When priceline.com launched its now famous Name Your Own Price[sm] business April 6, 1998, it sold 162 airline tickets the first week. Now the numbers average in the tens of thousands a day, and some 14 million customers also use the site for discounts on hotel rooms, rental cars, vacation packages, cruises, home financing, long distance and wireless phone calls, and new cars. One of the key players who enabled this to happen is Thomas P. D'Angelo, senior vice president of finance and controller. A CMA and CFM, Tom designed the complex financial transaction that underpins priceline's revolutionary business model and created the company's finance and accounting framework.
Priceline's 10th employee, the energetic D'Angelo joined the company in October 1997 as the groundwork for the unique Internet-based endeavor was taking place. Wooed away from Direct Travel, Inc., a $200 million travel agency where he was CFO, he explains: "Just by chance in September 1997, I received a call from an executive recruiter regarding an opportunity with a newly formed company, then headquartered in Stamford, Conn. I was told by the recruiter that the company had plans to do something different with airline tickets using the Internet and that they were searching for a creative individual who understood the financial aspects of the travel business. I arrived for my 9 a.m. interview and walked out six hours later with my head spinning. I accessed that the people I met with weren't fully aware of just how competitive the travel business was, but when they explained the unique priceline.com business model with its inherent win-win proposition for both buyers and sellers, I was hooked. Most impressive, however, were the people. Their vision, creativity, and entrepreneurial spirit inspired me to join. Founder Jay Walker had already filed patents for the 'Name Your Own Price' idea--they just needed to make it work.
"They gave me an assignment--to write up a plan of how I would set up the company's accounting and finance function and how the Name Your Own Price travel transaction would work from a financial perspective. On my second interview, I presented a document that detailed how the accounting and finance infrastructure would be developed as well as the critical elements of the financial transaction."
D'Angelo applied his knowledge of the traditional travel agency model for airline tickets and adapted it to the unique nature of the Name Your Own Price model. He used his prior experience to show how to build a comprehensive accounting and finance function that would accommodate a start-up on the fast track. "That original document still has relevance today, and we often refer to it' he notes. Subsequent to his second interview, D'Angelo was offered the job. "I said yes because the opportunity was so new and different. And I've never regretted it."
MR. INSIDE
D'Angelo describes his role as financial Mr. Inside to CFO Bob Mylod's Mr. Outside. Mylod has the overall financial responsibility, including strategic planning and dealing with the investment community, while D'Angelo handles the operational issues and financial reporting. His group prepares the numbers for quarterly reporting, and he is present when Mylod and the other senior executives of the company conduct the earnings calls. "Prior to priceline.com, my financial reporting experience had been primarily limited to privately held companies. I have learned a tremendous amount about public company finance from Bob Mylod. He has great experience and excellent judgment." Though usually staying within his area of responsibility as priceline's chief accounting officer, occasionally Tom gets to handle some of that work. "My professional development has definitely been advanced by broad exposure to many issues outside of my immediate responsibility. This is a great opportunity for growth if you are willing to step outside your comfort zone."
His comfort zone is definitely the hands-on management of priceline's accounting operations. He's the only controller the company has ever had. "As controller, I'm responsible for the accounting systems, the transactions underlying our diverse product offerings, interfacing with our auditors, driving the closing process, dealing with domestic and international accounting issues, financial reporting, internal controls, and tax issues. We're blazing new paths here, so the finance and accounting challenges are enormous--but so much fun to deal with."
He calls the experience incomparable. In four and a half years, he's been part of a successful start-up, a public company worrying about share price, and a turnaround situation. "Priceline years are like dog years--you get seven for one," he laughs. Created during the tech boom, priceline quickly became a household name (think William Shatner commercials) and now ranks with Amazon.com in brand recognition. But the company saw its early financial success and stellar growth almost disappear in the wake of the dot-coin crisis and several well-publicized blows in the latter part of 2000. To name a few: a third-quarter earnings warning, negative publicity surrounding customer service, the departure of visionary founder and vice chairman Jay Walker, the resignation of recently hired CFO Heidi Miller, a plunge in stock price from $96 per share at closing on March 13, 2000, to $1.125 per share on December 26, 2000 (the all-time high close was $162.375 per share), and the closing of the WebHouse Club, an independent c ompany that handled the "Name Your Own Price" gasoline and grocery lines of business.
But through it all, D'Angelo remained confident in priceline's ability to survive and succeed and a steadfast believer in the company's business model. "To solicit offers as we do, collect them and organize them in an efficient way, aggregate them and present them to suppliers in an organized way--this is made possible by the Internet. But the underlying business model is not about the Internet--it's facilitated by the Internet. We've created something unique, which is the pricing model that allows people to name their own price."
