Online Travel Booking and Bidding Agencies - What Happens at Priceline During Those 15 Minutes?
Jun 20, 01, 6:55 pm
I have visions of operators with a headseat and one telephone pressed with elbows to each ear while hands are on keyboards fishing through some special travel liquidation system to see if there are any takers...
Any one have any ideas?
(My apologies in advance to Sheryl for any grammer, dicshun, or syntacks errers).
Jun 20, 01, 7:25 pm
Nothing like that at all, it's all computerized of course.
The big misconception is that people think that travel providers "see" the offers. They don't. Travel providers have provided Priceline with a price they are willing to accept for their product, in exchange for Priceline "anonymously" selling this service for them (obviously you know who the provider is once your bid is accepted, but not before hand, so theoretical this retail channel does not take away the providers loyal customers that they would get anyway ... these are customers who are indifferent and would more likely not use the provider anyway).
Anyway, these providers have loaded into Priceline's system rates they are willing to accept. When you place a bid, Priceline checks to see if they have a provider willing to provide the service to you at or below what you bid (and of course meeting your criteria for # of stopovers or star level of hotel). If they do, Priceline pays the provider that rate, pockets the difference and gives you the product.
Jul 8, 01, 3:19 pm
Actually, I believe that Priceline splits the difference between the minimum rate and the actual bid with the travel provider (I don't know if it is 50/50, though).
Also, I wouldn't be surprised if priceline sometimes processed bids at a loss to them to encourage business.
There is probably also some intelligence in the system so that even if your bid is greater than the minimum arranged with the travel provider, priceline may reject the bid if it is likely that a higher bid will be placed for the same service -- the same logic used to set seat/room/car allocations in the yield management systems used by airlines/hotels/car rental firms.
Jul 9, 01, 6:59 pm
It's all detailed in their annual reports. The travel provider gets what they ask for, Priceline gets 100% of the overbid.
In their early days, it appears Priceline did accept bids lower than the price they paid a travel provider. That does not appear to be the case so much anymore, except they now offer "Bonus Money" which does sometimes have a similar affect it would seem, but not always.
Jul 10, 01, 9:00 am
Back to the original question... for me it almost always takes a lot less then 15 minutes on hotel bids. Rejected bids usually process in about 2 minutes. Accepted bids take longer, maybe 10 minutes. My accepted bids definitely take longer to come back, to the extent that if an answer doesn't come back after 5-6 minutes I assume I was accepted.
On accepted bids there is definitely some communication between PL and the hotel. This must be so, because all accepted bids get a confirmation number from the actual hotel. Moreover, for some chains (e.g., Marriott) you can go right to the hotel's site and see your reservation by entering your confirmation number seconds after your bid is accepted.
Jul 10, 01, 9:23 am
The confirmation number comes from a computer reservation system (CRS), just like if you made the reservation on the hotel's website or Expedia or Travelocity or any other website. There is no human intervention involved in the process, it is completely automated.
Jul 10, 01, 9:05 pm
If the offer is high enough to win the bid, then they have to initiate a reservation, and also process a charge against your credit card. This would take longer than simply querying a reservation system (or their own computers) for pricing and availability.
Jul 11, 01, 9:27 pm
When Priceline first came to Norwalk they took up a floor or two in the building, the company I worked for was on one of the other floors in that building. As priceline exploded adding more and more people we eventually moved to Manhattan, leaving our computer operations there until we had all the data lines set up in New York (The Verizon strikd was right in the middle of the move, it took ages).
Priceline took over every free square foot of space we vacated with programmers for their world wide operations. Everything was documented on white boards, and no white board was big enough to hold all the flow charts. No white board was next to the other one either.
So I think what happens is what use to happen when they were having a brainstorming session. They follow the flow charts to the bottom right corner of a whiteboard, then everybody had to move over and find the next board in the sequence, pick up the color line and start following it again. We use to joke that the time for everybody to move (it was really quite a site to watch) was the delay in you getting your confirmation for the rental car or flights, since the first board ended when the credit card information was submitted, and the next one picked up with when the bank authorized the charges.
Jul 11, 01, 11:19 pm
Cordelli, that's a great story.
Priceline's business model is based on asymmetric information, and their profit is tied to how much people will overpay (plus the $6 processing fee). Sheryl's board really throws a wrench into their business model, because we can share information and hone in on how to bid to cut Priceline's profits down to almost zero. I wonder if, with Sheryl's board around, Priceline now occasionally randomizes, and rejects high bids, just to raise the perceived minimum bid that is shared on these boards. Or -- more likely explanation -- the users of Sheryl's board make up a tiny minority of Priceline users, not enough for them to worry about.
So why does Priceline have the 15 minute wait? Is it to discourage automated probing of their system? And/Or perhaps to bolster the idea that Priceline is calling travel providers to shop your bid around?
Jul 12, 01, 9:26 am
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by pynchonesque:
I wonder if, with Sheryl's board around, Priceline now occasionally randomizes, and rejects high bids, just to raise the perceived minimum bid that is shared on these boards.
So why does Priceline have the 15 minute wait? Is it to discourage automated probing of their system? And/Or perhaps to bolster the idea that Priceline is calling travel providers to shop your bid around?</font>
First, I don't think they could reject bids because it would probably be in violation of their agreement with the providers (airlines/hotels/rental car agencies) to reject an acceptable bid.
Second, I think the 15 minutes is to account for processing time and such. I've seen Orbitz take one minute to process requests ... same with Expedia and such ... and Priceline's process is probably even slower than that, especially when you get to approving it and creating the records in the CRS and in Priceline's computers, etc., etc., etc. There may also be a queue so that at peak times they don't have to have the computing power to handle all requests simultaneously, which makes sense from a business point of view. It also makes incremental bidding of only $1 much more time consuming ... which can be done through various rebidding strategies and tricks ...
As a final thought, I think Priceline is happy to just collect their $5.95 (of course, the problem is the free bonus money they're still giving away) ... then they get a little gravy on top of that with some bids ...