Priceline To Challenge Online Grocers

Name-your-price pioneer priceline.com will license its patented business method to WebHouse Club, Inc. and start marketing groceries to 11 million consumers in New York, New Jersey and Connecticut.

Priceline.com has warrants to become the majority stakeholder in the venture, which is backed by $65 million (US$) in venture capital. WebHouse Club, Inc. will use priceline’s trademark and auction software to run the grocery bidding business.

WebHouse Club will be based on priceline.com’s home page. Bidding for groceries will bridge the Internet and traditional grocery stores, as shoppers will settle on prices for the items they want online, then purchase them at that guaranteed price at the store. Shoppers can choose to negotiate prices with any of the 600 major supermarkets and grocery stores that have signed on to participate in the WebHouse Club network.

Actor William Shatner will be the pitchman for this new service.

Scaleable Across Categories

“The WebHouse Club demonstrates vividly that priceline.com’s name-your-price model is scaleable across almost any product category,” said Jay S. Walker, priceline.com’s founder and vice chairman. “Priceline.com will continue its rapid growth in travel, financial services and automotive sectors while the WebHouse Club focuses its resources entirely to the retail-store segment of buyer-driven commerce.”

Priceline.com hopes that by initially allowing consumers to name their price in more than 140 frequently purchased grocery categories — and eventually expanding to a much wider number — it will substantially pump up the site’s overall traffic.

WebHouse is the latest company to get a boost from priceline.com, which earlier this week announced plans to invest in Lending Tree, the Charlotte, North Carolina online loan marketplace. At Lending Tree, more than 80 lending institutions compete with each other for consumers’ business. Priceline.com has been working with Lending Tree since January to operate priceline.com’s Home Finance service. Priceline.com is among a handful of investors, including Capital Z, GE Capital, Goldman Sachs and Marsh & McLennan, that agreed to invest $50 million in private capital in the lending site.

Interesting Strategy

Priceline faces a crowded field of contenders, including HomeGrocer.com, of Kirkland, Washington and Webvan Group, Inc., a Foster City, California online grocer that has pumped $1 billion into building giant warehouses in 26 cities across the United States.

However, by relying on the infrastructure of already existing brick-and-mortar grocers, priceline.com has saved itself millions of dollars in overhead. Additionally, by working in tandem with supermarkets rather than competing against them, priceline.com stands to greatly increase its referral business for its other services.

Nonetheless, analysts feel that the downside to the WebHouse Club is that while busy consumers may be willing to take the time to name their own price for big-ticket items, they wonder if they’ll be willing to invest their time to name their price for a dozen eggs.

About Priceline.com

Priceline (Nasdaq: PCLN) launched its airfare service in 1998 and began attracting financial backers such as General Atlantic Partners, Paul Allen’s Vulcan Ventures and Liberty Media. The same year, priceline.com expanded its offerings to include hotel reservations and a car-buying service.

In the fiscal year ending December 1998, priceline.com, which employs about 141 workers, lost $112 million on revenue of $35 million.

Yesterday, its stock rose 2 21/32 to 66 27/32.