RealTime IT News

Analysts: Priceline Business Model Still Viable

As a beleaguered Priceline.com prepares to release its third-quarter earnings Thursday, analysts interviewed by Internetnews.com predict that the company may come out its slump but it will have to change its business model to do so.

"Priceline.com's business model is comparable to a Model T," stated Henry Harteveldt, a senior analyst with Forrester Research. "It was good in its time, but it is now outdated. Over time, consumers and the marketplace have changed dramatically and the dynamics between distributor and supplier have also changed.

"The company proved that the Internet can be a revenue management tool, particularly in the travel field, but in essence it was used as a testing laboratory by companies that have now gone on to build a better sandbox," he said.

The name-your-own price e-commerce site certainly has taken its share of hits lately. In recent months its stock has dropped significantly while its hundreds of complaints about poor customer service became very public. The company has already admitted that its third-quarter revenues will be below the range of analysts' estimates.

In fact, the company's stock, which at one time traded at more than $104, showed a high on Thursday at $6 7/8.

Additionally, in early October, the company reported it would soon shut the virtual doors of its WebHouse Club, which enables customers to name their own price for gas and groceries.

"The demise of the WebHouse Club is a sign that priceline.com may not grow up to be what its founder, Jay Walker, thought it would be," observed Steve Vonder Harr, an analyst at The Yankee Group. "Walker thought that this business model represented a way that the Web could revolutionize cross-category merchandising but the death of WebHouse shows that the horizon for naming your own price is not as broad as backers hoped.

"Suppliers have to wonder what incentive retailers would have by putting items on sale perpetually," he countered. "The notion of naming your own price eliminates the middleman and provide efficiency and cost-savings for the customer, but for the manufacturers, it definitely reduces profit margin."

Although priceline.com is down, it is not yet out, noted the analysts.

"The business model is viable still," said Rob Leathern, an analyst with Jupiter Research. "The company has built a decent value proposition, as long as they focus on 'perishable' products. If the company concentrate on travel, there is a core value to what it is offering."

"They need to focus on time-sensitive products," adds Vonder Harr, "An airline ticket or a hotel room are things that have an expiration date. A bottle of catsup, on the other hand, will be available today, tomorrow, next week, next month, etc. It has a shelf life. It has no urgent need."

However, if customer service does not improve, the company doesn't stand a chance for survival, noted Harteveldt.

"When consumers are treated with contempt, they walk away and they don't come back," he said. "Except for the company's travel services, most consumers feel that there are other venues where they can get what they want while receiving better service.

"Meanwhile, suppliers feel that their offerings have value and they do not like the way their services are being represented. Face it, you are known by the company you keep," he said.

"There is a great challenge for Priceline.com to overcome its negative image. Yet, no statements or guarantees have been issued regarding improvements in customer service. Instead it has William Shatner bleating out bad songs," he concluded.

"Priceline needs to do some shor