Posted by Sucharita Mulpuru on February 18, 2011
At the risk of someone saying I can’t let this Groupon thing go (I can’t), I saw a fascinating graphic the other day. Groupon has, as its proponents like to tell everyone they meet, the dubious distinction of being the fastest company to get to $1B in sales. Why I say dubious (and what I found fascinating about the graphic) is that the second-fastest ever to achieve the same milestone was none other than Priceline. How apropos because I can’t resist pointing out the similarities:
- Both used tacky and expensive celebrity ads to promote their quirky brands (let’s call Timothy Hutton the William Shatner of this bubble).
- Both thrive on the thrill of finding an outrageous deal (sales and scarcity go together like a horse and carriage; they’re two of the most effective merchandising tactics that exist).
- Both are called disruptive models (Priceline lets travel buyers name their price; whereas, Groupon essentially lets companies split marketing costs directly with customers rather than with media companies).
- Both have a “gross merchandise value” model (that basically means a lot of mystery around what customers pay and what the company actually earns).
Commonalities aside, perhaps the even bigger insights come from some of the lessons from Priceline over the last decade:
- Just because you have a disruptive model doesn’t mean you actually disrupt anything. Priceline’s reverse auction model was heralded as revolutionary at the time it was launched, but it has hardly become a standard for how people purchase travel or any other consumer products for that matter. In fact, people are still buying tickets the old fashioned way, by responding to prices that hotels, car rental agencies, and airlines set.
- Selling OPM (other people’s merchandise) means others can get in on the competition. Hotwire got in the game by being “Priceline but better”; it ultimately got purchased by Expedia, Inc., and gets millions of monthly visitors.
- Selling OPM means the OP can ultimately disintermediate you. Ultimately, Priceline was and still is dependent on whoever owns the supply of merchandise. In the case of flights and hotels, it’s the airlines and the hotel operators. Over the last decade, their direct-to-consumer businesses have burgeoned likely reducing what’s even available to a third-party like Priceline.
- Getting to a billion fast doesn’t mean hypergrowth continues forever. Priceline may have only taken three years to get to $1B in revenue but took another eight years to get to $2B in revenue. Priceline tried diversifying into grocery and gas, moves that failed to accelerate its business and ultimately grew with an international business that focused largely on hotels.
Priceline, to its credit, wasn’t a dot-com flameout, and its economics today are promising. Its stock has quintupled in the past two years. It does provide a benefit to suppliers because it can protect brands, to a certain degree, from being routinely price-shopped. It just took a bit longer than its proponents from 1999 expected it would take to get to where it is. Maybe, just maybe, Groupon will have it easier, and get it right, faster than Priceline.
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