Priceline.com Inc.'s grocery and gasoline selling licensee Priceline WebHouse Club, will wind down its operations in the next 90 days, citing funding difficulties, the company announced Thursday.
In addition, another Priceline.com licensee, Perfect Yardsale, informed Priceline Thursday that it plans to cease operations.
In a prepared statement, Priceline.com said the closure of these licensees would have no effect on Priceline's ongoing core businesses of selling airline tickets, hotel rooms, financial services, telecommunications services, and automobiles.
However, some observers believe Priceline.com's licensees' shutdowns came because of a basic flaw in the company's business model.
"The reality is that customers online want convenience," said Robert Labatt, research director at the San Jose, Calif., offices of market research firm Gartner Group.
"Everybody's research shows that convenience is the No. 1 reason people shop online. Price and selection are far down on the list."
Because of that, business models that focus on price rather than convenience are likely to fail, according to Labatt.
"The reality is that Priceline is focusing on price ahead of convenience, so they are focusing on the wrong thing," Labatt said.
In its announcement, the WebHouse Club assured customers that any unredeemed prepaid amounts for gas and groceries would be refunded before Oct. 20.
Executives at WebHouse said that lack of funding spurred the move to shut down operations.
"In light of the weakness of the current capital market environment, the WebHouse Club executive team has reluctantly concluded that it was unlikely to be able to raise the additional capital the WebHouse Club would need next year to achieve the necessary scale and our goals of profitability," said Jay Walker, founder of the WebHouse Club, in a prepared statement.
In the third quarter of 2000, Priceline.com will take a non-cash loss for a $189 million warrant it received from WebHouse in the fourth quarter of 1999.
In addition, Priceline.com said it would review its operations in the wake of the shutdown of two licensees to maximize efficiencies and remove costs associated with providing services to them.