In 1998, Priceline had pioneered the revolutionary 'Name Your Own

Price' pricing system that was the inverse of the of the customer-retailer
relationship. Some analysts had raised concerns that a business model
based on the path-breaking NYOP system might not be sustainable.
Priceline had since moved beyond the NYOP system by providing
customers with the option of choosing from a list of published prices for
its travel products and services as well. In a bold move in end2007, the
company permanently eliminated all booking fees on published airfares
taking the analysts and competitors by surprise.
 Business Model
• Demand Collection System -- the patented
"name-your-price" model pioneered by
Priceline.com. Prospective buyer makes a final
(binding) bid for a specified good or service,
and the broker arranges fulfillment.
 What are the core components of
Priceline.com's business model
• The fundamental concept of Priceline.com's model lies in its
reverse auction pricing system which allows its users the ability
to find discount travel related items by placing bids. Priceline's
model is geared toward industries which have rapidly aging
inventory, items such as airplane tickets, hotel room
reservations, and car rentals. The company is not a direct
supplier of these services; it functions more as a middleman,
providing price quotes from various major hotel chains,
airlines, and rental car companies. Its name your own price
system is geared more toward bargain hunters seeking low
prices as selecting the brand of hotel and airline using the
Priceline system is not possible
Do you think Priceline will ultimately succeed or
fail? Why?
• While Priceline initially started out running in the red unable to
generate a profit running at a loss of upwards of $1 billion
during its infancy, it has since reached the point of profitability.
Since its turnaround in 2003 it has been able to reach and
maintain sustained profitability. This is due to the demand from
consumers for discount travel tickets and hotels. The reverse
auction model which Priceline uses to link the sellers with
buyers is what has made it profitable. However, during times of
recession luxury items are usually sacrificed by the consumer
and thus the impending recession will have a significant impact
on the travel and tourism industry which in turn could cut into
Priceline's profitability
 How has Priceline (and similar online services)
impacted the travel services industry?
• The use of these business models has given the travel
services industry more flexibility in arranging for the
sales of its services. This allows vendors the
opportunity to gain additional revenue by selling its
products for below retail prices without having to
change its existing pricing structure. It also allows the
general population an alternate means to book more
affordable vacations
• Priceline core business model appears to have remained relatively the same to
the 2005 version of itself. The same fundamental sections which appear on its
website flights, hotels, rental cars, vacation packages, and cruise services remain
at the heart of Priceline's business model to this day. Its competition comes from
other online middleman companies which exist and operate to this day such as
Expedia.com, Travelocity.com, Hotels.com, Orbitz.com, and Cheaptickets.com.

According to Forbes.com Priceline reported its 2007 4th quarter earnings at

$334.9 million a 28.8% increase from over a year ago. Its gross profit for the
quarter was $160.2 million a 60.9% increase from the previous year.

