Letting The Masses Name Their Price

The doubters keep dogging Priceline.com Inc. The company, which pioneered the practice of letting consumers name their own price for airline tickets and other products, faces a new round of challenges: Is it folly to expand into unproven categories like groceries? Will Hotwire, a startup trying to one-up Priceline by offering more options on travel plans, blow it away? Pummeled by these concerns, the company's stock has fallen from a peak of $162 in April 1999 to a near all-time low of $26.

For Priceline founder Jay Walker, the latest critics are like pups yapping at his heels. Rather than fret, he's rolling out a handful of brand new offerings. Priceline will offer term life insurance this fall. Next year, it aims to add auto insurance, business-to-business services, and more travel and telecommunications products. And it plans to launch operations in Europe and Japan.

Uphill battles are nothing new for Walker. Earlier than anyone else, he argued the Web wasn't just a new sales channel, but a a way to utterly transform the way things are bought and sold. If enough consumers were willing to be flexible about brands and product features in exchange for low pricing, the Web could pull together their wants, pronto. Insists Walker: "When you give consumers a chance to truly save money, you succeed."

It didn't look that way when it launched in 1998 with kitschy TV ads featuring Star Trek star William Shatner. Only two of the smallest airlines would provide tickets. But Walker has prevailed: Priceline now handles 4% of all airline sales and has amassed 6.8 million customers. And it has expanded into hotel rooms, new cars, rental cars, and long-distance phone service. Most surprising of all: After burning through $1.2 billion, Priceline is on track to break even this quarter, on about $365 million in estimated sales. Even the risky new grocery and gasoline businesses are expecting positive gross margins by yearend.

Success breeds copycats. Hotwire is backed by six major carriers, including United Airlines Inc. and American Airlines Inc. Other rivals include Mercata Inc.'s group-buying service. To stay ahead--and get "really big," as Shatner likes to say--Priceline will have to keep going where no retailer has gone before.

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