“Name-your-price” pioneer priceline.com (Nasdaq: PCLN) announced today that it will team with a Hong Kong-based telecommunications conglomerate to bring its service to 2.6 billion consumers in China, Hong Kong, India, Taiwan, Indonesia, Singapore, Thailand, Korea, Malaysia, the Philippines and Vietnam.
Priceline and Hutchison Whampoa Limited will fund the new company, which will license the priceline business method. At the outset, only airline tickets will be available.
Japan is excluded from the current arrangement, but negotiations over a “possible venture” are underway.
The Priceline Way
As part of the agreement, priceline will receive an annual licensing fee and will purchase a convertible note that will allow it to buy up to 50 percent of the new company if certain conditions are satisfied. However, priceline will not have an initial equity stake in the company, and the entity will not appear in its financial statements.
Priceline currently utilizes its e-commerce purchasing system to sell airline tickets, hotel rooms, new cars, rental cars, home furnishings, long-distance phone service, cars, groceries and home equity loans.
Convenient Partner for Priceline.com
China’s government has been nervous about U.S. investment in its Internet companies, but priceline.com is skirting the issue by allowing the venture to go forward as a subsidiary of Hutchison Whampoa. The Asian conglomerate has $53 billion (US$) in capitalization and employs 8,000 worldwide.
Hutchison Whampoa is one of Asia’s largest owners and operators of Internet and telecommunications companies, including Web hosting services, fiber optic broadband networks and wireless services. The company recently sold its UK mobile communications operations to Mannesmann for $14.6 billion, and is currently the largest shareholder in Mannesmann AG.
Hutchison’s total holdings make up a full 16 percent of Hong Kong’s stock market.
“We could not have asked for a better partner than Hutchison Whampoa with which to launch and grow our Asian presence,” said priceline.com chairman and CEO Richard S. Braddock. “Hutchison’s experience, size, influence and most importantly, knowledge of the region, will allow priceline.com to quickly establish operations throughout the Pacific Rim.”
Asian Market Numbers 2.6 Billion
The Asian market is the largest consumer group on earth. Although Internet penetration lags far behind the developed markets in Europe and the U.S., as Asia’s Internet usage grows, it will eventually eclipse Europe and the U.S. and become the most significant consumer population.
“The Pacific Rim is projected to be one of the most dynamic regions of the new millennium, with the Internet being one of the region’s fastest growing industries,” Braddock said. “Any Internet company expecting to be a major world player needs to establish a significant, meaningful and long-term presence in Asian countries.”
The E-Commerce Times Interview
In an exclusive interview last week with the E-Commerce Times, priceline.com vice-chairman and founder Jay Walker suggested that the company would announce a venture outside the United States.
Today’s announcement, however, came earlier than expected. “Our travel services are U.S.-based products, though we have announced to the marketplace that by this summer we expect to have three international joint ventures in place,” Walker said.
“There is nothing U.S.-centric about our business,” Walker continued. “We have been growing so fast in what we are already doing. In 20 months we cannot do it all. That being said, this is a business that will have a global perspective.”
Walker did not reveal any details of the remaining two joint ventures.