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This is stupid. Really. Here we are in a world where the companies that own the assets (you know, the things that cost a lot of money) are worth less than the things that don't own anything. This doesn't seem "right" or "fair" in the sense that Priceline should be a middleman, unable to exercise any or all pricing power because it does not control the assets producing the revenue. I wonder how long this can last?

If you work backwards from what generates revenue (purchases) in the travel industry you'll find that marketing drives decision making more than the underlying airplanes, trains etc.

Physical assets are a known quantity for better and for worse. They intrinsically depreciate. On the other hand, Brands grow over time from word of mouth and other marketing, so long as their final product is at least average.

Right. Another way of highlighting the absurdity of dismissing things like Priceline as non-assets is to look at the history of computing. Microsoft commoditized PC hardware, and became tremendously valuable selling the dominant OS. Google is doing the same thing with Android.

Is Windows or Android not an asset? Is it not the dominant asset in terms of value, even if manufacturing electronics at scale is larger in physical terms?

> Microsoft commoditized PC hardware

No. Tandy (aka Radio Shack), Dell, Compaq, and so forth commoditized PC Hardware.

Microsoft made the OS a commodity, reducing the cost of an OS from thousands of dollars to only $100. Android / iOS have done the same thing except reduced the cost to $0.

The hardware manufacturers don't make as much as the software guys. Because people and habits are tied to the software, not hardware.

I think OP meant that Microsoft commoditized PC hardware through software, in other words by making Windows the thing that people wanted to have, and the hardware under it could be interchangeable.

Most people didn't care if they had a Dell or a Compaq, as long as it ran Windows.

So in this case: I don't care what hotel I stay in or who rents me a car, as long as I know that through Priceline I'm getting a good deal.

I personally didn't read it like that, but your interpretation makes sense. After thinking about it, I think your interpretation of the post is superior.

Yes, that's what I meant. Windows was a commoditizing force on PC hardware makers. Microsoft did the commoditizing here by taking their market power that came from controlling the thing people wanted most, and enforcing standards that hardware makers had to meet in order to reach the market MS controlled.

It's the same in travel, where the airlines and hotels are selling commodity products, and the high value is in the brokers people trust to select among the commodities. But the brokers here are also in still competitive positions, because it's still easy for consumers to switch compared to something like an OS or social network.

Brands have no inherent value though; they're the consumer equivalent of religious icons. They cease to have meaning if they're not kept alive by advertising and can be destroyed by a single screw up or undermined by a clever emme.

Marketing people sell value, they don't create it.

In the eyes of who?

To the company and its owners, if my brand allows me to sell an equivalent widget for a higher margin, how is that not value? Just because value can be created or destroyed by a single action doesn't mean that value is somehow less valuable.

To the user, if I derive greater pleasure because I believe I have bought a more valuable product (attributable only to the brand), just because there is an equivalent widget out there, does that somehow discount my pleasure?

What even, is the basis on which, in this hypothetical scenario, we have determined the widgets are equivalent? Surely there is some subjectivity that would be driven by people's opinions, influenced directly or indirectly by brands, in that decision.

To the company and its owners, if my brand allows me to sell an equivalent widget for a higher margin, how is that not value? Just because value can be created or destroyed by a single action doesn't mean that value is somehow less valuable.

Soap bubbles are beautiful but you wouldn't pay money for one because you know how ephemeral they are. The value in brands is the expectation of future revenue that will inure to them. I'm saying that not only is this fragile, if it's destroyed then it's not good for anything else. By contrast, suppose the Fancy Hotel Company goes bankrupt through mismanagement; you still have an actual fancy hotel - an aesthetically pleasing building, comfortable furniture, experienced staff, logistical relationships with suppliers etc. Changing the name on the building to the Cosy Hotel Company would be a sales problem in the short term, but would have zero impact on the actual operation of the hotel itself.

To the user, if I derive greater pleasure because I believe I have bought a more valuable product (attributable only to the brand), just because there is an equivalent widget out there, does that somehow discount my pleasure?

Yes. Let's take a simple example - processors. I'm sure you can think of reasons why some prefer Intel and others prefer AMD, and why those different choices might be valid depending on the users' criteria. But which processors do you think HN runs on?

