Be Your Own Barcode

Priceline, the company most renowned for reintroducing William Shatner to prime time, has come to represent both what is transformative and what is just plain annoying about the Web. Think of any overhyped Web term or concept: disintermediation. The auction economy. Virtual communities. Stupid TV spots. Priceline, based in Norwalk, Conn., is a poster child for these and other new- economy cliches, especially the one about how it doesn't need to make money today because it will make tons of it someday. Next year. Maybe.

The business model--allowing customers to name what they are willing to pay for plane tickets, hotel rooms, toothpaste, phone calls to Lithuania and then pocketing any difference between that and the wholesale price--is made possible by the Net and some nifty patented transaction software. Only through the Web could you match millions of bids with millions of products, all without a fixed price.

Certainly, it is a very cool concept, one that founder Jay Walker predicts will eventually eliminate price-tag shopping. Never mind that fixed pricing in one form or another has been around since the time of Xerxes for a reason: people like it. As Walker points out, though, myriad products--from FedEx shipping, where rates increase with the speed of delivery, to groceries bought with coupons--fall into the variable-price category. Thus Walker argues that he is merely pushing an already flexible system to its logical extreme.

In the roiling early days of the dotcom economy, this logic made perfect sense to investors, who drove Priceline's stock to $119 a share. Profits were years away, but that was something that worried your old uncle in the boring old economy. Now, of course, the hottest concept sweeping the Web--with the NASDAQ off 26% and e-tailers disappearing faster than Energy Department hard drives--is actually making a buck.

And last week that prospect got more complicated for Priceline when major airline companies confirmed that they will invest in a website, to be called Hotwire, that will compete with Priceline to sell unused airline seats. Unlike Priceline, though, Hotwire will set prices rather than auction airline seats. The news, piled on top of weeks of dotcom doom, punished the stock, which finished the week at $37.97.

So far, Priceline has excelled at liquidating products--plane tickets, hotel rooms, conceivably even produce--that have what economists call "time sensitivity." If airlines or hotels don't sell seats on particular flights or rooms for certain nights, those assets become worthless. Such businesses are a natural fit for Priceline, which formed partnerships with airlines and hotels. Travelers typed in their bids and picked up their tickets, and Priceline took flight, selling 20,000 tickets a day.