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Another dot-com service bites the dust. This time it's Priceline WebHouse Club, a licensee of name-your-own-price site Priceline.com. It plans to "wind down operations" over the next 90 days.

Starting Saturday, an estimated two million Priceline WebHouse Club gas and grocery cardholders will no longer be able to use the service. Customers owed refunds will automatically receive them on their credit card by October 20, according to the company.

Priceline WebHouse Club's closure doesn't affect the services offered by Priceline.com, which markets airline tickets, hotel rooms, and rental cars. Priceline.com recently began marketing name-your-price gasoline. (See "Priceline Pumps a Gas Program.")

Priceline WebHouse Club licenses Priceline.com's name-your-own-price business model and is promoted on the Priceline.com Web site. However, Priceline WebHouse Club is independently owned and operated. Its service is available in 23 states, after launching in New York last November. (See "Where No Shopper Has Gone Before.")

Priceline WebHouse Club says it's shutting down because it can't raise the money needed to complete its business plan and become profitable. Company representatives were not available for comment, referring inquiries to a written statement issued by Priceline WebHouse Club.

Another Priceline.com affiliate, auction site Perfect YardSale, is also ceasing operations this week, after one year of business. The company's online statement does not explain the shutdown but promises to complete outstanding transactions.

Complaints, Investigations Air

In May, Priceline.com WebHouse Club irked dozens of consumers and raised concerns with a handful of states over the way it handled sales taxes. The company appeared to charge tax on the average retail price of the good or service sold, rather than the discount price the buyer actually paid. (See "Priceline Shoppers Face Taxing Problem.")

Its approach to tax collection was called "illegal" by Fred Laskey, commissioner of the Massachusetts Department of Revenue. His agency has launched a formal investigation into how Priceline WebHouse Club computes its tax rate, although no charges against the company were filed.

Priceline.com itself has also been the focus on at least one state investigation. In September, the Connecticut attorney general opened a "customer protection investigation" after receiving more than 100 complaints about the way Priceline.com publicizes product terms, prices, and conditions. Complaints focused on Priceline's airline-ticket and gasoline programs. The state has not taken any action.

Business Model's Challenge

The failure of Priceline WebHouse Club is symptomatic of larger problems haunting Priceline.com, says Joshua Friedman, IDC's senior research analyst for online travel.

He says the trouble with Priceline.com is not with the type of services it promotes, but in the sales pitches themselves. For example, consumers are left in the dark by Priceline.com's name-your-own-price airline ticket pricing scheme, he says. Priceline.com customers sometimes overbid and pay more for airline tickets than they would buying directly from an airline.

The state investigations, although not resulting in charges, also cast a pall on business.

"Any time a customer thinks you've got questionable ethics and are trying to deceive them, you are going to ruin your company overnight," Friedman says.

He questions the viability of Priceline.com itself, if it can't earn the trust of its customers. They expect to--and sometimes do--score great bargains, but they don't always get the cheapest price, he notes.

"On paper, the name-your-own-price model sounds great, but in reality it's not"--at least in Priceline.com's implementation, Friedman says.

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