long-distance telephone service for business and residential customers through an agreement with Net2Phone, a provider of IP (Internet protocol) telephony. After an initial test period, Priceline Long Distance was launched in May 2000 with three service providers: Net2Phone, Deltathree.com, and ZeroPlus.com. The service allowed consumers to bid on prepaid phone cards for long-distance service.

Priceline.com also began to offer deals on car rentals, with National Car Rental System Inc. and Budget Rent-A-Car Corp. participating. The Hertz Corp. and Alamo Rent A Car LLC joined the program in mid-2000. An agreement with NextCard Inc. resulted in the creation of a co-branded Priceline.com credit card, which allowed customers to name their own terms for a co-branded Visa or MasterCard credit card. In addition the company expanded its new car sales service to 13 additional states, making it available in 26 states. Ford Motor Co. also agreed to a Florida market test, whereby customers could submit a bid for a car through Ford's Web site that would be distributed to Ford dealerships in the customer's area. By May the auto service was available in 48 states, competing directly with sites such as CarsDirect.com, Autobytel.com, and Autoweb.com.

Another new venture was Perfect YardSale, formed by Priceline.com and an Atlanta, Georgia-based company of the same name. Perfect YardSale would use the Internet to match buyers and sellers of secondhand goods. Perfect YardSale would generate revenue from fees collected from sellers for listing their goods and for successful sales.

Priceline.com found the early results from Web-House Club encouraging. In the New York metropolitan area it had achieved two percent market penetration in the first three months and hoped to achieve three to five percent. WebHouse Club had 150,000 active members and sold more than 5 million grocery items in its first three months. In April Safeway grocery stores joined the service, followed by Kroger in June.

Rising gasoline prices in early 2000 made Priceline.com 's announcement that it would offer gasoline on a name-your-price basis seem well-timed. To obtain their gas, consumers picked the grade of gas, at least three gas stations from a list, and a price. They would then be notified if any stations accepted their bid. Consumers would receive a refund if the pump price dropped below their bid price before they purchased their gas. Offered through WebHouse Club, the name-your-price gasoline service appeared to have garnered little support from the petroleum industry when it launched on May 20, 2000. Priceline.com hoped that the major oil companies and refiners would subsidize part of the savings to attract new customers, but none were willing to participate in the program. As a result, Priceline.com subsidized the consumer discount from different sources, including fees from paying retail partners, revenue from paid advertising on its Web site, and third-party sponsors. Priceline.com formed partnerships with about 5,000 independent gasoline marketers. The service was also available through about 25,000 outlets that accepted the US Bank Voyager Fleet Card, the debit card that also administered Priceline.com 's gasoline card.