The Fall of the WebHouse of Priceline.com

And another one bites the dust. Citing not his WebHouse's business model but the drying up of the venture-capital well, Priceline.com founder Jay Walker announced Thursday he is shutting down privately held Priceline WebHouse Club Inc., his name-your-own-price grocery and gasoline sales operation, because it ran out of money.

The problem was that while customers were naming their own price for gas and groceries, WebHouse couldn't get the same deal from suppliers, for whom the Priceline way was costly without building brand loyalty like coupons do. So WebHouse made up the difference — from toothpaste to toilet paper, Walker paid whatever their customers wouldn't. And within a year of selling discount groceries and just two months of selling discount gasoline, WebHouse was broke.

But oh, the money it ran through! In August and September, Walker sold 10 million Priceline.com shares to some very big names — John Malone's Liberty Media, Paul Allen's Vulcan Ventures and Saudi Prince Alwaleed bin Talal — which netted him $125 million. Walker put all that money, along with $54 million of his own, into WebHouse.

Walker says that with time to build a customer base, he could have lined up enough customers to convince the manufacturers to play ball. But all that money, in two months — including $50 million still in the bank that Walker says will go to closing up shop — is raising eyebrows, even in the age of the white-hot burn rate.

The company has been hit with two class-action lawsuits this week alleging that Walker and other insiders dumped their Priceline.com shares knowing they'd tank. Walker says all the money went to his effort to keep WebHouse standing. But tank the shares did. Since Alwaleed paid $25 for his Priceline.com shares in September, the company has had a dire earnings warning and Thursday's announcement. Friday the stock closed at $5.75.

The two sibling companies' fading fortunes do not bode well for the name-your-own-price business. In its earnings preannouncement, Priceline.com blamed competition from the airlines' own discount ticket site, and the fall of WebHouse means the bidding model may not as transferable as Walker once imagined.

Although it still works for stocks.