priceline.com, Incorporated

founded: 1998

Contact Information:

headquarters: 800 connecticut ave.
norwalk, ct 06854-9998 phone: (203)299-8000 fax: (203)299-8948 email: [email protected] url: http://www.priceline.com

OVERVIEW

priceline.com gave the public the power to "Name Your Own Price" online for the first time on goods and services in four areas: travel, with airline tickets, hotel rooms, cruises, and rental cars; personal finance, with home mortgages, refinancing and home equity loans; automotive, offering new cars; and telecommunications, with long distance calling service and calling cards. As long as a customer was flexible and prepaid, he/she could soon be airborne for far less money than ever before. priceline.com founder and former vice chairman, Internet commerce pioneer Jay S. Walker, came up with the innovative idea of patenting priceline.com's method of doing business, along with a slew of other patents granted and pending, that could revolutionize industries outside the Internet as well. Walker is also founder, chairman and CEO of Walker Digital Corp., the largest intellectual property laboratory dedicated to business methodology.

COMPANY FINANCES

During the technology boom, the company went public and its March 29, 1999 Wall Street debut was a huge success. The offer price of $16.00 per share ended the first day of trading at $69.00, making it one of the most successful initial public offerings ever, giving the company a $9.8 billion market value and making founder Walker an instant billionaire. The stock reached to more than $82.00 on the next day. At its all-time high, the company's stock reached $165.00 a share. Just over a year later, the stock reflected the deflated technology market at nearly $30.00 a share.

Though the company had yet to post a profit, like many other former high-flying technology companies, analysts predicted priceline.com would be in the black by 2001. It in fact posted a quarterly profit for the first time in late 2001. It's 2000 sales stood at more than $1.2 billion and its loss narrowed to $315 million. Year 2001 revenues were $1.17 billion, a five percent drop from the previous year. priceline.com stock ranged from a low of $1.80 to a high of $10.35 over a 52-week period and its price-earnings ratio was 66 as of August 2001.

ANALYSTS' OPINIONS

After Walker's departure in late 2000, priceline.com struggled amid publicity regarding complaints about customer satisfaction and increased competition from other Internet businesses. In September 2000, the Better Business Bureau expelled the company due to complaints that it didn't adequately explain the restrictions on its discount airline tickets, but it was reinstated two months later when the company changed its disclosure policy. Its stock price stood at about $4.00 as of early 2002.

Due to priceline.com's better than expected 2001 fourth quarter earnings and revenues, analyst Scott Kessler reiterated a "hold" recommendation on the company's stock. Kessler also noted priceline.com's partnership with eBay to create travel-booking service for airline tickets, car rentals, hotel reservations and vacation packages on auction and said that "Buy It Now" for-mats on the auction Web site were a positive and significant move for priceline.com. Lehman Brothers had similar opinions about the company and noted that its solid, better than expected 2001 fourth quarter results and continuing profitability for three consecutive quarters in a challenging economic environment warranted the company a "market perform" rating. Several analysts also recognized priceline.com's future potential in and beyond the travel sector, especially as the travel industry and economic climate improved.

HISTORY

priceline.com founder Jay S. Walker started in business with a catalog venture, Catalog Media Corp., which saw its first success in 1985 when he made a deal between hundreds of catalog vendors and Federal Express. The deal was that the catalog merchants would subsidize FedEx overnight delivery of their products to customers, thereby extending the Christmas holiday shopping season for the merchants until the day before December 25.

Fresh from his first big business achievement, Walker then partnered with Michael Loeb in a company they called NewSub Services, which began operation in 1991. Walker's aim for the company was to offer an indefinite renewal service for magazine subscriptions by charging customers' credit cards automatically each year. A common procedure in other countries, the practice had not yet been introduced in the United States. He came up with a software program, which later received a patent in 1999, that allowed publishers to renew subscriptions automatically to a customer's stored credit card number, with the customer's permission. Loeb, whose father was the financial journalist and editor Marshall Loeb, had connections in the publishing industry and the company sold half a million subscriptions within one year. By 1998, the company, later renamed Synapse Group, Inc., had sold 30 million magazine subscriptions and had sales of nearly $300 million.

Walker was already looking for a new challenge to conquer in the early 1990s and set his eye on the Internet as his medium. At first, Walker had the idea to start an Internet casino. Then he began to wonder if he could simply profit from ownership of the idea of Internet gaming. He followed up with patent lawyers who assured him he could patent his idea. Business, at the time, invented many things, like credit cards and frequent flyer programs, and Walker was amazed to learn no one had ever tried to patent these original ideas. With that in mind, Walker began his next business, Walker Digital Corp. in 1994. He hired a group of computer engineers, cryptographers, and other technical personnel to devise new methods of doing business on the Internet and develop the corresponding technology. Patent lawyers were also retained to secure ownership of any ideas that the research division of the company developed.