You probably don't know or care because it makes no functional difference to you. You might still have preferences about the next computer you buy but only insofar as you can imagine it making a quantifiable difference to you.

As a consumer, your contribution to brand value is only as good as your knowledge of what makes a branded offering unique and irreproducible.

My comment was not to say that there are not situations where brand plays less of an influence, only to provide a counterpoint to the parent's comment that "brands provide no value." There are certainly industries or products where brands are less valuable, but that doesn't diminish those industries or products where brands do provide real value to both the buyers and sellers (although not always both each time and certainly not in equal amounts).

Maybe brands could be tied to momentarily moments of happiness for some people. But the modern branding and marketing, but also mass media, is a pretty bad environment to grow a child, to be a female, and for people and societies in general. So i highly doubt the positive value of marketing.

But sure, they do help extract higher margins.

>to be a female


don't tell that to Warren Buffet

Warren Buffett is a wonderful person but he's the product of a mixed economy with strong institutions. My point (which could have been better made) is that brands depend heavily on social infrastructure for their survival

Put it this way, suppose the C-suite and the board at Priceline went insane and wiped all their own servers before leaping out of their penthouse windows. It would disrupt the travel industry, but it wouldn't be that difficult to build another price aggregation network - the infrastructure is already there. And a year later, nobody would care.

Consumers aren't nearly as invested in brands as marketing people like to imagine, they're just lazy and stick with whatever works OK. Can you imagine consumers feeling sad about the demise of Priceline or any other major brand? If Geico went out of business I'd feel a little bit of nostalgia for those animated gecko commercials and might reminisce that they were a good company to do business with, but that's about it.

The Internet has facilitated the age of the middleman. Owning stuff is expensive. It's much easier to leverage network effects to tie consumers to producers. Why make or build anything when you can control the market by controlling the app at the end of the distribution chain?

The Internet has facilitated the age of the middleman. Owning stuff is expensive.

Therefore, we should be looking for industries where connecting buyers to sellers is the big question! (Or owners to leasers, or lenders to borrowers.)

We should also be looking at why apps that are supposed to do this connecting fail.

We should also be wondering about the lack of incentive to be a producer/owner when being a middleman is so comparatively lucrative. If capital and talent starts shifting to middlemen in pursuit of higher returns it could cause a lot of markets to stagnate with only the big players having the resources to make a profit off of producing.

Thank you for this interesting thought. My first thought was this. Why wouldn't I make furniture and sell directly to customers. Which is something I've been thinking of doing. One problem is that the computer desks I'm thinking about might not be what people want. Why? They will be expensive and it seems like the whole world thinks the IKEA desks are what they really want/need. Check some YouTube tech reviewers, the build game PC's worth thousands but they're nearly always put on IKEA desks because they're cheap (ish).

I guess marketing is at play there.

Or because a $1000 gaming PC is objectively better at running games than a $500 gaming PC on every single metric (except maybe power consumption), but a cheap Ikea desk can hold my keyboard and monitor at 28.5" off the floor just as well as an expensive one can.

It's nice to have solidly built furniture, but not everybody cares enough to pay a premium for that. If the demographic you're looking at is "YouTube tech reviewers" then it's especially unsurprising. Those are people who place value on having fancy tech. I wouldn't blame marketing, just a question of limited budgets and personal priorities.

I've seen some pretty cool DIY computer desks, like one where the computer components are spread out and visible over a glass top, or it's hidden away in a cabinet on the side, but it's a comparatively small number of people who care.

The issue there is part marketing part economies of scale. A small shop won't be able to compete with IKEA on price. You basically have to do what Tesla, Craft Breweries and other relatively small fish do and start out on the high end where cost is less of a concern and scale doesn't matter as much. Unfortunately that's a tall order in and of itself as it takes a lot of time, talent and money to produce a truly top-shelf product and, as we're discussing here, you're probably better off financially being some sort of broker for current goods than producing new/innovative goods yourself.

