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Jay Walker: The Priceline Mogul Races for New Markets The mastermind behind the name-your-own-price Web sensation must now expand his franchise from plane tickets to food -- to just about anything In the price-obsessed world of Jay S. Walker, even toothpaste and tuna are too expensive. The frenetic vice-chairman and mastermind behind priceline.com is extending his name-your-own-price franchise to food and groceries this fall. The new service, called WebHouse Club, announced on Sept. 21, will start by allowing New York City-area shoppers to say how much they'll spend on certain items without knowing the brand, and 600 area grocery stores will choose whether to accept the offer. Sounds like a stretch? Not to Walker, who hopes to expand his franchise from a focus on plane tickets and hotel rooms to almost anything people can buy. Says Walker: "This is just the start." Some people are predicting that this is actually the end, at least where priceline.com's grip on name-your-price shopping is concerned. With a foray announced on Sept. 8, Microsoft Corp. is the latest -- and most powerful -- competitor to launch a similar system, in this case for selling hotel rooms through its Expedia Web site. Priceline.com's stock when into a swoon after the announcement -- dropping from $68 to $55 per share in three days before recovering to $67.
What matters now is not whether Walker can defend those patents, observers say, but how fast he can leverage his assets to build new markets before competitors do. Analysts credit Walker's pricing model with changing the way people shop for plane tickets, hotel rooms, cars, or even mortgages. Not only do users bid on something without knowing the brand but they also must commit their credit card for an instant sale if the offer is accepted. Unique? Sure. A legal monopoly? Not likely, says Sara Zeilstra of Warburg Dillon Read. "I don't think anyone questioned that others would come up with name-your-own-price models," says Zeilstra, who upgraded her rating to a strong buy this week because of the company's future prospects. "The patent was more like a stiff arm that kept competitors away for a while." Walker remains so utterly convinced that his ideas are revolutionary that he has 20 more patents pending for different applications of priceline.com's business processes. What's more, he has filed a stunning 250 patents to protect the other ideas that have been developed at Walker Digital, his research center. It's all part of his quest to profit from new ways of doing business. "Jay picks apart a process and looks at the pieces in a different way," says Nicholas J. Nicholas, a priceline.com director and former co-CEO of Time Warner. "I think we've barely begun to scratch the surface here."
When you see how it works, priceline.com looks innovative -- but hardly revolutionary. Customers may bid for an item, but Walker's team already has an ever-changing list of acceptable prices from potential sellers. If customers manage to bid at -- or above -- the seller's offer, the deal is done. Otherwise, they're rejected and told to try again. Consumers can haggle all they want, but companies retain the ultimate control. "SERIAL ENTREPRENEUR." The public company's senior executives try to speak modestly and in measured tones about their aspirations. Walker, on the other hand, gloats with buoyant predictions: "We believe we can serve tens of millions of customers in dozens and dozens of categories -- in both consumer and business-to-business transactions," he says. Nancy B. Peretsman, a priceline.com director and partner at Allen & Co., isn't about to disagree. "When the company released its forecasts at the beginning of this year, Jay was the only who said they were way too conservative," she says, "and he was dead-on right." Nobody can accuse Walker of being too conservative with WebHouse Club. When the grocery shopping service goes live on Nov. 1, shoppers will be able to name the price they're willing to pay for more than 140 categories of items, including pet food, snacks, ice cream, and even meat. But they must specify at least two brands they're willing to buy and agree to have their credit-card automatically charged if the prices are accepted. And once they get to the store to pick up their items, the process is unwieldy, with WebHouse Club purchases tied to a special club card, while all other groceries must be bought separately. Will it work? The service is likely to woo coupon-clippers, but analysts question if the average shopper will go through name-your-price hassles for food. In their minds, this kind of service works better for big-ticket items like plane tickets, where the effort can mean hundreds of dollars in savings. But others suggest that the new service could increase priceline.com's customer loyalty as users begin to log on more often for regular deals. Walker has certainly had his share of both successes and failures in his career. Walker launched his first money-making venture at the age of 8, when he began hawking candy to kids at camp. "The profit margin was very good," he says. "When you're at camp, candy is in short supply." He later moved on to Cornell University, where he briefly dropped out to start a free weekly newspaper to compete against The Ithaca Post. Walker says the venture struggled for more than two years, finally collapsing when the daily launched a competing weekly and gave away the advertising for free. By the time Walker graduated from Cornell, he owed about $500,000 to Bankers Trust. Luckily, he had also co-written a book, 1,000 Ways to Win at Monopoly, which largely helped to pay off the debt. "I'm one of those people who is a serial entrepreneur," he says. "For all of my adult life, and for most of my childhood, I started businesses."
He used some of that money to set up Walker Digital a year later and soon began working on the concept for priceline.com, which launched in April, 1998. Despite the accolades it has received, his first online venture remains a money-loser, for now. But analysts generally expect priceline.com to start turning profits by the end of next year. "Because it's innovative, it's not without controversy," observes Rakesh Sood, an analyst at Goldman Sachs. "It's also unique and very creative...and scale begets scale." ROCKET SPEED. The scale is increasing at rocket speed. Revenues shot up to $111.6 million in the quarter ending June 30, from $49.4 million for the previous three months. That still meant an operating loss of $16.2 million, but the losses have shrunk from $17.6 million and $73.9 million in the prior two quarters. Although priceline.com's stock price is well off its April high of $165, Walker's shares are still worth more than $4 billion. So how does the billionaire spend his money? Collecting error currency and expensive memorabilia is one way. His moon-landing flags are signed by astronauts, and Richard Nixon's original resignation letter to Henry Kissinger sits on his wall. Walker also has leather-bound books stuffed into his office, part of a 10,000-volume library. His main worry is protecting his 14-year-old son, 12-year-old daughter, and wife from the weirdos who may covet his riches. As a result, he has taken to coaching them on security and prefers not to say where he lives. But there's always more money to made. And Walker claims to work 12 hours a day -- seven days a week. If anyone is reluctant to take priceline.com's success for granted, it's Walker. "We're pitching in the World Series, and we're up two runs, but it's only the first inning," he says. For Walker, the game has just begun. Diane Brady is Business Week's Connecticut bureau chief. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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Priceline.com's Jay Walker RELATED ITEMS Q&A with Priceline's Walker: "It's a Completely New Way of Buying" "Priceline: A Net Monopoly No Longer?" "The e.biz 25: Masters of the Web Universe" WEB POINTERS Click here to visit sites mentioned in the story: priceline.com Warburg Dillon Read Expedia NewSub Services Goldman Sachs Walker Digital | |||||||||||||||