On April 6, 1998, Walker started his online business, priceline.com, with $20 million from the sale of a third of his ownership of NewSub and $100 million from outside investors, including Paul Allen, co-founder of Microsoft; George Soros, a financier; Jim Manzi, a computer-software executive; and John C. Malone, a cable television executive. Four months later, Walker was granted a patent for development of a "buyer-driven" business method and the corresponding software. The method entailed allowing prospective customers of goods and services to send a binding purchase offer to a prospective seller over the Internet. This was the driving force behind priceline.com.

The first priceline.com offering to consumers was the opportunity to bid for airline tickets. Users would indicate their travel dates and the price they wanted to pay, enter their credit card number, and participating airlines would review the bids and decide whether to accept the traveler's offer. If they agreed on the price, the traveler was obligated to purchase the ticket. Prospective travelers stood to gain by receiving discounted tickets while airlines gained by being able to fill any as yet unsold seats.

priceline.com sold an estimated 40,000 tickets in the first three months of business. The idea caught on because of the appeal of discounts as well as the humorous ad campaigns that starred former Star Trek cast member William Shatner. Some early complaints noted that the success rate was only about 10 percent but it rose as more airlines gradually participated in the process.

During the technology boom, the company went public, and its March 29, 1999 Wall Street debut was a huge success. The offer price of $16.00 per share ended the first day of trading at $69.00, making it one of the most successful initial public offerings ever, giving the company a $9.8 billion market value and making Walker an instant billionaire. The stock reached to over $82.00 the next day. At its all-time high, the company's stock reached $165.00 a share. Just over a year later, the stock reflected the deflated technology market at nearly $30.00. Though the company had yet to post a profit, like many other former high-flying technology companies, analysts predicted priceline.com would be in the black by 2001. In fact, it posted a quarterly profit for the first time in late 2001. Its 2000 sales stood at more than $1.2 billion and its loss narrowed to $315 million.

FAST FACTS: About priceline.com, Incorporated

Ownership: priceline.com, Incorporated is a publicly owned company traded on the NASDAQ Stock Exchange.

Ticker Symbol: PCLN

Officers: Richard S. Braddock, 59, Chmn. and CEO, 2000 base salary $1,700,000; Jeffery H. Boyd, 44, Pres. and COO, 2000 base salary $5,800,000; Robert Mylod, 34, CFO; Brett Keller, Chief Marketing Officer; Ronald V. Rose, CIO; Trey Urbahn, 43, Pres. Airlines, 2000 base salary $978,000; Christopher L. Soder, Pres. Lodging, Automotive and Business Development; Jeanne D. Wisniewski, EVP Human Resources; Lisa Gillingham, SVP Customer Service and Operations; Mitch Truwit, EVP Operations; Thomas P. D'Angelo, 41, SVP Finance and Controller, 2000 base salary $683,000; Peter J. Millones, Jr., SVP and Gen. Counsel

Employees: 359

Chief Competitors: priceline.com's competitors include traditional travel agencies; consolidators and wholesalers of airline tickets and other travel products; operators of travel reservation databases, including Worldspan and Sabre; and other Internet travel service companies, including Expedia, Orbitz, Hotwire, and Travelocity.com.

While 2001 revenue dropped 5.1 percent to 1.17 billion, fourth quarter results for the company were strong, with hotel room unit sales up 115 percent year over year; rental car sales up 38 percent; and pro forma net income of $3.3 million compared with fourth quarter 2000 pro forma net loss of $25 million. priceline.com's customer base also grew to nearly 12.7 million and a record 63.3 percent repeat offer rate. priceline.com soon grew beyond merely airline tickets, with customers being able to name their price on home financing, hotel rooms, new cars, rental cars, and telephone long distance. Some argued that the system behind priceline.com wouldn't work with the new products and services it added, but Walker firmly defended his idea to invent new business methods and patent them.

Walker suffered a setback when he left the day-today operations of priceline.com to others in November 1999 to launch WebHouse Club. The company was not affiliated with priceline.com but was a licensee that used Walker's patented technology to allow people to bid on gasoline and groceries. The business shut down in October 2000 because of insufficient operating funds. Walker then stepped down as priceline.com's vice chairman in late 2000, selling off most of his stake in the company and retaining about 10 percent ownership. He left price-line.com to focus on the company he started that came up with priceline.com's business model, Walker Digital, where he is now chairman and CEO.

