priceline's Warning Predictable; Danger Ahead, Will Shatner!

The priceline (PCLN Quote - Cramer on PCLN - Stock Picks) blow-up this morning is maybe the least surprising in this grim season of endless warnings and bad quarterly reports.

My mail is full of complaints from priceline customers, who say that (a) the service was once worthwhile, in the early days (especially when it was partly subsidized by priceline, which would do things like eat an unrevealed $25 further discount off an airline's low bid for a seat, to build the business), but has gone to hell; or (b) they aren't getting what they think they're buying.

To be sure, there are also notes about good experiences ... but the bad outweigh the good by at least 10 to 1, maybe more.

And then there's the business model.

One of my worries about the future of the Web is that overall it becomes not much more than another force toward devolution in product and service quality -- that is, the cheap drives out the good in the market, as people use the Web as a powerful tool for always finding the lowest price, no matter what.

priceline pushes that along ... but that's inevitable: If they weren't doing it, someone else would be, so I can't complain about that. And I use shopping bots and other techniques for finding low prices on the Web, so I don't want to come off as a hypocrite.

But for its shareholders, focusing entirely on the "low-low-LOWEST price! Always!" also heads priceline down what looks like an increasingly marginal path.

By expanding out of the discount airline seats market to other travel needs, and to gasoline, groceries and more, priceline wants to be seen as bringing its vaunted reverse-bidding process to a wide variety of consumer needs. In fact, it seems to me that priceline is already overextending itself, not only growing faster than both its capital and market demand would reasonably allow, but also testing -- and destroying -- its business model in areas very unlikely to produce long-term success.

Now priceline says revenue from airline ticket sales will be off $20 million to $25 million in the third quarter, from the second quarter's results. And overall, gross revenues, generally forecast at around $380 million, will be down to around $340 million to $345 million. priceline says its nonairline sales will be up about 20% this quarter, but I'm skeptical of that number ... at least on a quality-of-revenue basis.

While probably 85% of my reader mail complaining about priceline's airline-ticket sales and service is negative, virtually all the notes about its gasoline sales and grocery sales are sour. priceline customers consistently tell me buying gas "the priceline way" is inconvenient and produces only trivial savings. And the company's grocery shoppers say they're tired of having to, in effect, pay twice when they check out -- one time for the priceline-ordered stuff, again for the additional items priceline doesn't offer and for which they therefore have to pony-up at the store's regular prices.

They also feel, in the words of one RealMoney.com reader who has written me frequently about his priceline woes, like they're "living in Generic City," since priceline grocery shoppers often don't get to specify brands.

For a certain kind of customer -- no insult intended -- priceline is probably just fine. But for the larger market, where PCLN must go if it is to hit the kind of huge revenue numbers it needs to support its stock price at nearly any level it has hit over the past year -- from more than $100 to down in the midteens this morning, after dropping 5-plus in overnight trading on Instinet -- priceline is going to have a hard time, indeed, justifying a big market-cap by selling in areas where its business model may not be well-suited to market realities.

And only to customers in a relatively thin slice of the U.S. demographic makeup.

Jay Walker's a smart guy, with a lot of great ideas and the chutzpah to pull many of them off. But even smart guys can miss, and I think Walker will be eating a lot of crow before he can turn this one around.