Brand name isn't everything for Priceline

William Shatner's offbeat commercials for Inc. put the online auctioneer's name on everyone's lips, but the company's stock has fallen from a high of $165 to less than $10 per share - a cautionary tale for would-be electronic retailers, say analysts.

Norwalk, Conn.-based Priceline over the past month has found itself kicked out of the Better Business Bureau of Connecticut and under investigation by Connecticut's attorney general.

In the past three months, Priceline's stock has fallen from $40 per share to $9.31 on the Nasdaq ticker as of 4 p.m. today.

Analysts fault the company for thinking low prices and glitzy packaging alone would pave the way to profitability.

Roughly 70% of Priceline's business comes from the sale of airline tickets. Airlines sell off their difficult-to-move seats via Priceline at rates below their published fares. Yet Priceline often requires travelers to make multiple connections or fly at undesirable times to achieve those savings.

Customers must also agree to buy a ticket at a given price before they know the carrier or time of departure.

"In the process, it's almost become a nefarious brand name," said Henry Harteveldt, a senior analyst at Forrester Research Inc. in Cambridge, Mass.

He said Priceline's focus on letting customers name their own price has neglected customer service.

"You have to support what you sell, and Priceline's been weak in that area," Harteveldt said.

Krista Pappas, director of travel analysis at Gomez Advisors Inc. in Lincoln, Mass., said Priceline may have capitalized on the first wave of Internet commerce, but it failed to keep up with the pace of innovation.

"New business models have come along, and now Priceline's sort of dated," she said. "You don't live long on the cutting edge these days."

One of those business models is San Francisco-based, a site currently in beta testing that is owned by many of the airlines that have been selling via Priceline.

Harteveldt said he believes those airlines will gradually reduce the number of seats they make available to Priceline, leaving it struggling to deliver products to its customers. He noted that supermarkets and gasoline companies may follow suit.

"They're going to decide they can go out and do it themselves," Harteveldt said.

Priceline went public in April 1999 and was trading at $165 per share within a month. Yet, Harteveldt said, "their time in the sun is over."

He said he believes the company can right itself and chart a course to profitability, but "the ongoing livelihood of the company is going to depend on the business decisions they make over the next six to 12 months."

Copyright © 2000 IDG Communications, Inc.

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