At the end of 2000, priceline instituted a turnaround plan, promising to work toward profitability. It kept its promise in the second quarter of 2001 when it turned a profit of $2.8 million, or a penny a share. In the first quarter of 2002, it showed a year-over-year profit.
When online travel industry rivalry heated up again last month, priceline bought the trademarks and domain names of Lowestfare.com and will make its travel services available to visitors to that website, partnered with LastMinuteTravel.com to offer its services on that company's site, and entered a marketing agreement with OneTravel.com where priceline will build and operate a Name Your Own [Price.sup.sm] booking engine on that site. Earlier this year priceline teamed up with eBay to create a new travel booking service for eBay Travel. And it was named "Best Travel Deals on the Web" as well as being selected as "One of 100 Best Sites for 2002" by Yahoo! Internet Life magazine.
MAKING THE LEAP
D'Angelo credits his background as perfect preparation for his career at priceline. He learned stick-to-it discipline from his mother, a sergeant in the Army in World War II, and honed his competitive edge as a high-school and college wrestler and interacting with his three older brothers "who were determined to make sure I wasn't spoiled. That combination made me very disciplined and very motivated, very driven to succeed and to keep achieving," he emphasizes. "I'm always looking for the next challenge."
After earning a two-year degree in physical education, D'Angelo decided that wasn't what he wanted to do with his life, so in 1980 he got a job as a branch accountant at Thomas Cook travel agency in White Plains, N.Y ("I had a numbers aptitude;' he says) and started going to Westchester Community College at night. "I transferred to Pace University after a couple of semesters, took accounting, and got more serious;' he laughs. "In the meantime, I had moved up in the organization from branch accountant to regional financial analyst. Then, at the ripe old age of 23, I was offered an accounting manager's job at Gelco Travel, a large, primarily corporate travel agency in Stamford, Conn. I was still going to Pace at night and graduated in winter 1985 with a business degree."
In 1986, he was recruited as controller of Westport Travel. "I was excited
because it was my first controllership, and the company was a strong regional player with high-quality clients," D'Angelo says. While there, he enrolled in Pace University's MBA program, kept going to classes at night, and graduated in the summer of 1990 with an MBA in financial management.
In the meantime, he was recruited by Citicorp, which had purchased several travel assets, including a leading consulting firm and a hotel program "with the idea of creating the world's largest travel agency," he explains. But it didn't pan out.
"I had only been there three months, and I received a generous severance package. Rather than look for another job immediately, I decided to sit for the CMA [certified management accountant] exam. Since I was in industry. I figured it was the right one for me, and I had always wanted to become certified. When I was studying for my MBA, I used to go to the library at Pace and pull out the CMA exam study booklets and read them. So I joined the IMA in November 1990 to sit for the exam. I got my CMA in December 1991." (Later, when IMA offered the certified in financial management exam, he took it, earning his CFM in 1997.)
TIME FOR A CHANGE
In February 1991, Tom took his first job outside the travel industry, joining environmental design firm Donovan and Green. "It was a closely held business, and my job was restructuring the company, getting them out of an expensive long-term lease, implementing performance-based compensation programs, putting in accounting Systems--getting them profitable."
Two years later, he became CFO of Direct Travel. While there, airlines cut travel agencies' commissions drastically, and Tom had to help restructure the entire way they did business. "Instead of rebating commissions to corporate customers, we actually had to start charging them for service. I developed pricing models in response to the airline commission reductions that enhanced the company's profitability. That led me to believe there would have to be an opportunity for alternative distribution methods and something more efficient than picking up the phone, calling an agent, and getting a ticket. Just at that time, the priceline opportunity presented itself, and I knew it was right for me. I joined as vice president of finance and controller."
D'Angelo thrived in the dot-coin environment In this new world where conventional business wisdom was often seen as a barrier, he helped bring discipline to the business by establishing financial controls, policies, and procedures, plus a solid infrastructure on which to grow. "The most important contribution I made to this company was figuring out precisely what was needed from an accounting and finance perspective and getting it implemented so that we could launch the business within a very condensed period of time. That allowed us to take advantage of the favorable capital market conditions that were prevalent at that time and obtain our financing."
His development of the transaction underlying the priceline demand collection system was critical.
BUILDING THE MODEL
"The first thing I had to do was figure out what the accounting transaction was going to look like," Tom notes. "Remember, this was a unique model we were creating. It was a demand collection system transaction first and a travel transaction second. We were essentially a pricing mechanism that used the Internet for its efficiency. The accounting had to fit that.
