Walker, Jay

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Jay Walker

Chairman of Walker Digital Corporation

Born Jay S. Walker, November 5, 1955, in Yonkers, NY; married Eileen; children: two. Education: Cornell University, B.S., 1977.

Addresses:

Office—Walker Digital LLC, 1177 High Ridge Rd., Ste. 128, Stamford, CT 06905.

Career

Started own newspaper while still in college; developed marketing for publishing industry journal Folio; founded Visual Technologies Corporation, 1981; founded Catalog Media Corporation, 1986; co–founded NewSub Services (later Synapse Group), 1991; founded Walker Digital, a business–model think tank, 1995; founded Priceline.com, 1998; left Priceline, 2001.

Awards:

Named Entrepreneur of the Year by Ernst & Young, 1998; Direct Marketer of the Year, 1999; Yonkers Legend Award, 2002.

Sidelights

Jay Walker was one of the leading lights of the dot–com boom, founding what was one of the highest–flying Internet companies of the late 1990s, Priceline.com. The website debuted a unique marketing technique known as buyer–driven commerce, where consumers use the Internet to name the price they are willing to pay on given items, and their offers are either accepted or rejected. Priceline.com began by selling airline tickets. This provided a useful way for airlines to fill seats that would otherwise go empty and consumers had a convenient way to buy discounted tickets. Priceline.com in turn spawned Priceline WebHouse Club Inc., which extended the buyer–driven model to gasoline and grocery sales.

Walker became an instant billionaire when Priceline went public in 1999, and at one time his net worth was estimated at more than $10 billion. However, the good times were short–lived. Walker was forced to close Priceline WebHouse in October of 2000 after it lost millions of dollars, and a few months later Walker stepped down from his chairmanship of Priceline. Priceline's stock price tumbled from a one–time high of $162 to below $3, and Walker sold his stake in the company to investors in Hong Kong. After being hailed as a genius, Walker found himself "the poster boy for the dot–com train wreck," in the words of Steven Levy, writing for Newsweek. Walker returned to running Walker Digital Corporation, a private research firm he started in 1995. Walker Digital specializes in developing patentable business models. Walker holds 200 patents in a variety of fields, one of few living inventors in the world with such a record. In 2003, he found himself in the headlines again as he boosted a plan to provide security to vulnerable sites such as power plants with an Internet–based surveillance system called US HomeGuard.

Walker grew up in Yonkers, New York, and showed his entrepreneurial spirit even as a young boy. Walker's mother's family had fled from Germany just before World War II, and his maternal grandfather had started a new life in New York as a Realtor. On the other side of the family, his paternal grandmother was one of the original investors in RCA. RCA was the seminal radio and television corporation that rode the crest of the Roaring Twenties stock boom much as Walker's Priceline was the toast of the Internet technology boom some 70 years later. Walker began honing his salesmanship while still an adolescent, going door–to–door hawking candles, seeds, and jelly. Later he delivered newspapers, covering a four–mile route by bike in all kinds of weather, 365 days a year. In high school, Walker was active in student government. He took on an unusual role as the student representative to contentious talks between the teacher's union and the city of Yonkers, as the municipal government tried to sort out a crisis in school funding.

Walker graduated from high school in 1973 and moved on to Cornell University, in Ithaca, New York. Though he graduated with a degree in industrial relations, Walker had a very unusual course of study. His career goal, he told Bob Chuvala of the Westchester County Business Journal, had been to become the administrative assistant for a wealthy person. "I decided I needed to learn a set of skills that would make me very attractive," he told Chuvala, "[to] somebody who was highly accomplished." Consequently, he learned how to take dictation, how to program a computer, the rudiments of contract and commercial law, and how to fly a single–engine plane. Walker put all that aside briefly, dropping out of Cornell in order to launch a free weekly paper in Ithaca. Walker claimed to have overseen a paid staff of 175 and reached a circulation of 25,000 with his Midweek Observer before the local daily paper, run by the Gannett Corporation, decided to bring out its own weekly and so put Walker out of business. Walker returned to college courses and graduated in 1977, in debt to the tune of $150,000 for his failed media venture.

After graduation Walker moved to New York City and worked on the marketing staff of a magazine called Folio, a trade journal catering to periodical publishers. After four years at Folio, Walker went into business for himself again, starting a company he called Visual Technologies Corporation. Visual Technologies sold interactive glass sculptures. The round objects responded to human touch by emitting flashes of electromagnetic light. They were sold through the Sharper Image catalogue, a vendor of high–end technological toys and gadgets. But by 1986 Visual Technologies filed for bankruptcy. The sculptures had proven too expensive to manufacture, and Visual Technologies went under, $5.3 million in the red. For the next two years, Walker ran another company, Catalog Media Corporation. His idea was to expand the marketing reach of catalogs, number one by selling ad space in them, just as in magazines, and number two, to sell catalogs in bookstores. Neither of these ideas seemed to catch fire. Catalog Media teamed up with Trans World Airlines (TWA) to offer discounted airfare coupons to consumers who purchased a set amount of goods from particular catalogs. TWA brought suit against Catalog Media, however, claiming that the company had violated the contract and was instead selling the discounted coupons in bulk to travel agents. The case was settled out of court, and Catalog Media disbanded in 1988.

