Rethink the Bid-and-Bargain
By AVERY JOHNSON
Staff Reporter of THE WALL STREET JOURNAL
April 7, 2005; Page D2
Travel Web sites that made a splash by allowing people to bid and bargain for trips where the price or brand was hidden are rethinking the way they sell their wares.
Priceline.com Inc., creator of the "Name Your Own Price" technology, next week will relaunch its site to make it look more like IAC/InterActiveCorp's Expedia Inc. and other online travel agencies. Later this month, Priceline will start a travel-research site where users can post reviews. The site will keep the bidding option that became iconic in the dot-com era, but the extent of the new offerings may dwarf those of the old tool.
Traditionally, Priceline works by taking bids on, say, a four-star hotel in a specific neighborhood. Then, it matches a bidder with a hotel willing to accept the asking price. The catch: Consumers don't know what hotel (or airline) they have ended up with until they have made a nonrefundable payment.
Priceline's main competitor, IAC's Hotwire, this month will move away from its formula for selling airfares, in which travelers agree to a price that the site itself offers up without knowing when the plane departs or what airline they will fly. Now, for the majority of trips, the site will start showing customers rough times when flights leave, though the airline will remain a secret. For all trips, it will start giving users the option to click a link that takes them to listed prices with no hidden details.
The moves represent the twilight of an era for the online travel world and a tacit admission by sites that keep some information hidden that they have reached most of the users who want to trade certainty for price.
During the tech boom, Priceline thundered well beyond travel into bidding for products like groceries and gasoline. It had a hot initial public offering in 1999. Scott Barry, a travel analyst at Credit Suisse First Boston, says some enthusiasts suggested that the site had the potential to channel some 2% of gross domestic product.
But more recently, online travel agencies have surpassed the niche occupied by the discounters, and newer travel-search engines like Kayak Software Corp.'s Kayak.com and Mobissimo Inc. have been gobbling up all the attention. PhoCusWright, a market-research firm, says Priceline grabbed 7% of online-travel-agency bookings in 2004, while Hotwire got 3% -- and Expedia got 41%. In 2000 Priceline had an 18% market share.
Part of the problem for the discounters has been that, as travel rebounds, companies have become less willing to offer extra seats and rooms at deep discounts, simply because there are less of them that are empty. At Hotwire, for instance, customers used to be able to get 40% off the listed price on an airline ticket, but more recently have been about to score only about half that.
Only about 20% of Priceline's customers bid successfully for airline tickets on the site, according to the company. Last year, it launched a regular airline page, like the ones at Cendant Corp.'s Orbitz and Sabre Holdings Corp.'s Travelocity, to scoop up the disgruntled losers. By contrast, some 50% of bidders get their hotel room or rental car of choice on Priceline. Next week, the site will have a retail hotel site to capture consumers whose room and car bids failed.
Bidding for TravelMajor "opaque," or blind purchase, sites are incorporating more regular retail offerings.
How it works: Traditionally, users place a bid on a product, like a hotel room with a specific star rating in a city or an airline ticket from one city to another. Priceline then tries to find a hotel or airline willing to sell at the customer's price and matches the two up. Purchases are non-refundable.
How it's changed: Last year, Priceline started selling retail airline tickets. Next week, it will start selling retail hotel rooms and rental cars, using a matrix-based interface like the one Orbitz has. It will also launch a research site called MyTravelGuide later this month.
How it works: The site lists a hotel room in a city or an airfare between cites at a particular price. Travelers can then choose that price, and click through to purchase. Only after the non-refundable purchase do travelers find out exactly where the hotel is located and what hotel it is, or what airline they will fly and what time they will leave.
How it's changed: This month, the site will start making its airfare purchases less opaque. That means that for the majority of flights, Hotwire will tell customers roughly what time the flight departs. For all flights, it will also have a link that takes travelers to a page of listed-fare tickets. Those tickets are now refundable (subject to airline rules).
How it works: Travelers can bid on a number of travel products plus things like Broadway shows. A bid will only be put in at $1 above the highest current bid so a user with a maximum price of $100 will only pay $75 if the other price in the market is $74. Sometimes, the site can take up to 48 hours to hook a buyer up with a hotel.
How it's changed: This year, the site has started selling some cruises and a few hotels at listed prices.
How it works: Ebay has a relatively small travel section where buyers can find everything from airline tickets to luggage. It's not ideal for people who need a flight to a specific destination, but it is one of the largest marketplaces for airline vouchers. It has a partnership with Priceline for people who want to search for specific deals.
How its changed: In 2002, eBay began requiring verification of sellers of certain travel products, such as airline tickets, cruises, hotels, and vacation packages. Now, sellers of these items need to be licensed travel providers.
How it works: Expedia is a full-service online travel agency, which means it sells airline tickets and hotel rooms at listed prices that consumers can see. Those purchases are refundable, again subject to the supplier's rules. (Its parent company, InterActive Corp., purchased Hotwire in 2003.)
How it's changed: In 1999, Expedia launched two products, one called "Expedia bargain fares," which worked like Hotwire, and one called "flight price matcher," which worked like Priceline. It shut the first in April 2001 and the second in August 2002, because of concerns that they were confusing customers.