"People were going to name their own price, but they weren't going to be able to select their airline, and they weren't going to be able to select their routing or the time of travel. The purpose was for the airlines to augment their existing revenue management systems and target how they wanted to fill the seats that were excess inventory. They weren't just going to reduce the price on the seats and hope the demand was there," D'Angelo explains.
"We needed a transaction that was auditable and scalable, carried out in accordance with generally accepted accounting principles. Unlike traditional travel agencies, priceline acts as the merchant of record in the customer credit card charge. We needed a process for authorizing and billing customers' credit cards that allowed for the guaranteed nature of the priceline service. This is a key differentiator of the Name Your Own Price patented business model. Suppliers had to be paid for the airline tickets we sold, and I recommended we use existing travel agency settlement infrastructure to save development time and resources. We weren't going to earn commissions from the airlines--we were going to earn the spread, so we had to allow for that.
"There were many other significant considerations, including obtaining regulatory approval, the physical issuance of airline tickets, the many taxes, fees, and surcharges imposed on the sale of airline tickets. I sketched it out, then white boarded it, and figured out exactly what the debits and credits were and how it would flow.
"At the same time I was trying to figure out the accounting system, the IT department was setting up the priceline system, developing the proprietary software that was going to go out, accept an offer, run through all the algorithms of matching up departure dates, times, pricing, etc. So much development effort was being spent on that, I couldn't walk in the door and say we had to come up with a proprietary accounting system. To save time and valuable IT resources I felt that it made sense to purchase a prepackaged travel accounting system, even if it didn't have 100% of the functionality we required."
After looking at the major players in the travel accounting world, he selected a system offered by a lesser-known vendor that he felt had the flexibility to make the modifications necessary to accommodate priceline.com's transactions. The company, Sector Micro of New Jersey, worked closely with D'Angelo to develop priceline's initial accounting system solution. "I can't say enough about the effort made by Sector Micro that supported our launch. Priceline's information technology group was instrumental in subsequent iterations of the accounting system, especially as the range of product offerings grew."
In the meantime, a negotiation team was getting the airlines on board, and radio commercials started running that featured William Shatner promoting their brand-new concept. The business launched April 6, 1998, less than six months after Tom had joined the company. "But there wasn't much inventory, the prices weren't great, and customers weren't making good offers. The first few weeks were touch and go," he says. In the coming months, all that would change as customer offers improved, priceline demonstrated it could sell unsold seats, and both domestic and international airlines participated. Business boomed.
ENTERING THE NEXT PHASE
It was time to branch out into hotels, rental cars, and other ventures both domestically and internationally. "We could do that because of the power of our business model," Tom says. "The priceline variable pricing system is most successful within industry segments where products and services are highly perishable, they have a low marginal cost to suppliers, and excess capacity exists. Travel services, particularly airline tickets, possess these attributes and are a dramatic example of the leverage inherent in the priceline model. The major U.S. carriers typically fly with hundreds of thousands of empty seats each day, and as the marginal cost to carry additional passengers is low, they are willing to provide significantly discounted airfares to priceline. This is why we chose to launch our business with leisure airline tickets as our first product."
Success was swift, so management took the company public in March 1999. Suddenly Tom and his accounting and finance team found themselves dealing with public company issues. Meticulous about accurate financial reporting, he often consults with the the company's outside auditors, Deloitte & Touche, LLP, to make sure he's applying generally accepted accounting procedures correctly.
TURNING THE COMPANY AROUND
Most of his time in the last year has been taken up with financial issues regarding the turnaround. "We put our turnaround plan into motion in November 2000. Primarily, it was refocusing on our core travel business, strengthening our product offerings and customer service and motivating and retaining key employees." "I was very involved with our restructuring, analyzing the cash and noncash charges we recognized and understanding the relevant accounting issues. We reduced headcount, abandoned some proposed lines of business, and restructured existing preferred stock to strengthen our balance sheet. All of these actions put the company in a much improved operating position.
"During February 2001, Hutchinson Whampoa and Cheung Kong (Holdings) Limited made a strategic investment in priceline, purchasing approximately 23.8 million shares in a private placement. That provided the company with a cash infusion of $49.5 million and was interpreted as a major vote of confidence by the investment community."
But then priceline.com encountered additional challenges during the second half of 2001. It, like most others in the travel industry, was directly and adversely impacted by the terrorist attacks of September 11. "We experienced an immediate and substantial decline in the demand for our travel products in the days following the attacks and a significant increase in customer service costs and ticket cancellations," D'Angelo explains. "Additionally, the airlines reduced their capacity by approximately 20% and substantially reduced their fares in order to stimulate demand. But despite the difficult circumstances, we were able to improve our year-over-year financial performance dramatically because the cost reductions we made during late 2000 and early 2001 allowed us to manage our company more profitably. Diversification of our revenue streams, especially the growth of our hotel business, has helped us navigate through this challenging period."
