Slate magazine analyzed the Priceline ‘name your price’ model from an economics perspective almost a decade ago, assuming that Priceline is attractive for sellers because it allows improved price discrimination, and for buyers because it allows price savings (if they are knowledgeable enough to bid right).

The model have not changed since, but only in recent times it became a mainstream channel, a position Priceline reached after years of significant marketing investments.

From an investor point of view, Priceline is probably the most attractive public entity of a travel outlet (its market cap surpassed Expedia’s on November 2009 and as of now holds an $8.3BN cap) because it is able to boost 30% margins, well above the industry standard of <10%. Priceline is also attractive because of its differentiation aspect: Expedia can be compared with Travelocity, Orbitz and thousands of smaller outlets – but Priceline’s model can only be compared with Hotwire’s, and even in that comparison, Priceline is the better known and is also the more profitable model.

The Priceline appeal

What is for me the most interesting aspect about Priceline’s model is that once the user passed a certain experience curve and got acquainted with the model – using Priceline becomes addicting and there is no turning back. This phenomenon happens due to several factors:

- Trust. In order to become a Priceline user you must trust the service promise: to deliver a hotel in an area and quality level that matches your expectations. It takes few hotel stays to build this trust, and a bad experience may hurt it, and to some consumers even ruin it, but these are not the ‘Priceline material’, as it takes a sharper Price/Comfort slope to become a real Priceline addict.

- Time saving. Booking a hotel room can be the most exhausting planning task of a trip, and Priceline’s model uses its most evident weakness (not knowing which hotel you may get) as a solution to the planning problem.
Priceline may surprise you to better or worse and you cannot control your destination using other users’ reviews, but it also saves you all the research time. iBidlow brings part of that research back into the picture with our‘potential hotels’ feature, but research still remains an option, not a must.

- The rush. What gives Priceline its strongest emotional appeal is the 1-minute confirmation phase: these moments of wait to see if your price is accepted are a huge part of the fun, with that excitement that comes in the seconds that takes you to read out the name of the awarded hotel, while the feeling of ‘getting a good deal’ is a high that stays with you until the trip is over. By the end of it, you feel less like a consumer and more like a lottery winner.

But it all comes down to Price…

The price saving is… not what you had in mind.
Sure, Priceline markets itself as a consumer best friend and promises deep price savings, but even an informed buyer may end up paying Priceline more than the retail price for a hotel simply because he is driven by the reasons spelled above: lack of research, too much trust in the system, the rush that drives you to make a wrong decision (such as accept a counteroffer or bid the same price for a less attractive zone), that memory of a previous saving that blurs your control mechanisms.

Priceline makes 30% margins not because consumers book the lowest prices in a given moment – but because consumers set the price that they are willing to pay - which is a totally different question than asking ‘how much the hotels would be willing to accept’.

But price saving is what we have in mind when we go to Priceline in first place and it could be found there – if you bid right. That’s what iBidlow is all about, and although we don’t have magic tricks in the hat nor do we know the real ‘minimum bid’ that Priceline sets, we are able to give consumers a simple research tool that should indicate how to get a good deal on Priceline – or realize that there is a better deal elsewhere.

iBidlow is soft launching today with a taste of the potential the project has. We plan to become the hub for Hotwire and Priceline users and build an analytical and accurate set of solutions to dilemmas consumers are facing when using Hotwire and Priceline.

So far we created a database of approximately 10.000 Hotwire and Priceline hotels which is instantly searchable, compared and linked to hotel and price comparison websites in a fashion similar to that of travel search engines.

We plan to do the same to analytics and provide algorithms that help plan a Priceline bidding and then compare that with Hotwire’s offers, and then to retail rates.

There is much more to come of course, but first we have to meet two important goals:
1. Use technology to build a better solution than the existing community based models.
2. Leverage users’ knowledge and experience into creating a large, up-to-date and diverse feedback database from user experiences across the globe.

Succeeding in this arena may be trickier than it first seems, as technology alone cannot be enough in the opaque travel markets – it needs to leverage enough and timely user feedbacks in order to become useful.

In order to improve the service appeal for sharing users we added not only simplified feedback forms, but also introduced the first solution in this niche to automatically convert confirmation emails from Hotwire and Priceline into detailed and highly reliable feedback. We hope to build enough trust in order to win users confidence over the model that may become the new standard in the opaque feedback niche.

In this blog We would be sharing valuable user experience, new product launches and our analysis about the place Hotwire and Priceline may have in tomorrow’s online travel arena.