Priceline.com, formerly the uncontested heavyweight in the name-your-price auction business, is now facing competition from the tech industry's most powerful player.
Yep, Microsoft.
On Wednesday, Microsoft (MSFT) said it is launching a hotel reservation service that lets users place bids for cheap rooms. The service, called Hotel Price Matcher, will be part of Microsoft's existing travel booking site, Expedia.com.
See also: Here's the Deal with Priceline- - - - - -
The reaction on the other end was immediate: Priceline stock plummeted 5.8 percent Wednesday to US$63.88, down from a high earlier this year of $165.
Expedia executives saw the service as a way to reach out to the bargain-hunter crowd, which tends to be less choosy about where it stays and more picky about the cost.
"Some people are much more price-sensitive than others," said Expedia product manager Suzi Levine. "This gives us the ability to give them access to great deals."
Levine wouldn't say whether Expedia plans to expand the model to other travel services such as airline ticketing or car rentals. The company has considered such an expansion, she said, but isn't prepared to comment.
The hotel launch alone, however, should worry Priceline (PCLN). Up until now, the Stamford, Connecticut company has had a virtual lock on the market for reverse auction-style sales of travel services and has built up a huge following among investors.
Neither Microsoft nor Priceline officials would comment on whether the Expedia bidding service overlapped in any way with Priceline's patented business model.
Priceline bases much of its business strategy on a patent whose technology matches bids from buyers with interested sellers on the Net. The company, which launched its Web site in April 1998, trumpeted the idea of buyer-driven commerce as a way to use the Internet to secure the lowest possible price on airline fares.
Patent claims have been a key factor in driving Priceline's remarkable value. The company, which has never reported a profit, currently has a stock market valuation of $9.3 billion, larger than a major airline.
The company has already faced legal challenge over its business model. Earlier this year, Thomas Woolston, a patent lawyer with the Washington-based firm Hunton and Williams, filed suit against Priceline, claiming the company uses a business model he tried to patent in 1995.
Woolston said Microsoft's new bidding service on Expedia poses more troubles ahead for Priceline, though it also reflects well on the future of buyer-driven auctions online.
"Expedia's an aggressive player," he said. "It's somewhat a vindication of the marketplace for this type of model."