That said, if you're capable of producing high quality furniture with expensive materials, with the right marketing I imagine you could make quite a bit. People pay boatloads of money for reclaimed/exotic wood desks with attractive aesthetics.

yep, marketing turns a commodity into something cherished and desired. Literally everything is a commodity unless marketing has put gloss on it

It also allows for mom-and-pop shops selling direct to end users around the world. I used to run a video education business and that was pretty game changing when you have access to the world market via the internet. The key for priceline seems to the aggregation function that makes it a worthwhile middleman.

I think aggregation is a winner take all business basically. It's easier to do one priceline query vs go to each airlines website.

The only thing easier might be an Alexa app or chat bot or something. Even then people that shop on priceline are probably more cost sensitive etc..

So it's the means of distribution that need seizing.

Wasn't the Internet supposed to eliminate the middleman?

It did when it comes to distribution channel.

A hotel can have a website where people can directly book a room.

But people want to compare prices, shops around, hence a new form of ... middleman :D

Yeah, and they these middlemen also give hotels a way to sell lesser service and blame the middleman. Going through the third-party often loses membership perks and amenities and generally also makes cancellation much harder, in exchange for a lesser rate.

If the hotel offered the lesser rate themselves, they would effectively be pricing their "free" amenities, and they don't want to do that.

It's not that they "don't" want to do that - in fact they'd very much like to. It's that they can't do it. Their agreements with listing services prohibit this. And if they don't get listed then they simply won't get the same rate of bookings.

Generally they are paying around 20% of the booking fee to the listing service. So in theory the hotel would be able to charge 15% less on their own site and make a larger profit. But if they did they would no longer get listed on the popular sites where people go to easily price compare and then book.

The loophole in those agreements is that the best price that listing services show is the best "public" price. Larger hotel chains are working around that by offering lower prices to their loyalty club members.

On the contrary, cancellation and purchase is easier. And also middle men add visibility to a lot of small hotels.

Hell, there are aggregator aggregators already. Sites that compare prices between aggregators.

It's turtles all the way down.

Not eliminate, replace

Of course Priceline has assets:

- Software

- Computing infrastructure

- Domain expertise

- Deals and relationships with business partners

- Mountains of proprietary data, including historical pricing/availability and user behavior.

You forgot Brand and a whole wack of Users!

The last three are the ones that have the real value.

It seems as though they have a very sustainable advantage. Getting all the hotels connected is expensive. Because they have such a large number of hotels in place with a good revenue share they probably have some of the highest conversion rates in the industry. The higher conversion rate and deep pockets allow them to buy demand and brand awareness. Very hard to see how someone would enter this market and try to compete with them. I imagine they also have exclusive deals in place with some hotels making it even harder.

It's not impossible though:

1. One of the other big tech players could decide to enter this market. 2. Alternatively a site with huge demand could start to feature hotels (airbnb for instance). 3. A technology shift or a shift in the right advertising strategies to create demand could leave room for startups to enter this market.

Also, the total hotel revenue is roughly $500 billion a year. https://www.statista.com/statistics/247264/total-revenue-of-... (revenue not market cap)

So there's a big difference still.

While I don't completely disagree with you in the large discrepancy between the two, I believe it's a gross over-simplification to state Priceline owns nothing. In the same over-simplification you could state that newspapers are worthless as a middleman to the actual events that happen. However what you are actually accessing is talent, resources, and services to compile that list of recent events every day (or in the case of Priceline: hotels, airlines, rental cars.)

It's a market. Difficult to find in the ocean of more or less poor sites...

And to compound this, Sabre - which nearly everyone in the industry uses to actually get there hotel/airline/car rental inventory from only has a $6B market cap.


Said another. The company technology that powers the whole travel industry is worth less than 10% of just Priceline.

Sabre is one of three. I think more of Priceline is powered by a competitor.

I believe they are Galileo and Apollo.

The three: Amedeus, Sabre, Travelport(Galileo, Apollo, Worldspan).

Disclaimer: I work for one of these.

Do you know where can i read more about the software and infrastructure of any of those companies?

Booking.com has spent a huge amount of money aggregating inventory at mom and pop hotels throughout the world, especially in Europe.

the things that don't own anything

Not true at all, they own the attention of people who would be paying the asset holders. That is (obviously) very valuable.

