At the height of the Internet boom, when America Online Inc. was king of the heap, it found an unlikely business partner: a former video store operator who had a penchant for blackjack.
In the early days of his Las Vegas start-up, Charles E. Johnson Jr. said he would go down to the neon-bathed Strip, put big wads of money on the casino tables and find a way to meet payroll.
"The warrants had nothing to do with ad revenue," says former PurchasePro.com executive Charles E. Johnson Jr. "They were directly related to selling our marketplace software to our customers, suppliers and partners."
(File Photo/Frank Anderson - Lexington (KY.) Herald-Leader)
"Junior," as he liked to be called, played for the big payday. And for a couple of heady years, his company, PurchasePro.com Inc., was the archetypal dot-com, a software venture led by a swashbuckling executive who took it public during the Internet euphoria of 1999, struck a big deal with AOL a year later and hit it rich.
AOL also profited from the partnership.
In one unorthodox arrangement, AOL gave $9.5 million in cash to PurchasePro for $30 million in stock warrants in the firm, and AOL booked the difference -- $20.5 million -- as ad and commerce revenue. PurchasePro also bought advertising space from AOL, and it paid AOL commissions for selling PurchasePro software.
AOL earned its warrants under a marketing deal that included distributing PurchasePro software. The warrants, similar to stock options, gave AOL the right to buy shares in PurchasePro for a penny each, according to internal company documents. AOL calculated the value of the warrants and booked it as $20.5 million in advertising and commerce revenue in its December 2000 quarter and another $7 million in the March 2001 period.
The $28 million in PurchasePro deals represented just a fraction of AOL's overall revenue. But the partnership illustrates how AOL did business at the peak of the Internet bubble, using its corporate leverage to generate advertising and commerce revenue, a key growth engine, from a dot-com firm whose fortunes were tied to the online giant.
An Unlikely Partner
Of AOL's many partners, PurchasePro was among the unlikeliest, led by a maverick who was inexperienced in the ways of technology.
Johnson is a barrel-chested former gym owner with a tuft of platinum-blond hair and a country-boy twang, by way of Lexington, Ky.
Before Johnson started PurchasePro in 1996, the 6-foot former point guard for the University of Cincinnati's basketball team said he didn't even know how to use e-mail.