Beginning in 1991, Walker formed a business partnership with Michael Loeb, who remained a staunch backer for years. Loeb was the son of Fortune magazine editor Marshall Loeb, who was also a significant investor in more than one Walker company. Walker and Michael Loeb went into business together with a company called NewSub Services (later Synapse Group), which marketed magazine subscriptions through credit card companies. This venture seemed to go well, but Walker was not content to stop there. In 1995 he founded yet another company, Walker Digital. He modeled this firm after Thomas Edison's laboratory in Menlo Park. The inventor was a hero to Walker, and he wanted his new company to be fertile ground for all kinds of inventions relating to new technologies and new ways of doing business. Not what was sold but how things were sold was the key element. One early Walker Digital business scheme was a way of increasing sales at fast–food outlets with software that could add incremental prices for side–dishes and extras. However, buyer–driven pricing was the real revolution to come out of Walker Digital.

Buyer–driven pricing as a modern sales technique evidently did not originate with Walker, but with Bill Perell, who founded the company Marketel in San Francisco in 1991. Marketel took bids over phone and fax for airline tickets, letting consumers offer what they were willing to pay, and matching the bids up with potential empty seats. But Marketel only lasted seven months before it went out of business. Walker revamped the idea for the Internet, and his company spent some $2.5 million developing a patent for the buyer–driven business model. Walker Digital received its patent in 1998, marking the first time the U.S. Patent Office had ever granted a patent for a business method. Walker had been talking up his idea to airlines while the patent was being considered, and by April of 1998 Priceline.com was ready for business. Airlines had thousands of empty seats every day, some on flights at odd times, some to unpopular destinations. Priceline.com allowed consumers to offer their own price for a ticket, though they had to accept whatever the airline gave them. This meant that flyers could get cheap tickets as long as they were willing to let the airline decide when they took off, and how many stops they made on the way. Walker dubbed the system "consumer freight," according to Fortune's Peter Elkind.

In its first year, Priceline was only able to satisfy seven percent of its bidders, meaning only one in 14 people who tried Priceline got a seat. And Priceline was subsidizing the price of the tickets, losing roughly $30 on each ticket sold. But nothing could deter Jay Walker. He hired actor William Shatner, who had played Captain Kirk on the original Star Trek television show, to pitch Priceline. The actor was reluctant to talk to Walker, so Walker paid him to meet him for a drink in a Manhattan bar. Shatner was so impressed by Walker's vision that he signed on to do the ads, taking his $500,000 fee in stock. Walker also hired some veteran financiers to run the company. He hired Richard Braddock, former president of Citicorp, as chairman and chief executive, and Walker himself stepped back to an advisory role as vice chairman.

The fledgling company was losing money rapidly, but it seemed to have a stellar future. It attracted private capital, and in 1999 it went public. Priceline's share price started the day at $16 and went up and up. Two days later, Walker's share in the firm was valued at $5.2 billion, and Priceline itself was valued at $11.8 billion. Walker bought a third Mercedes–Benz and began building a baronial mansion. He was featured on magazine covers as the new guru of the Internet, and Priceline's stock continued to rise. Next Walker started a new company in late 1999, Priceline WebHouse, which extended the name–your–price model to sales of groceries and gasoline. WebHouse was plagued with technological problems and was unable to cope with the surge of enthusiastic users. It also subsidized the products it sold, losing about a million dollars every week. Walker sold his own Priceline stock to raise money for WebHouse, putting about $125 million in the ailing firm, while other private investors added some $30 million. Priceline's share price began to sink in late 2000 as investor enthusiasm for technology stocks waned. Shortly after moving WebHouse's staff into luxurious new headquarters, Walker announced that he was closing the company while he still had cash left to pay its vendors. On December 31, 2001, Walker announced that he was resigning from his vice chairman position at Priceline. Its share price had dived to only a couple of dollars, and Walker's own fortune shot from the billions to just the millions.

After selling his stake in Priceline to investors from Hong Kong, Walker returned to the company he founded in 1995, Walker Digital. Walker Digital continued to apply for patents for business models, as it worked with customers in the grocery, retail, restaurant, financial services, and gaming industries. Walker was apparently undaunted by his spectacular rise and fall. In 2003 he began hawking an Internet–based surveillance system to the United States government's Department of Homeland Security. His plan, called US HomeGuard, proposed putting cameras at some 47,000 sensitive points, including around water reservoirs, nuclear power plants, and airports. People would be paid to watch images from the camera at home, using an Internet hookup, and report any suspicious activity. Walker proposed that the government pay his company $40 million to set up a test network. Wired magazine's Jessie Scanlon called the idea "intriguing," and it was just the sort of unexpected thing Walker might be expected to spearhead.