No they don't. That's not fungible, tangible, or reliable. In the zero-sum world we're heading towards right now, where normal institutional procedures are in abeyance, expect brands to topple like dominos. Remember that salmonella outbreak that killed all those people.


Great word, hadn't heard that before (or at least forgot it).

Also, Coca-Cola, Nike etc... would disagree with the idea that brands don't last.

It's not stupid. They do own something, an extraordinarily valuable something. What they own is as real as a billboard company. They own as much as a catalog company (for sale aggregation) in a past era might have.

What they own is as real as anything a car insurance company owns. It's as real as crypto-currencies. It's as real as Amazon.com's store, which is now 1/2 inventory not owned by Amazon; or eBay for that matter, or any other offline auction service that has ever existed. It's as real as cloud computing.

There are dozens of other common business examples, from the present and past.

From a different perspective Priceline is an outsourced, commission-only marketing & sales team that every airline, hotel and rental car company may participate in freely.

Just yesterday, someone on HN was moaning that they wished they could just hire someone to do their marketing for them!

What thread, if I may ask? Biz opportunity right there.

On their wikipedia page, it states this: Total Assets: US$17.42 billion (2015) I wonder if Priceline group companies act as middlemen then how come the assets they own total to almost $18 billion? Someone can please explain.


As per their most recent (unaudited) financial statements released May 9, 2017, they had almost $22 billion in assets. The large majority of them ($13 billion) are investments, $2.4 billion in cash and a paltry $400,000 in property plant and equipment. So from this perspective, they are really an investment company that happens to let you compare prices for things.

However, financial statements don't consider data as something of value, or brand names (unless they are purchased), so the company might be "worth" much more than this.


What are the investments? Does that mean the various companies in the group, or some kind of outside investments?

Cash is an asset. Undoubtedly they own offices/real estate in multiple locations. The corporate entity might even own some of it's own shares. There's probably a lot of mundane things that count as assets, I'm sure if you're super curious you could go lookup their assets on some SEC filing somewhere.

Isn't this essentially the defintion of a service economy ?

Priceline doesn't have pricing power, they are just reaping the rewards of their branding and whatnot. There may also be some value for the consumer in that Priceline can consolidate their travel plans for flights/hotel/rental car in one place. However, I find I get better service when I transact directly with the vendor, whether it be hotels, airlines, or rental car agencies.

If you want the lowest prices on all the big hotel chains (Marriott, Hilton, IHG, Choice, Wyndham, Best Western, etc), then use www.roomkey.com I have no idea why they don't advertise it, but their loyalty pricing (you have to be a free member of their rewards system), and in exchange for the discount you get, the hotel doesn't have to pay commissions to Priceline/Expedia/other travel agents.

Is this a joke? I searched roomkey on a couple of marriott hotels and they offered $5 off (about 2% off). I got much better price on priceline.

You might be looking at different room types, or different rates. Or, I frequently find that Priceline and Expedia show a certain rate, but once you click it, they will actually ping the real rate and say something like "rates have changed recently" or something like that.

If you can legitimately find an advertised price lower than the hotel's actual website (roomkey.com is owned by the hotel chains themselves), then you can even get free and deeply discounted nights:




Intermediaries can be great businesses, and good for the market. See the existence of wholesalers, brokers, etc. Just because the internet makes it easier to disintermediate a business doesn't mean the market forces that created intermediaries in general aren't valuable. News aggregators, price comparators, and online stores like amazon all aggregated various "productive" businesses and produce value for themselves and their customers in the process. Sometimes, DIY isn't the answer for everything; see https://en.wikipedia.org/wiki/Comparative_advantage

Priceline's value is no different than the value provided by Airbnb. They make the vast majority of their money being a middleman for hotels, not flights, and in turn have made it much easier for people to package everything together and get a better deal though the partnerships their partners already have with each other.

Additionally, comparing hotel pricing does put major pressure on prices, as most travelers know that they want to stay in the most reasonably priced hotel with a certain number of stars.