STRATEGY

As its annual reports states, "priceline.com has established itself as one of the most recognized e-commerce brands through an aggressive marketing and promotion campaign." The company launched its memorable television ads in 1999 with former Star Trek star William Shatner. The campaign, called "Troubadour," showed Shatner as a kind of lounge singer crooning such tunes as "Two Tickets to Paradise" and "Age of Aquarius" in his unique and humorous off-key style. price-line.com spent $67.2 million in advertising during 2000.

In an attempt to regain financial momentum as the company's stock plunged, priceline.com decided to position itself as more "cutting edge" with a new national advertising strategy that didn't include Shatner but instead in early 2001 featured the slogan "Spend less. Live more." The new ads, which were done with a significantly reduced advertising budget, featured animation and live-action sequences and were intended to be more consumer-focused than the Shatner ads.

In July, 2001, priceline.com took the campaign one step further, utilizing director Quentin Tarantino along with singer Billy Idol and actor Tony Randall as the television pitchmen for their new "Let's Jet Set" campaign, which ran on the MTV and E! cable channels. The ads also featured the animation/live-action theme and used celebrities' voices to personify traveling to such places as Orlando, London, and New York. The campaign launched with the voice of actress Sarah Jessica Parker.

Recognizing that it was Shatner's commercials that helped make it one of the most recognized brands in the travel industry, priceline.com renewed its affiliation with Shatner in early 2002, launching a string of radio ads with the actor interacting with the company's super computer that worked to find customers the best deals on airline tickets, hotels, and other travel products. The company found the new fun ads also underscored what differentiated it from others in the travel industry.

CHRONOLOGY: Key Dates for priceline.com, Incorporated

1998:

Jay S. Walker founds priceline.com, Inc.

1999:

priceline's initial public offering one of the most successful in history

1999:

Launching of WebHouse Club with gasoline and home grocery delivery services

2000:

Walker steps down as priceline.com's vice-chairman; WebHouse Club closed

2000:

Memorable television ads with former Star Trek star William Shatner launched

2000:

Sales reach more than $1.2 illion.

2001:

priceline posts a quarterly profit for the first time

2001:

priceline allies with online service giant American Online (AOL)

2001:

New priceline.com cruise service launched

2001:

priceline partners with online auctioneer eBay

INFLUENCES

The closing of the disastrous priceline.com licensee WebHouse Club, Inc., which offered discount groceries and gas, the rise of negative reaction in the company's service and customer service areas, and the company's plunging stock price forced the company to revamp its strategy in 2000. priceline.com outlined its new goals in its 2000 annual report: focusing on core businesses, especially travel; strengthening its products and customer services; building international relationships; and motivating and retaining employees. With its new strategy in place, priceline.com was able to not only improve on all the issues mentioned but also strengthen the company's balance sheet, turning in three consecutive quarters of profitability by early 2002.

As the company's stock began to nosedive during the technology bust, priceline.com quickly revised its advertising campaign to reflect a more serious, consumer-oriented attitude - in contrast to the lighthearted, self-parodying Shatner television spots - and focused on characterizing the company's early tremendous success. While priceline.com temporarily shelved Shatner in favor of young, hipper entertainment personalities and cutting-edge animation in their commercials, the company recognized the power of the affiliation with Shatner and began utilizing the actor in a new and more serious yet still characteristically lighthearted manner with a string of radio ads. The new ads still conveyed the unique Shatner quality while emphasizing priceline.com's own unique strengths in the travel service market.

CURRENT TRENDS

priceline.com continued expanding its travel products, launching the priceline.com cruise service with partner National Leisure Group in February 2002. The service offered fixed-price cruises to worldwide destinations at discounted prices. Users could choose from all the largest cruise lines, a variety of worldwide destinations, and a range of time spans.

Early 2002 also saw priceline.com grow its non-travel products with an expansion of the priceline Long Distance's Name Your Own Price service. The expanded service boasted a unique Name Your Own Price phone card and the addition of Qwest Communications International and CNM Network as service partners. The new phone card, which could save users up to 40 percent or more over other phone cards, could be purchased in blocks of time up to 1,000 minutes for calls anywhere in the U.S. and users could print out the phone cards instantly using their own computers.

In February 2002, the company also entered into a long term worldwide technology agreement with Worldspan, the world's number one reservation system and e-commerce provider for the travel industry. The agreement would make Worldspan the preferred global distribution system (GDS) for processing fare searches and reservation requests and allow priceline.com access to greater travel technology, including Worldspan ePricing and enhancements to Worldspan Hotel Select, among other things.

