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http://www.ecommerce-guide.com/news/trends/article.php/111561
By January 22, 1999 By Lorraine Sileo, PhoCusWright Information Services When priceline.com launched its name your price travel booking service in April 1998, the Internet travel industry watched closely. The company sounded too good to be true: finally, a REAL discount booking service, not like those low fare or cheap ticket Web sites that really are no bargain. What the last nine months have shown, however, is that too good to be true applies to priceline.com''s business model as well. The company holds much promise, and generated more enthusiasm than possibly any other online travel service. But the balance sheet reveals a struggling, unproven business model. Not struggling so much that underwriter Morgan Stanley Co. isn''t ready to take the fledgling company public. Priceline.com filed for an initial public offering (IPO) Dec. 23, 1998 with plans to raise $115 million. Headed by successful entrepreneur Jay Walker, priceline.com is ready to ride the eCommerce bandwagon to Wall Street. Spending more than $10 million on newspaper and radio advertising has earned priceline.com notoriety as the best- known Internet travel brand, and it''s time to cash in.
The Model Backfired Priceline.com''s strategy -- to make money on the spread between the customer''s named price and the fare or rate charged by the supplier -- backfired in the first nine months of 1998. Less than 10% of all consumers'' offers were fulfilled, and the company had to take measures to increase the number of successful requests, according to the prospectus. To boost satisfaction levels, priceline.com sold many tickets below the supplier''s price and swallowed the difference. That explains why the company reported $16.2 million in gross revenues for the nine-month period ending Sept. 30, 1998, but a gross loss of $550,064. Including other expenses, Priceline.com had a net loss of $38.5 million for the nine months. Most Internet travel agencies report revenue as commissions, not gross travel sold. For example, Preview Travel sold $143 million in gross travel for the same nine- month period, resulting in $14.4 million in revenues. Priceline.com, however, reports gross revenue (excluding certain taxes and fees) because it is the merchant of record and records as revenue the amount it collects from the customer. Other signs show priceline.com is a healthy business: 16 domestic and international airlines participate by filing special rates in priceline.com''s private database on the Worldspan CRS. The company sold 67,275 airline tickets in the nine-month period, representing $15.5 million in revenue. The average ticket price is $230 (below the $241 average for a discount coach fare). It reported selling more than 100,000 tickets as of December 1998, which would bring total 1998 air bookings to more than $23 million. |
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