The Chairman of the Priceline Group is considering the actions he must take to confront an evolving external environment, new direct competition, disintermediation, and substitute offerings. Does his response require increased coordination of each historically autonomous division or some other approach?

You should assume that you are a consultant hired to advise Jeffery Boyd on the issues in the case.

Carefully craft an argument for the actions that you believe they should undertake to address these issues. Jeffrey is an established leader, and he recognizes that you are also an expert in this field. You must consult Jeffrey on what to do. You should evaluate the macro environments and competitive environments that affect Priceline. You'll also want to consider the Priceline culture and the way Priceline's culture has responded to its external environment. Lastly, you'll want to consider what changes Priceline should make and how Jeffrey Boyd should approach the upcoming challenges in the external environment.

Written Business Case Reports are more detailed and in-depth than the class discussion summary that you have prepared previously.

Be sure to cite all sources and any thoughts / comments / positions / responses that are not your original creation. Failure to cite your sources is considered a violation of the college academic dishonesty policy.

Criteria:

• Defines and understands the key issues.
• Uses vocabulary of the theory appropriately
• Analysis of key issues is supported by presentation of correct theory and evidence of critical thinking.
• Recommendations synchronized with problem statement and analysis, reasonable for the problem analysis.
• Analysis and recommendations are supported with facts and verifiable references. Conclusion is logical and follows from the body of the paper.
• Paragraph transitions are present and maintain the flow of thought. Paper demonstrates college readiness in thinking / analysis / preparation.

Case: On April 28, 2016, Priceline Group (“Priceline”) a CEO Darren Huston resigned from his post. The Chairman, Jeffery Boyd, stepped in as interim CEO and the company announced a search to find a new leader. Boyd was no stranger to Priceline’s operations. In fact, he had served as the company’s CEO for over 11 years from 2002 to 2013. He was proud of the company he had helped build. With a market value of over $65 billion, Priceline was the world’s most valuable travel company and the third most valuable e-commerce company. In 2015, the Group had recorded $55.5 billion in gross bookings, $8.5 billion in gross profit, and $3.0 billion in net income (see Exhibit 1 for historical financial performance). The future seemed bright – the company forecasted constant currency, year-over-year bookings growth of 18%-25% for Q1 2016.

While Huston had successfully executed during his two-year tenure as CEO, Boyd was already thinking about the challenges and opportunities that Priceline’s next leader would face. The company was at a crossroads as it decided how to deal with an evolving external environment, including enhanced direct competition from Expedia, the threat of disintermediation from TripAdvisor and Google, and substitute offerings from the likes of Airbnb. How sustainable were Priceline’s competitive advantages in data analytics and customer service? Should the new CEO centralize processes to coordinate the activities of each division or should the divisions continue operating autonomously?

Priceline Group – History and Company Overview

Priceline launched its business in 1998, entering the then-nascent online travel agency (OTA) market with Priceline.com, a “Name Your Own Price” service. This allowed consumers to specify general parameters for a trip, including dates, locations, and prices, and then offered itineraries from unidentified airlines and hoteliers. Only after the booking was complete would consumers learn the identity of the travel suppliers. This “opaque” model of online bookings offered suppliers a way to liquidate excess inventory while minimizing the brand risk associated with openly offering steep discounts. Consumers, in turn, typically found more attractive prices than they could through other OTAs at that time. Priceline.com hired William Shatner, the Star Trek legend, as its spokesperson (a relationship that lasts to this day), and the company quickly became an icon of the internet boom. Wall Street recognized it as such – the company underwent an initial public offering in 1999 and immediately traded up to a market capitalization of $12.9 billion, the highest first-day value for a company at the time. 7 The stock continued to multiply in value as investors believed the company would revolutionize not only travel, but other industries as well. Priceline.com began selling groceries, gasoline, telephone services, home mortgages, and cars with its Name Your Own Price model. When the dot-com bubble burst, it became apparent that Priceline’s promise had been overhyped. The stock lost >99% of its value, falling from a peak of $974 in April 1999 to <$7 in December 2000. Its founder, Jay Walker, who Forbes had hailed as a “modern-day Edison,” left the company in 2000.

Following its near-death experience after the dot-com bubble, Priceline entered a period of retrenchment. The company exited its non-travel businesses, and ironically, actually became profitable for the first time in 2001. In 2002, Jeff Boyd was named Priceline’s CEO and began expanding the company’s travel operations beyond the Name Your Own Price model. In 2004 and 2005, he led the acquisitions of European hotel booking sites ActiveHotels and Booking.com for $300 million. These would prove to be transformational and are widely hailed as among the most successful acquisitions in internet history. Indeed, Booking.com is Priceline’s largest subsidiary today and accounts for the supermajority of its $65 billion market value. Boyd focused on growing the businesses organically but supplemented growth with acquisitions. The group acquired Agoda.com (a leading OTA in Southeast Asia) in 2007, rentalcars.com (a leading car rental service) in 2010, and Kayak (a leading meta-search company) in 2013. Boyd’s efforts and those of his team steadily built a business to substantiate the hype from the dot-com era. In mid-2013, Priceline’s stock price finally surpassed the prior peak it had reached in April 1999 (see Exhibit 2 for Priceline’s stock price over time). Boyd retired as CEO in 2013 (though he remained Chairman) and left behind a large, highly profitable, and still rapidly-growing enterprise. His 11-year tenure saw the stock increase in value more than 100-fold, earning him the moniker “Mr. 100 Bagger” among Wall Street analysts.

Upon Boyd’s retirement, Darren Huston was named Priceline’s new CEO in 2014. He had joined Booking.com as CEO in 2011 and, in that capacity, had been responsible for much of the operating success and value creation of the Group as a whole. From 2014 until his 2016 departure, Huston served as CEO of both Booking.com and the Group. Huston’s two years as CEO saw the company expand its footprint. In 2014, Priceline acquired OpenTable, the leading restaurant reservations service. Through 2014 and 2015, Priceline invested nearly $2 billion in convertible bonds and American Depository Shares of Ctrip, the leading Chinese OTA.

In its current form, the Priceline Group is comprised of six operating businesses: Booking.com, Priceline.com, Kayak, Agoda.com, Rentalcars.com, and OpenTable (see Exhibit 3 for descriptions of each business). Of these, all but Kayak and OpenTable have business models oriented around generating gross bookings. Although the company does not report financial performance for each business separately, analysts estimate that Booking.com comprises 76% of Priceline’s gross bookings and that its “bookings-generating” businesses contribute 94% of gross profit 16 (see Exhibit 4 for estimated gross bookings and gross profit by business line). Across its businesses, Priceline’s operations are driven by accommodations bookings, b which comprise >85% of gross bookings and an even greater share of profits.

1. What did Jeffrey H. Boyd, CEO of Priceline, and his management team do to turn around the business to make it profit table after the downturn in 2001.

2. What aspects of strategic leadership found in this chapter are emphasized in the mini case on Priceline.com?

3. If you were the CEO of Priceline, what challenges would you need to overcome in the future

Answer rating: 100% (QA)

1 Jeffrey H Boyd and his management team employed several strategies to revive Priceline after the downturn in 2001 Firstly they focused on their core business the travel sector and exited nontravel e... View the full answer