1. THE PRIMARY OBJECTIVES OF PRICELINE CASE STUDY WERE:
1) EXAMINE JAY WALKER’S INNOVATIVE PRICE
MODEL (TRADING THE RIGHT TO SELECT
BRAND FOR COST SAVINGS)
2) EXPLORE HOW STRATEGIC PARTNERSHIPS
MAY HELP IN BUILDING A BUSINESS, BUT ALSO
POSE CONFLICTS FOR CUSTOMERS/PARTNERS
3) DISCUSS WHY DID WEBHOUSE FAIL

2. Follow-up - Aug 2000 Expanded into gasoline retailing
- Sep Operated in 10 US markets with 7,000 grocery
stores, 1.5M customers (averaged $10 savings),
was adding 100,000 customers/week, supported
over 140 manufacturers, and over 100 marketing
offers. Also had 600,000 gasoline customers
(average $0.12 per gallon)
- Late Sep Laid off 40 employees contractors
- Oct 5, 2000 Walker announced the closing of WebHouse
375 employees were terminated
Investors lost over $360 M

3. Announcement to Close WebHouse
“The unfortunate and terrible disappointment is that capital
markets just aren’t going to let us finish what we started.
It is like having your baseball game rained out when you
are ahead. It doesn’t say anything about your ball team.
It’s just the weather.
The prudent thing to do was not to bet that the capital
markets would reverse again and start to love unprofitable,
large-scale, business-to-consumers Internet companies.
You don’t build oil rigs when oil is at $8 a barrel”
Jay Walker
October 5, 2000

4. Magnitude of Subsidy required from Manufacturers
Full Retail Price $1.50
WebHouse Discounted Price (28% of retail price) $1.08
Wholesale price by manufacture (60% of retail price) $0.90
Cost of goods sold (50% of wholesale price) $0.45
Manufacturer’s gross margin $0.45
Payment required to cover gap between
full retail price and WebHouse discounted price $.042

5. Homework due next session
Read: Chapter 4 (Customer interface)
Prepare Case: Priceline Webhouse Club
Read article:
“E-Loyalty: Your Secret Weapon on the Web”

6. TODAY’S CLASS 5:00-6:15 Business Models (Cont.) Case: WebHouse Club
6:15-6:30 Break
6:30-7:50 Group Meeting

7. Value Cluster Customer segments:
- People willing to trade brands for cost savings
- Airlines (Last minute excess capacity)
- Sponsors of promotional programs
Customer-driven benefits offered:
- Cost savings
- A shield to address excess capacity without affecting
fair structure
- Promotional programs
Supportive rationale:
- Partnerships (8 major US. Airlines)
- Patents
- Technology + information

8. Financial Model - Retained spread between customer’s bid and
lowest fair offered by airline partners
- Participation in promotional programs

9. Marketspace Offering Based on buyer’s selection of a fare
and specific city-pair:
Airline ticket
(flexible brand and product configuration)

10. The Only Constant in E-Models: Constant Changes
B2C
B2B
Mega E-speculator Originator
Exchange Specialist
Solution Sell-Side
Provider Asset Exchange
Yahoo! Amazon eBay
…and their
constant evolution
…and their
especialization
Economist, 2/3/2001
HBR, 11/2000