Priceline began with a stunningly simple idea: let consumers bid on the 500,000 airplane seats that go unsold each day. When he put his idea online in April 1998, founder Jay Walker gambled that with the power of the Internet, his concept could usher in a new era in airline pricing by allowing people to name their own prices on seats that would otherwise remain empty. After entering their credit card number and indicating the date and destination of their desired flight, customers' bids are matched up with a flight. (Customers are obligated to buy the ticket if a match is made.) The idea caught on rapidly with flyers, particularly those seeking a cut-rate deal on last-minute travel. Demand far outstripped supply in the early days, as only 7 percent of bidders in 1998 actually "won" a flight. Such problems were partially alleviated after Walker signed up his first major American carrier, Delta, in the summer of 1998. The Delta deal was the breakthrough that Walker had been waiting for: Northwest and Continental signed on almost immediately, and the company soon received an infusion of $55 million in private funds from the likes of financier George Soros and Microsoft co-founder Paul Allen. Walker also hired a couple of well-respected executives to help run the company: former Citicorp president Richard Braddock came aboard in August 1998 as chairman and CEO, and ex-AT&T exec Dan Schulman became president and COO in June 1999.

By mid-1999, Walker's company started expanding its product offerings, with a similar "name your price" deal on hotel rooms in over 1,000 U.S. cities. In an attempt to bring what Walker calls "buyer-driven commerce" to more industries, that year Priceline began offering the same system for new cars and home financing. In October 1999, Priceline entered into what some industry observers think is its riskiest undertaking yet: the grocery market. By striking deals with manufacturers, Priceline maintains that it can save consumers an average of $12 each time they go to the supermarket. Customers simply go to Priceline's site, decide what they want to pay for their groceries and their credit card is charged if their desired prices are accepted. They then take the printout to their local participating supermarket and pick up their food.

Priceline did not stop there, however. In January 2000, it struck a deal with Internet credit provider NextCard to provide a "name your own terms" service for credit cards. Customers who sign up through Priceline receive exclusive privileges from NextCard, such as 8-second online approval and personalized PictureCard designs, and services from Priceline like electronic statements and bill payment. The company also plans to move into long-distance phone services early this year, enabling customers to bid on blocks of calling time. And Priceline's Perfect YardSale, a modified online auction site, will match up buyers and sellers of a limitless number of goods and services.

But will it work?

It remains to be seen whether Walker's conception of "buyer-driven commerce" will work in the long run. According to some industry observers, Priceline's service does not represent a true auction, because the "bid" that a customer submits is filled only if it meets or exceeds a price that an airline has already named to Priceline. Furthermore, these deals are not unique to Priceline - they are readily available to anyone who visits a ticket consolidator. Priceline has also been facing increased competition in several of its service areas, especially air travel. But Walker has not taken the competition lying down: Priceline sued Microsoft in October 1999 for patent infringement after Microsoft's Expedia.com site began offering a Hotel Price Matcher service. Microsoft and Expedia (which was spun off in 1999) moved to have the case dismissed, since Priceline had been itself sued over the same issue, and may not have the rights to the patent. In 2000 Priceline was sued again, this time for trademark infringement, by a company that had been using the slogan "Name Your Price". Despite such difficulties, Priceline continues to enjoy tremendous popularity among its users. In two years the company gained four million customers and is still going strong, selling 40,000 airline tickets every week. Shareholders have little to complain about either: Priceline's stock has been a top performer since the company's IPO in March 1999.