In business for 150 days, Priceline.com, Inc. of Stamford, Conn., has managed to become the second most widely recognized e-commerce company in existence, sold 50,000 airline tickets and sold $2 million worth of cars.

Priceline.com's executives have a certain faith in e-commerce. Which is why online mortgage companies ought to take note -- they're getting into the mortgage business next.

"What we're doing is working with one mortgage company, the Lending Tree, based in Charlotte, N.C.," said Brian Ek, a vice president with the fledgling Priceline.com firm. "They have a stable of financial institutions from around the country working with a number of Internet sites.

"The difference with Priceline is that typically financial institutions will say what they are willing to offer in terms and rates, but the sellers determine the specifics," Ek said. "With Priceline, consumers will be able to go to our site, go through a guided process and get a credit rating estimate."

With that estimate in hand, a user can see what the prevailing rates and terms are for 30-year fixed-rate mortgages throughout the country, Ek said. The user then submits his anonymous credit profile, along with the terms and rates he wants, and that information goes out to the participating financial institutions.

"Lending Tree puts it out as, individual X, who told us that his approximate credit rating is X, and he wants these terms and rates," Ek explained. "Then it's a race among the financial institutions to be the first to say yes."

First come, first serviced, and then the financial institution and the consumer are hooked up directly. After that comes the detailed, specific work and formal credit check -- but the rate and terms are locked in, barring any undisclosed credit problems.

Ek said that the mortgage service will kick off Oct. 15, and Priceline.com expects to have between eight and 12 financial institutions lined up. He expects a large percentage will be people seeking a mortgage for a purchase transaction, in addition to refinancings, second mortgage and home equity loan seekers.

Mortgages online are a growing reality. The e-commerce division of Countrywide Credit Industries Inc. (NYSE:CCR), the nation's largest independent residential mortgage lender and servicer, took more than 840 new applications for a total of $90 million in August 1998. Of that, 520 were funded for a total of $57 million. Executives there see the online mortgage arm's business growing at a steady 11% per month.

One big plus to pushing this is the name brand recognition Priceline.com has already garnered. Priceline.com executives knew that regular web users would find them, so they put all their advertising money into radio and TV spots, featuring spokesmen like actor William Shatner of Star Trek fame.

Priceline.com has booked 50,000 airline tickets valued at nearly $20 million since launching in April. And a recent poll by Opinion Research showed that Priceline.com followed only behind the e-business giant Amazon.com, a book seller, in brand recognition. Some 62.9 million adults were aware of Priceline.com's brand.

"We're going into this with an established customer base, so it's getting progressively easier to build that as we offer more services," Ek said.

The buyer-driven service company started with plane tickets, offering to help customers set their own price and shopping them to vendors. Customers go to Priceline.com's website and list their departure and arrival requirements, destinations and the price they want to pay. Consumers must provide a credit card account, which locks them into the reservation if their requirements are met.

Priceline's computer system then searches a database of participating airlines for one whose special unadvertised rate is at or below the offer, booking it at the offered price. The traveler simply pays a small mark up on the price. The drawback is that the buyer must commit to fly at any time, on any airline, and the trip doesn't count toward frequent flier miles.

It's taking that same idea and applying it to hotels, a service set to launch next month.

Priceline.com's idea is based on the truism that sellers prefer flexible pricing, raising or lowering them based on demand, particularly in the airline, hotel and rental car industries. This is why rental rates are lower when a car rental lot is full, but higher when most of the inventory is out.

It's also why Priceline.com is going into the car rental business soon, along with car sales and credit cards, among other industries.

"We don't just believe in the furture of e-commerce," Ek said. "We have demonstrated it."

Published: September 18, 1998

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