Priceline's 10-year trek to Net profits

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Priceline Timeline

1994: Jay Walker of Stamford, Conn., founds think tank Walker Digital to develop new Internet business models.
1996-97: Walker applies for a patent for his "demand collection" pricing system and founds Priceline.com.
1998: Priceline.com officially launches in April and receives more than a half-million hits on its first day.
1999: Priceline's initial public offering brings a $16 share price on opening day and $165 a share 30 days later.
2000: Priceline abandons efforts to extend its name-your-own-price model to commodities such as gasoline and groceries in order to focus on travel. The company acquires Lowfares.com, and Walker steps down from management.
2002: Priceline names Jeffery Boyd CEO.
2003: Priceline exits car sales and telephone long-distance sales and creates investment agreements with TravelWebLLC.
2004-05: Priceline acquires Active Hotels and Bookings B.V. in Europe, which are combined into Booking.com.
2007: Acquires Singapore-based Agoda Hotels for online hotel-booking services in Asia.
2008: Celebrates 10th anniversary; reports international booking growth of 110% for 2007.

NORWALK, Conn. -- A walk through the offices of Priceline.com offers a sense of why this company, which built a reputation on negotiated low-price travel, has realized such strong profits for the last five years: It lives its low-cost mantra.

The multibillion-dollar online travel operation, which now attracts customers from around the globe, eschews elegance and pretense. One of several business tenants in a modern, nondescript building, it occupies two floors of office space.

Its main floor is neat, tidy and unspectacular, with rows of gray-carpeted cubicles. A small inflatable plastic jet marks the location of its Airline Division within the room.

Interior walls are decorated with pictures, newspaper clippings and autographed memorabilia from -- no surprise here -- "The Negotiator," better known as William Shatner, a.k.a Captain Kirk, commander of Starship Enterprise. Shatner has become synonymous with Priceline.com, thanks to a decade of ubiquitous radio and TV ads.

The floor above the one shared by Priceline's top executives and worker bees is filled with sophisticated computer servers that crunch millions of transactions from around the world, 24/7. Pop into the boardroom (again, nothing fancy) and you find CEO Jeffery Boyd dressed casually enough for mowing the yard. No suits or ties are in evidence anywhere.

Frugality and a lack of pretense only save money, of course; they don't make money. But tight management of both sides of the ledger benefits investors, who have steadily pushed up the company's shares since 2003. The stock price, which climbed above $120 this year, has been rising ever since the online travel industry righted itself after the Internet bubble popped in 2000 and after the fallout from the terrorist attacks on the U.S. in 2001.

Next month, Priceline will celebrate its 10th anniversary and its metamorphosis from a company that started with the idea of selling unused airline tickets, then moved to commodities like gasoline and food at negotiated prices and finally became a travel-only online provider that has won rave reviews from travelers for finding hotel deals internationally.

It now earns most of its money marketing hotel rooms, a model different from that of competitors such as Orbitz, which derive the majority of their revenue from air bookings.

While Priceline achieved something of a juggernaut status with its name-your-own-price concept in the U.S., it has now moved well beyond that business plan overseas into a pure retail play.

In Europe, Priceline's newest brands, Booking.com and Activehotels.com, don't even mention "The Negotiator." And they don't offer name-your-own-price services like those that enable users in the U.S. to bid and deal a la Shatner's ads.

An aggressive acquisition strategy led by Boyd and his tightly knit executive team has paid off handsomely for Priceline. Unlike the U.S., where hotel chains dominate the accommodations market, in Europe independent hotels are the name of the game.

"We've been able to create with Booking.com a network of independent hotels that travelers in Europe might otherwise not find," Boyd said. "With air travel so cheap in Europe, that has helped us grow significantly there."