RESTRUCTURING FINANCE
He also made changes in the finance area. "We reduced the finance staff significantly. What that meant was we needed to operate more efficiently, we needed to get better reporting tools in place, we needed to get more organized with respect to our close. Establishing better communication with operating units was key. Being proactive--anticipating and addressing potential issues--certainly goes a long way to avoiding unpleasant surprises," he emphasizes.
"We put in more formal closing procedures and did a lot of interim work during the quarter so the quarter-end wasn't such a bear. We do a soft-close monthly, but we took that up a couple of notches so that there isn't much additional to do in the third month of a quarter. That allowed us to get into a groove, and now fewer people from the finance staff are involved in the quarter-end close. The others are doing more product-support work. We've got a very lean finance staff, but everybody has very clear goals, objectives, and duties. We carry out our work pretty impressively, I think."
Although his management style is collaborative, "My staff members know precisely what is expected of them and when it is expected," he explains. "I always treat them as partners with a common cause and meet with them as necessary to resolve the more complex issues. I believe that the career-oriented, mature individuals I am fortunate enough to manage respond favorably to my management style because they have the latitude to establish their own workflow as long as they meet expectations and timetables." Per company policy, he also has semi-annual formal goal-setting and performance-management reviews with each staff member in addition to his own informal, continuous feedback. "I also take time to explain why each task is important and how it fits into the overall performance of the company. I find that people perform better when they have that perspective," he adds.
WHAT'S AHEAD?
Now that priceline.com is forging ahead again, he'd like to share some of the lessons he's learned. "Coming out of a traditional business and going into a dot-coin business and the ensuing bubble and then coming back down to earth, I learned that business models must still make economic sense. Certainly ours does because it makes sense for the consumer, who saves money, and for the supplier, who is able to sell excess or incremental inventory that they would not be able to sell and have their pricing structure protected. It also makes sense for our investors because we make money.
"Second, formal ROI discipline must be in place to make resource allocation decisions. A lot of public companies that are no longer around lost sight of that. It was all about top-line growth and not worrying about when you're actually going to achieve positive cash flow. Wrong. Cash is still king.
"Third, focus on the customer is critically important. Part of our turnaround plan was to improve customer service, improve the disclosure to the customer on the website, make them understand our product as well as our process. We have been successful in improving the customer's experience.
"Fourth, execution is the key. A lot of people have great ideas, but unless you can put those ideas into a working format that can be scalable and leveragable, you're going nowhere. Execution is the secret to success."
So far, priceline has executed well. Since its launch, the company has sold nearly $3 billion of products and services, including more than 12 million airline tickets. Now that Tom's a dot-com veteran, does he have any new plans in the works? "Even though I've been at priceline a relatively long time, I feel I still have much to offer," he says. "We are always making improvements and looking for innovative ways to contribute to our business. I feel like I've lived history here. Priceline.com has been many talented, intelligent, dedicated, motivated people from a lot of different areas who came together to create something that had never existed before. It has been such an enriching experience. Every day I wake up and ask, 'Did I dream this, or did it really happen?' I hope I don't wake up one day and find it all really has been a dream!"
RELATED ARTICLE: FAST FACTS
THOMAS P. D'ANGELO, senior VP of finance and controller, priceline.com
CAREER: Thomas Cook, Gelco Travel, Westport Travel, Citicorp, Donovan and Green, Direct Travel, Inc., priceline.com
CERTIFICATION: CMA, CFM
PERSONAL: Age, 42; Born, Thornwood, N.Y.; one son
HOBBIES: Education, reading, working out
AWARDS: Financial Executive of the Year, 2000
about priceline.com
Background: Innovator of Name Your Own Price[sm] for products and services, priceline.com offers discounts on leisure airline tickets, hotel rooms, rental cars, new cars, long distance calling minutes, home financing, cruises, and vacation packages. Launched in April 1998. Named "Best Bargain Booker" in the June 2002 issue of Yahoo! Internet Life magazine and listed in "Best of the Web" picks by Forbes in the Summer 2002 issue.
Locations: Corporate headquarters, Norwalk, Conn. Travel services division and customer service call center, Columbus, Ohio. Overseas operations: UK and Asia. Employees: 347
Website: www.priceline.com
Shareholder information: Listed on NASDAQ as PCLN; closing stock price as of June 12: $4.10
Kathy Williams is editor of Strategic Finance. You can reach her at (201) 474-1576 or kwilliams@imanet.org.
