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Unorthodox Partnership Produced Financial Gains

Deals Allowed AOL, PurchasePro.com to Boost Revenue

By Alec Klein
Washington Post Staff Writer
Friday, July 19, 2002; Page A17

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)

_____AOL Series_____
Part I: Unconventional Transactions Boosted Sales (July 18, 2002)
Part II: Creative Transactions Earned Team Rewards (July 19, 2002)
_____Graphics_____
The Heart of a Deal: How America Online Brings Advertising Deals to Fruition
Excerpt of AOL E-mail
A Rocky Road: Graphical Timeline Tracks AOL Stock Price
AOL Documents and Deals Reviewed by The Washington Post
_____Time Warner_____
Stock Quote and News
Historical Chart
Company Description
Analyst Ratings
Timeline: Time Warner Highlights
Company Downsizing Actions
_____Time Warner News_____
Former AOL Chairman Heads Luxury Travel Firm (The Washington Post, Nov 23, 2004)
Time Warner Nears Deal Over AOL Accounting (The Washington Post, Nov 23, 2004)
AOL Concentrates On Security Issues With New Software (The Washington Post, Nov 18, 2004)
More AOL Time Warner News

"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.


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