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Commentary: WebHouse failure should be warning to Priceline

The online discount retailer Priceline.com is presenting the failure of its WebHouse Club licensee as an external event that will have little or no impact on its own operations. Gartner believes that Priceline could not be more mistaken.

    By Robert Labatt, Gartner Analyst

    The online discount retailer Priceline.com is presenting the failure of its WebHouse Club licensee as an external event that will have little or no impact on its own operations. Gartner believes that Priceline could not be more mistaken.

    In Gartner's opinion, the demise of WebHouse clearly indicates that Priceline needs to change its fundamental business model if it hopes to achieve long-term success in an increasingly crowded and competitive online marketplace.

    See news story:
    Priceline affiliate runs out of gas
    WebHouse modeled its operations closely on Priceline's, and its failure exposes what Gartner believes are fundamental flaws in the Priceline approach to online retailing. The most important of these flaws is Priceline's belief that consumers will tolerate a low-convenience purchasing experience in exchange for cost savings.

    Gartner research reveals that the exact opposite is true.

    Online consumers value convenience above all other considerations, with price and selection well down on the priority list. Since its inception, Priceline--like WebHouse--has consistently taken the opposite view, believing that customers will jump through hoops to save a few dollars on airline tickets, hotel rooms, car rentals, gas or groceries.

    The online retail business models that succeed in the long term will be those that recognize consumers' demand for convenience and service. The failure of WebHouse, and Priceline's response to it--blaming the capital markets and not acknowledging the inherent limitations of its business model--make it clear that Priceline has not yet learned that lesson.

    (For related commentary on e-commerce and risk strategies, see TechRepublic.com--free registration required.)

    Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.