Europe, Asia hotel bookings are key

Booking.com knits those hotels together in an online network that enables Europeans (who, Boyd noted, have on average nearly twice as many annual vacation days as Americans) to find destinations more efficiently. The company also translates its offers into 16 different languages, a daunting technological challenge that has also paid off well in the company's retail operation. Boyd said hotel bookings in Europe and Asia have accounted for most of the company's recent financial growth.

It has also seen good results from paying close attention to the needs of suppliers.

"Unlike some of our competitors, we work hard at being supplier-friendly," Boyd said. "It's part of our DNA to take care of our supplier partners."

The proof is in the financial statements, of course. Priceline's recent earnings report shows consolidated gross booking growth of 99% in 2007 and 113% in the fourth quarter, climbing from just over $1 billion in 2003 to nearly $5 billion in 2007. International gross bookings, under $100 million in 2003, grew to more than $2.5 billion in 2007. 

The company is seeing rapid growth in Asia, where it has acquired Agoda.com, a hotel reservations service that, like its European counterpart, brings independent hotels into a network of Priceline offerings.

Keeping costs low is consistent throughout the company. Priceline media relations chief Brian Ek has no staff. Yet as a solo performer in a busy media world, he still finds time to ferret out "Price Breakers," the top 20 daily travel deals he reviews each morning for a daily e-mail blast to Priceline RSS-feed subscribers.

Priceline's savvy branding strategies date to founder Jay Walker's contract with Shatner to do radio spots in 1998 when the company launched. Over the years, it has been complemented with an array of new offerings for travelers, according to Brett Keller, the chief marketing strategist for the company. Among those offerings, for example, is bundling flight and car rental.

"This is unique in the industry now," said Keller, who added that response so far has been strong.

Keller, who said he was a "Trekkie" as a kid, keeps plenty of Shatner knickknacks in his small office, along with a plastic brain in a jar that he inherited from Walker when the founder stepped down from the company several years ago.

Visitors will find the blue hot-line phone Shatner uses in the TV ads among the items on Keller's desk.

He also keeps copies of the latest commercials in his office and, after some coaxing, revealed the latest not-yet-released TV spot, with an admonition: "That has to be on deep background." About all we can say here is that it's cute and features not ninjas but a furry, unnamed animal.

In addition to promoting the iconic brand, Keller has overseen a constant stream of innovative tools, including two new Web offerings in the past month.

Taking the 'Inside Track'

"Inside Track" enables users to keep an eye on pricing trends: when flight prices drop on particular routes, the best days to travel in the week, and other tips that help travelers formulate successful bids for airline tickets, hotels and car rental.

The company also shows shoppers how to base bids on competitors' pricing, offering recommendations on how much lower to go in making a name-your-price bid.

Keller also guides the new flight-plus-car-rental options that promote savings for busy travelers, and the newest offering, released late last month, called "My Deals," which Keller describes as a widget that helps keep track of hotel prices and fares automatically for travelers with upcoming trips.

Perhaps the highest profile deal of all for Priceline has been its decision to stop charging booking fees for travelers, something it now promotes frequently on its Web site and in its commercials.

Because competitors Expedia and Orbitz have not followed suit, Priceline can use the move to tout its lowest-cost offerings.

Boyd said that decision produced clear benefits for Priceline over competitors because it is focused on hotel bookings rather than air fares.

"We don't do as much air fare business as our competitors," Boyd said, "so the impact is not as great for us as it might be for Orbitz or Expedia. It gives us another point of differentiation."

That differentiation and its advertising value outweigh the loss of fees, which amount to about $5 in revenue per transaction for other online travel agencies, he said.

While analysts often point to Priceline's marketing strategy with Shatner as a deal-maker for the company, Ek noted that the relationship has been beneficial to Shatner, as well.

"He always had such serious roles before he got involved with Priceline," Ek said as he cruised down a hall past a life-size cardboard Shatner. We've helped bring out his comic side."

The people who most often don't see anything funny in this, Ek noted, are Priceline's competitors.

To contact reporter Dan Luzadder, send e-mail to [email protected].

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