The company also heightened marketing and consumer security protection efforts with Visa U.S.A. by implementing Verified by Visa, an authentication system utilizing passwords for Visa cardholders. Additionally, priceline.com allied with online service giant American Online (AOL) in December 2001 to allow AOL users access to priceline.com's many travel-related services and products through AOL's Travel Channel, including promotion on related sites across CompuServe, Netscape, and MapQuest.

PRODUCTS

priceline.com offers goods and services in the following four areas: travel, including airline tickets, hotel rooms and rental cars; personal finance, including home mortgages, refinancing and home equity loans; automotive, offering new cars; and telecommunications, with a long distance calling service. The company also added two new products in 2002, offering cruises in the travel category and an innovative new long distance calling card that allows users to prepay, pick the amount of calling time, and print the card out from their home computers. Teaming up with online auctioneer eBay in 2002, price-line.com has expanded its travel services beyond the priceline.com Web site.

TO BOLDLY GO WHERE NO PITCHMAN HAS GONE BEFORE

If you missed the quirky stylings of Star Trek's own original Captain Kirk extolling the virtues of price-line.com the first time around on television, you can now catch four of the ads, entitled Age of Aquarius, Convoy, The King and Paradise, on http://www.priceline.com/media/plmedia.htm. Foregoing a paycheck, the actor instead accepted 125,000 shares of priceline.com pre-IPO stock. The crooning pitchman's portfolio was at one time worth an estimated $20.6 million when priceline.com's stock peaked at $165.00 per share but ebbed considerably when the company's stock sank to around $4.00. Shatner did, though, manage to exercise 35,000 options the following year at about $95.00 a share for a total of more than $3 million.

GLOBAL PRESENCE

With hotel and resort property affiliations in the U.S., the U.S. Virgin Islands, Puerto Rico, the Bahamas, Canada, and Mexico, the launch of priceline Europe in October 2001 expanded the company's worldwide presence, allowing U.S. customers to reserve hotel rooms in fifty cities and towns in Europe through its Web site. Countries include Austria, Belgium, England, the Czech Republic, France, Germany, Holland, Ireland, Italy, Scotland, Spain, Switzerland, and Wales. The service increased priceline.com's airline ticket service from the U.S. to 250 international sites. Since June 2000, the company entered several Asian markets, including Japan, in an agreement with subsidiaries of Hutchison Whampoa Limited, forming Hutchison-Priceline Limited.

CORPORATE CITIZENSHIP

Priceline strongly believes in giving back to the community. Employees of the company may become involved in a number of charitable events, including the AmeriCares Homefront program.

EMPLOYMENT

The company employs about 359 full-time employees, as well as a number of independent contractors in its customer service and system support areas. The company considers its relations with its employees to be good. Since priceline.com considers intellectual capital its most important asset, it continues efforts to attract, retain, and motivate highly qualified technical and management personnel in a highly competitive environment. The company also organizes events such as local softball, basketball, and golf leagues for its employees.

SOURCES OF INFORMATION

Bibliography

"beam me up?" canadian business, 16 april 2001.

grossberg, joshua. "the price (line) isn't right for shatner." e! online, 12 december 2000. available at http://www.eonline.com.

"priceline makes european move." ft.com, 12 october 2001. available at http://news.ft.com.

"priceline revamps ad strategy, sans shatner." adweek eastern edition, 8 january 2001.

priceline.com home page, 2002. available at http://www.priceline.com.

"priceline.com incorporated." hoover's online, 25 february 2002. available at http://www.hoovers.com.

"priceline.com inc." gale group, 2002. available at http://www.galenet.galegroup.com.

"[email protected] inc." yahoo! finance. available at http://biz.yahoo.com.

"s&p says hold priceline." business week online, 5 february 2002.

"shatner returns in priceline radio spots." adweek eastern edition, 19 february 2001.

"tarantino's travels." adweek eastern edition, 30 july 2001.

"william shatner takes center stage in new priceline.com advertising campaign launching today." newstream, february 2002. available at http://www.newstream.com.

"worldspan, priceline.com announce new long-term worldwide agreement." pr newswire, 5 february 2002.

For an annual report:

on the internet at: http://www.priceline.comor write: price-line.com inc., 800 connecticut ave., norwalk, ct 06854

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. priceline.com's primary sics are:

7373 computer integrated systems design

7389 business services, not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. price-line.com's primary naics code is:

541512 computer systems design services