Let's talk about value here for a moment: I recently stayed in Airbnb where the host provided everything: dishwasher, washer and dryer, full-fledged kitchen with all utensils, all the necessary stuff from which I can make a good breakfast, upwards of 10MBPS speed wifi internet, and the entire place is private to me. All this in just ~$55/night. If I were to live in hotel (which I don't even think is easily available) with similar amenities then it might cost me more than $200 per night. So that's the difference in value provided by Airbnb and Priceline IMO.

I have tried booking Airbnb many times. In my case, each time it was much more expensive than the hotel room I could find via priceline (even more once I include the extra fees from the Airbnb's fine prints).

I have a hard time with the idea that SpaceX sits somewhere around $12B and Tesla around $50B (with most people arguing even that is absurd).

So to value Priceline at $100B is insanity.

Priceline has generated $7 billion in net income the prior three fiscal years combined.

They may be overvalued, however they blatantly are providing an extremely valuable service. And if it were easy to replace or compete with (ie something of low actual value), the airlines etc would have already cut out Priceline and would keep the $2+ billion in annual profit for themselves (they've tried and failed repeatedly to cut out Priceline, which further speaks to its immense value to consumers).

I'm more surprised that you're holding up Tesla as a counter example to fluff valuations given their present valuation versus other car companies with actual immense profit such as GM or BMW.

So at least in traditional accounting their valuation would be 10 * 7/3 = $23B

But then again PE on stocks seem to have been getting higher and higher in this latest tech boom (bubble?).

That was my point with Tesla; it's absurd at $50B and they build real things and develop real technologies.

"Worth" in the case of stock market cap is a direct reflection of perceived current and future profitability. It is not just a simple summing of assets minus debts = net worth. In fact, the thing you're talking about is simply comparing apples to oranges.

This is like being surprised that corporations have a higher market cap than the sum of the net worths of its employees; it's not really a sensible thing to compare.

The tech middlemen are simply way more efficient than their brick and mortar counterparts. Surely this argument was put to rest years ago.

No they're not. The technology is more efficient. When travel agents ruled the earth most people didn't have personal computers, nor was there a global communications network that was trivially easy to access and operated at high speeds.

If you go into any local store, you wont find a single one that produces their own goods. Some people like making stuff, other people like selling it, and selling it is actually a lot of work. Now what if we could make a discovery service so that makers could sell directly to the buyers, without the middle hands !?

Owning stuff comes with actual upkeep costs.

Priceline and others own mindshare and access to a community, and its infrastructure is cheap. Marketplaces and money transmitters are valuable, but eventually will be decentralized as you can see with bitcoin.

Apple and Microsoft build actual stuff. But Tencent, Alibaba, etc. are markeplaces and shipping.

time = money

priceline and companies like it sell convenience

therefore priceline and companies like it sell you your time back. Specifically, they are selling back the time to people who derive greater value from doing something other than trying to book tickets cheaply. Middlemen sell you time you'd spend searching in a search space they specialize in.


To add to that...Tesla is worth more than General Motors. The market cap for Tesla is $57 billion. General Motors is $52 billion.

General Motors produced 10 million cars in 2015 (per Wikipedia). Tesla produced 47,000 so far in 2017.

I understand the stock market is 'forward looking'...but huge difference there.

Not it isn't.

In a world where there is a expanding numbers of producers/assets and expanding number of consumers (of those assets) coordination (ordering, filtering) can become more valuable. It all depends on what you're integrating over.

It's been this way for much of history. Middle men, such as merchants before the industrial age, were the wealthy class. They were also despised by many who thought it was 'unfair'.

The merchants in this are the airline companies that have planes and sell services. Priceline is like the person that owns the bazaar that the merchants sell in. I'd wager that person has historically been wealthier than the merchants, too.

No surprise. The value of Physical stuff is approaching zero, while virtual stuff is becoming more valuable.

Isn't that why Rockefeller went into the railroad industry? He was sick of seeing the transportation layer take all of his profits.

All about leverage points. Being the middleman is a great leverage point on the internet - fb, amazon, google.

they own something more valuable than "things." they own the customer

Yuval Noah Harari would call this a "shared hallucination".

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