The update article outlines the recent acquisitions made by Priceline as well as
its earnings per share and overall profitability during the four quarters of 2007. It
also details various strategic moves made by the company to gain and edge over
competitor travel booking sites such as Expedia, Travelocity, and Orbitz.
• With this in mind the core components of Priceline’s business model
are based around their pioneered and patented reverse auction
pricing model which is a unique offering within the travel market
place. This innovative model allows consumers to purchase travel
services  at a discounted prices by trading off brand and features.
• Michael Rappa explains that Priceline uses a business model known as
brokerage model where a business creates their own market by
bringing buyers and sellers together. Priceline operate as the middle
man or broker bringing the two parties together in a seamless and
friendly manner.
• Priceline receives it’s revenue based on the difference between the
“Name your own price” amount entered by the customer and the
amount charged by the service provider such as the airline.
• During Priceline’s early start up days they experimented with variations of its business model by
offering groceries and gasoline, which initially had negative impacts on profitability. However
Priceline’s management were able to adapt and focus their model so that it started producing
significant returns. This is evident by the fact that Priceline improved from a $1 billion loss to a
profit of over $10 million between the years of 1999 to 2003. Since 2003 Priceline has continued
to be profitable and grow, increasing its stock price over 27 times from its lowest to slightly
under $200 USD in 2010 and is now sporting a market valuation of $8.8 billion. Priceline’s
revenues are expected to grow 20 percent in 2010, compared with 11 percent at Expedia and 4
percent at Orbitz. If the past few years are any indication, maybe, just maybe, bad times aren’t
that bad for Priceline . Additionally Priceline recently announced a ground breaking hotel price
guarantee that pays customers a nominal reward if they find a lower price than the one offered
by Priceline. As part of their expansion and growth they recently acquired the multinational car
hire reservation service TravelJigsaw to provide more their value added services to their
customers. (Priceline Investor Relations)
• Although the travel industry is saturated and has ever increasing competition, the population of
the internet and those willing to buy goods and services over the web also continues to grow.
This should also assist Priceline with its well known and strong brand advertising to help
maintain their reasonably dominant market share.
 How has Priceline and similar online services impacted the travel services industry
• Priceline and other online services have changed the travel industry by acting as the go
between providing consumers access to deals with travel providers such as airlines or
hotels therefore reducing the layers of separation and the need for agents and broker fees.
Additionally Priceline and similar services have provided an avenue for travel services to
clear excess inventory and receive revenue from airline seats or hotel rooms which would
have otherwise remain unfilled. These efficiencies have reduced the costs to travel
providers such as cuts in the booking fees airlines pay distributors. Ultimately lowering
costs to consumers.
• Services like Priceline have caused a shift in consumer demographics to consumers with a
short attention span, and simple easy to use (user friendly) facilities (
Business trends in the travel industry). Additionally opening up a new demographic of
consumers who previously could not afford airline travel.
• Niche travel deals allowing travel services such as airlines and hotels to offer fairly unique
one off deals to sell just a few remaining seats or rooms. Without the online services of
companies like Priceline it would be difficult if not impossible for travel service providers to
advertise these niche deals without impacting their normal retail offering.
• As Priceline and other similar services aggregate airline and hotel services they turn them
into commodities where people only shop based on price. Brand and other features
become non existent when products and services are aggregated against each other purely
based on price
Has Priceline’s business model changed since 2007? And if so how? Who are
its strongest competitors? Is it profitable or operating at a loss?
• Priceline has changed its business model since 2007 focusing more on traditional online reservation services where
customers have the flexibility to select from brand and features rather than their more restrictive and discount “Name
your own price” model. The Priceline website is now organized much like those of its competitors. Customers can still
choose to bid, but this is no longer the only option. More alternatives, up to a point, usually increase customer
satisfaction and this has been the case for Priceline, now up 6% to an all-time high ACSI score of 76. Value for money
remains high, strengthened by elimination of booking fees, while service quality has improved. Alongside the
improvement in customer satisfaction, Priceline’s stock value soared by nearly 200% in 2009 (ACSI).
• Priceline also continues to strive towards providing customers with a superior user-friendly service such as the launch in
Jan 2009 of a The Travel Ekspert blog providing advice to consumers and also offering over 2.5 million hotel reviews (
PhoCusWright).
• As detailed by Answers.com Priceline’s strongest competitors would be:
• Expedia
Orbitz Worldwide
Travelocity
• As shown in the direct competitor comparison chart provided here by Yahoo Finance Priceline is well above the industry
average and competing quite strongly against it’s direct competitors. However due to the fact that Travelocity is a
privately held company they can not be included in the comparison and their position is relatively unknown.
• Priceline is currently operating at a profit which can be seen in these key statistics published on Answers.com
• Key numbers for fiscal year ending December, 2009:
Sales: $2,338.2M
One year growth: 24.1%
Net income: $489.5M
Income growth: 153.0%
Employee growth: 12.9%
• This profit and growth is quite positive given that the world
has recently been through a global financial crisis and is still
recovering from this and the fact that during this time travel
generally takes a lower priority. Given this Priceline is doing all
the right things to keep consumers traveling.
 Gross Booking
$4,500 Domestic
International*
*
$4,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
 Domestic International** Total

2Q08 $872 1,238 $2,110

3Q08 $800 1,251 $2,051

4Q08 $689 792 $1,481

1Q09 $851 1,092 $1,943

2Q09 $964 1,415 $2,379

3Q09 $999 1,724 $2,723

4Q09 $831 1,433 $2,264

1Q10 $989 1,975 $2,964

2Q10 $1,154 2,256 $3,410

3Q10 $1,121 2,885 $4,006

 Gross Booking
$4,500
$4,000
$3,500
$3,000
$2,500 Agency
Merchant**
$2,000
Total
$1,500
$1,000
$500
$0
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
 Agency Merchant** Total

