The original idea behind Priceline.com was simple but clever: compile an inventory of airplane seats that go empty, and sell them to people at whatever price they are willing to pay.

Armed with this premise, Priceline opened its virtual doors in April 1998 and quickly made a name for itself. Web surfers seemed enthusiastic about the "name-your-own-price" concept, and soon friends and family members started bragging to one another about the bargain travel arrangements they had made through Priceline.

So the company started expanding, looking for other products and services it could sell at name-your-own prices. Hotel rooms, cars, long-distance telephone service, groceries, gasoline - Priceline tried them all, sometimes with success, and sometimes (in the much-publicized cases of groceries and gasoline) with failure.

Now the Norwalk, Conn., company is planning to offer financial services at full tilt. Mortgages and home-equity loans came online last year, and plans are in place to offer credit cards, auto insurance, and term life insurance at what will likely be fairly attractive prices.

Priceline has had its share of bad news this fall, including the closing of the grocery and gas operation, Priceline WebHouse Club Inc., and lower-than-expected third-quarter earnings. But the company is marching forward with plans to become one of what American Banker is calling the "New Bankers" - companies with little or no prior expertise in banking that think they can capture a share of the market.

"We're building a brand," said Ben Ness, 45, senior vice president for financial services at Priceline. The addition of financial services to the Priceline menu is "a good fit."

The growth strategy centers on geographic expansion. Priceline plans to add name-your-price services for airline tickets, hotel rooms, rental cars, and long-distance telephone calls in Europe by yearend. After that it plans to expand into Australia, New Zealand, Japan, and other parts of Asia. Within the United States, the push will be into consumer goods and financial services.

But treading into new waters may not be as easy as it seems. As eager as mortgage lenders are to pick up new business, it is not as if they have an inventory of products lying fallow, as the airlines and hotels do with their empty seats and rooms.

Mark Mahaney, an analyst at Morgan Stanley Dean Witter & Co., said that when it comes to offering financial services, "it may be too early to tell" how Priceline will fare. "Priceline generally throws things against the wall to see what sticks."

The company's basic formula is best summed up by its airline ticket service. U.S. airlines take off with 500,000 empty seats daily, and Priceline figured it could become a middleman, filling some of those seats by letting travelers name their own ticket price. After a consumer submits a bid, which includes the travel dates, destination, and proposed price, Priceline passes it on to the airlines with which it has agreements, including eight major U.S. and 20 international carriers.

If one of the airlines has an empty seat on a plane that would accommodate the traveler, it can accept the bid and thus have one less empty seat. Priceline sells a whopping 15,000 seats a day and takes a cut of each sale.

The company is selling mortgages, refinancings, and home equity loans in much the same way. People name their own mortgage terms, and 30 minutes to 24 hours later they learn if any of the lenders affiliated with Priceline's two partner companies has accepted the bid. Customers whose bids are accepted get guaranteed closing costs and can lock in their rates.

Priceline's formed its first mortgage partnership in February 1999 with LendingTree, a service quite similar to Priceline that lets people describe what they want in a loan - products include credit cards, small business loans, student loans, and so on - and get offers from interested lenders. The Charlotte, N.C., company has a network of 40 lenders to which it funnels bids from Priceline's seven million customers.

In September 1999 Priceline formed a joint venture with Alliance Capital Partners of Jacksonville, Fla., which owns the $100 million-asset thrift First Alliance Bank. The companies opened PricelineMortgage, which acts as a broker and lender through the thrift.

PricelineMortgage was tested in several markets before it went national in March. Experts say it may have an edge over other online mortgage companies, like MortgageMarvel.com and Loanworks.com, if only because of Priceline's name and reputation for getting people good deals.

Priceline's success has spawned some copycats. On the airline ticket side - which provides most of Priceline's revenues - new companies called Savvio.com and Hotwire.com have set themselves up in direct competition.

Nick Karris, an Internet mortgage analyst at Gomez Advisors Inc., said "the name-your-price model is appealing to consumers who want a good deal." Most other Web sites "only provide products they want consumers to see."

The complexity of mortgages may make them much more difficult to sell through the Priceline format than airline tickets or hotel rooms. Robert Sterling, an analyst with Jupiter Communications, said the problem is "with people who don't know how to compare and contrast prices on mortgages - especially closing costs - and so it might not pack the right punch."

Priceline announced a partnership in July with W.R. Berkley Corp., a Greenwich, Conn., property casualty insurance company, to sell auto and term life policies, thus tapping into another big financial services market. The new Priceline.com Insurance Agency is expected to offer customers another chance to name their own price by early next year.

Cobranded credit cards are also being developed, and Priceline says it will have partners in that field too.

The company will not release figures on the mortgages it has generated, but it does say that within the first 10 months of operation, the PricelineMortgage site generated $3.5 billion of loan requests, and mortgages were closed in 45 states.

Priceline's corporate strategy is drawing some mixed reviews. On the plus side, people point to the strength of the brand, which has helped Priceline raise money, go public, and get William Shatner of "Star Trek" fame to appear on its television commercials.

It has also helped attract top talent, including several former Citigroup Inc. executives. The first of these was Richard S. Braddock, former president of Citibank, who joined Priceline in August 1998 and is now its chairman. Mr. Braddock was Priceline's chief executive officer until May, when he was succeeded by Daniel Schulman, former president of AT&T Consumer Services.

Heidi Miller, formerly chief financial officer of Citigroup, joined Priceline in February as senior executive vice president and chief financial officer. William F. Pike, formerly director of investor relations at Citi, was named vice president of financial planning, analysis, and investor relations in April. Mr. Ness also hails from Citibank.

Last month - before the brunt of Priceline's problems hit - the Saudi Arabian prince Alwaleed bin Talal agreed to double his investment in the company, to $100 million.

But the news has been all downhill since then, and Priceline founder Jay S. Walker - who once boasted that "there is no category we won't be in" - has found himself on the hot seat.

On Sept. 27 Priceline announced that its third-quarter revenues would fall short of expectations, mainly because of sluggish sales in its core product, airline tickets. The company's stock fell 40% that day, to what was then a record low of $10.75. Priceline's stock had been trading as high as $104.25 a share in March, but the company was trading midday Thursday at $5.40625.

In the fallout from the third-quarter warning, at least three class actions from disgruntled shareholders were filed against the company.

This month brought the news that the Priceline WebHouse Club, which was started by Mr. Walker but is technically separate from Priceline.com, would be winding down operations over three months. The service, which ran out of money, is already closed.

Priceline issued a statement trying to distance itself from the failure, saying "WebHouse Club is a separate company that licensed Priceline.com's business model and offered groceries and gasoline on the Priceline.com Web site."

Customer complaints also reached a crescendo this month, and Connecticut's attorney general, Richard Blumenthal, opened a consumer protection investigation into the company.

He said his office had received more than 100 complaints over a few months, and was looking into whether the company made full and accurate disclosures of product terms, prices, and conditions. The investigation will focus on airline tickets, gasoline, and long-distance telephone calls, he said.

Mr. Ness insists the complaints come from the travel side, not from mortgages. The businesses maintain different call centers, four for travel and two for financial services.

"Mortgages are a different product area," Mr. Ness said. "The staff are employees of a thrift and are trained mortgage professionals."

Despite its woes, Priceline is proceeding with its plans to add financial services products. However, unlike other "New Banker" companies, Priceline has no intention of taking deposits.

"I don't think we'll be selling bank accounts," Mr. Ness said. "We're focusing on lending and insurance, where there are significant margins to be had. That's where we'll come in."


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