Things were looking pretty bleak last fall for Richard S. Braddock, the chairman and chief executive officer of Priceline.com Inc.
Customers were complaining in droves not only to the company, but also to the Connecticut Better Business Bureau, which revoked Pricelines membership in September. The television show 48 Hours aired a segment slamming its customer service. Its stock price which had peaked at $158.88 in May 1999 dropped below $10 and would sink in December to $1.0625.
Suddenly, the company that stormed on to the scene with the revolutionary name-your-own-price concept and applied it successfully to the airline ticket and hotel businesses was seriously stumbling.
One of the few who didnt think Pricelines days were numbered was Mr. Braddock, a former Citibank president. He had joined Priceline, of Norwalk, Conn., in August 1998 after parting ways in 1992 with John S. Reed, then the chairman of Citicorp, and flitting from company to company in the interim. Now, he seems to have hit his stride at Priceline, which recently announced earnings that restored confidence in the venture.
This past quarter, Mr. Braddock brought Priceline into the black for the first time, making it one of the few profitable Internet companies. It made a modest but encouraging profit of $2.8 million compared with an $11.7 million loss in the year-earlier period.
Mr. Braddock said in a phone interview last week that a combination of belt-tightening, focusing on its core business of travel, and an infusion of investment capital from two Asian companies turned things around.
A lot of our problem was perception, which was driven by things like the Internet press, which is a very immature press and doesnt really deeply analyze much of what theyre talking about, he said. Having said that, we had a decent amount of things to work through.
One of the first was customer service. Bob Mylod, Pricelines chief financial officer, said: Our call centers were suffering very, very bad service level when we started experiencing the hyper-growth of the first couple of quarters of 2000. We probably didnt realize that we had an issue until we got well into the third quarter.
Customers were being forced to wait too long on the phone, and not enough complaints were getting resolved, Mr. Mylod said. Eradicating these problems became a top priority, Mr. Mylod said, and Mr. Braddock adopted the mantra, Bad customer service costs a lot of money.
Mr. Mylod, whose father had worked for Mr. Braddock at Citibank, also said some clients were put off by the tradeoffs they had to accept to get the price they wanted for airline tickets. These tradeoffs included circuitous routes, long layovers, and inconvenient travel times. Bad publicity soon followed.
Mr. Braddock eliminated unprofitable lines, including the grocery and gasoline businesses, which were not a good fit with the name-your-own-price model. He laid off about 230 employees, but while that was difficult, he said, it was not as hard as laying off 20,000, as he had done at Citibank.
Another area Priceline pruned out was its banking products. It had cobranded credit cards with Capital One Financial Corp. and the First USA division of Bank One Corp., and last year was considering an ambitious foray into auto insurance, term life insurance, and mortgages. Only mortgages survived; even the credit cards fell by the wayside.
The only surviving piece is a joint venture with Alliance Capital Partners, the Jacksonville, Fla., holding company for Alliance Mortgage.
The venture has done moderate business. I expect good things from that product, because its a very competitive product, Mr. Braddock said. Over time, he said, as consumers get more comfortable buying online, that piece of the business will grow.
Pat McEnerney, executive vice president of Alliance Mortgage, said of Mr. Braddock: In our early meetings with him, it was very clear to us that he had understood the details of the mortgage business. Though it may not have been something that he touched directly at Citibank, he certainly had mastered an awful lot about it, and was able to be a very big help to us in trying to evaluate the best way to push that out to the consumer through Priceline.
The capital infusion Mr. Braddock spoke of came from two companies owned by the Hong Kong billionaire Li Ka-shing: Hutchison Whampoa, in February, and Cheung Kong Ltd., in June.
Mr. Braddock, who knew Mr. Ka-shing from his days at Citibank, said the tycoons investments in his Internet company told the market that here are some fairly sophisticated people who have a totally different view about Pricelines prospects. After that Priceline worked out its problems with the Connecticut Better Business Bureau, which reinstated the companys membership in November.
In the second round of funding from Mr. Ka-shing, Priceline bought out the remaining stock owned by its founder, Jay Walker. Mr. Walker, who did not fully endorse Mr. Braddocks bold moves to change the company, had returned to run the think-tank business that had spawned Priceline, Walker Digital Inc.
Mr. Braddock said of the split: It was clear from my standpoint that Priceline had to become a seriously profitable business, and that we had to be a much more focussed business in order to make that happen, and we could do it in the travel area. I wouldnt say that provoked particularly explicit disagreements, but Jay is about trying to create big ideas.
Mr. Braddock is known as a nuts-and-bolts type of guy, as opposed to a visionary leader like some of the men he has worked for, such as Mr. Walker and Mr. Reed.
On that subject, Mr. Braddock, 59, who kayaks, plays squash, and frequently take long bicycle rides through the hills of his hometown of Old Black Point, Conn., says: Sometimes people who are visionary dont have their feet on the ground and cant get involved with running businesses. And those who run businesses well are more than nuts-and-bolts because they have to sense the strategic direction where the businesses are going.
Mr. Braddock, who received his BA from Dartmouth, has made a habit of operating companies at a profit. After getting his MBA from Harvard he joined General Foods in 1965, and in his nine years there his work included promoting Tang, the orange-flavored drink that became indelibly associated with NASA.
I didnt precisely come up with the idea, and frankly I dont know who did, but its one of those great ideas that probably everyone could take credit for whos around the brand, he said.
Mr. Braddock joined Citibank in 1973 and stayed for 19 years. In the early 1990s the bank ran into severe financial trouble, and Mr. Reed put him in charge of downsizing. Over two years Mr. Braddock cut $1 billion in expenses, a project that included the 20,000 firings.
By the end of 1992 it was evident that he and Mr. Reed had had a falling-out. He declined to explain it in detail. Its sort of obvious what happened, he said. I view the years at Citibank as good years, and I view the years after as frankly better.
After he left Citibank, Mr. Braddock was asked to become chief executive of various Fortune 500 companies. He was mentioned as a possible successor to James Robinson 3d at American Express, but he had other plans. The downsizing at Citibank had left a bitter taste. I decided for the rest of my career I was going to work in growth. I formed a view that large companies were not, generally speaking, good growth engines, because large companies, philosophically speaking, spend most of their time defending what they have.
In 1993 he became a CEO of Medco Containment Services Inc., a young, fast-growing prescription drug benefit company. Six months after he joined, Merck & Co. Inc. bought Medco for $6.5 billion, the largest acquisition in any field that year, Mr. Braddock said.
He exercised his contractual options, and moved on. His career path meandered, as he took jobs at companies including Eastman Kodak, where he was up for the CEO position; Van Kampen/American Capital Inc.; and E-Trade Group. As a director of Lotus Development Corp., he helped negotiate the companys sale in 1995 to International Business Machines Corp. for about $3.52 billion.
In late 1997, while part of a Connecticut venture capital company, General Atlantic Partners of Greenwich, Mr. Braddock met Mr. Walker. Mr. Walker described his name-your-own-price idea, and Mr. Braddock became an early investor in Priceline. Soon, Mr. Walker wooed Mr. Braddock to become the companys first CEO.
In the early days, We were probably one of the fastest-growing companies ever in American business history, Mr. Braddock said. He said he still believes Pricelines model can work in businesses other than hotels and travel, and he said he plans to move into new territories but no sooner than next year.
One analyst covering the company, who asked not to be named, called Priceline a typical Internet story where they got a little too cocky. They were drunk on their own egos. But they sobered up and theyre coming back nicely.