2Q08 $1,657 453 2110

3Q08 $1,604 447 2051

4Q08 $1,108 373 1481

1Q09 $1,470 474 1944

2Q09 $1,825 555 2380

3Q09 $2,131 592 2723

4Q09 $1,766 498 2264

1Q10 $2,374 591 2965

2Q10 $2,683 727 3410

3Q10 $3,168 838 4006

 Growth Yr/Yr
90.0%

80.0%

70.0%

60.0%

50.0% Domestic
International
40.0%
Total
30.0%

20.0%

10.0%

0.0%
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
 Domestic International Total

2Q08 59.2% 80.1% 70.9%

3Q08 32.8% 58.6% 47.4%

4Q08 31.1% 16.5% 22.9%

1Q09 18.1% 5.3% 10.5%

2Q09 10.6% 14.3% 12.8%

3Q09 24.9% 37.8% 32.8%

4Q09 20.6% 81.0% 52.9%

1Q10 16.2% 80.8% 52.5%

2Q10 19.6% 59.5% 43.3%

3Q10 12.2% 67.3% 47.1%

 Growth Agency/Merchent

90.0%
80.0%
70.0%
60.0%
50.0% Agency
Merchant
40.0%
Total
30.0%
20.0%
10.0%
0.0%
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
 Agency Merchant Total

2Q08 80.2% 43.6% 70.9%

3Q08 53.8% 28.3% 47.4%

4Q08 21.4% 27.5% 22.9%

1Q09 7.3% 21.9% 10.5%

2Q09 10.1% 22.4% 12.8%

3Q09 32.9% 32.6% 32.8%

4Q09 59.4% 33.5% 52.9%

1Q10 61.5% 24.8% 52.5%

2Q10 47.0% 31.1% 43.3%

3Q10 48.7% 41.4% 47.1%

 Units Sold
30.0 Hotel Room-Nights
Rental Car Days
Airline Tickets

25.0

20.0

15.0

10.0

5.0

-
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
 Hotel Room-
Nights Rental Car Days Airline Tickets

2Q08 10.9 2.8 1.4

3Q08 11.4 2.3 1.2

4Q08 9.1 2.2 1.1

1Q09 12.8 3.0 1.5

2Q09 15.7 3.2 1.6

3Q09 17.9 2.6 1.5

4Q09 14.6 2.4 1.3

1Q10 20.0 3.0 1.5

2Q10 23.2 4.3 1.6

3Q10 27.5 5.1 1.5

 Growth
120.0%

100.0%

80.0%

60.0% Hotel Room-Nights

Rental Car Days
40.0% Airline Tickets

20.0%

0.0%
08 08 08 09 09 09 09 10 10 10
Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
-20.0% 2
 Hotel Room-
Nights Rental Car Days Airline Tickets

2Q08 50.2% 23.6% 98.2%

3Q08 43.6% -0.2% 44.8%

4Q08 38.0% 11.1% 43.7%

1Q09 36.4% 15.4% 28.0%

2Q09 44.0% 15.0% 13.9%

3Q09 56.3% 11.6% 30.2%

4Q09 59.9% 6.6% 16.2%

1Q10 56.8% -0.9% 2.8%

2Q10 48.2% 32.0% 4.1%

3Q10 54.1% 97.3% -4.6%

$1,200.0

$1,000.0

$800.0

$600.0 Revenue
Gross Profit
$400.0

$200.0

$0.0
2Q083Q084Q081Q092Q093Q094Q091Q102Q103Q10
 Revenue Gross Profit

2Q08 $514.0 $253.7

3Q08 $561.6 $316.1

4Q08 $406.0 $205.1

1Q09 $462.1 $208.3

2Q09 $603.7 $305.2

3Q09 $730.7 $434.0

4Q09 $541.8 $313.2

1Q10 $584.4 $319.1

2Q10 $767.4 $445.3

3Q10 $1,001.8 $666.2

 Growth
70.0%

60.0%

50.0%

40.0%
Revenue
30.0% Gross Profit

20.0%

10.0%

0.0%
2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 1Q10 2Q10 3Q10
 Revenue Gross Profit

2Q8 44.4% 61.4%

3Q8 34.6% 56.2%

4Q8 21.3% 28.0%

1Q9 14.6% 15.0%

2Q9 17.5% 20.3%

3Q9 30.1% 37.3%

4Q9 33.4% 52.7%

1Q10 26.5% 52.7%

2Q10 27.1% 45.9%

3Q10 37.1% 53.5%