His tech transformation began one day while he was working out at a gym in Las Vegas and he got to talking with casino impresario Steve Wynn.
Wynn's Mirage hotel and casino, a big operation, contracted out for many goods and services. Johnson reckoned the casino could set up a way to do its shopping on the Internet. He just needed a guy to figure out how to slap together the software to make it happen. The idea for PurchasePro.com was born.
"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)
The company soon was developing and marketing software for electronic-commerce transactions. Hotels, for example, could use the company's software to create a Web site to buy and sell bed linens and other goods and services. Hilton Hotels Corp., among others, became a customer.
It wasn't long before such online business-to-business transactions became the hot thing in 2000. AOL, always on the lookout for new opportunities, struck a deal with Johnson's start-up in March 2000.
AOL used PurchasePro's software to erect a small-business portal on AOL's Netscape site to which customers could subscribe for a monthly fee. AOL also earned a commission when it sold PurchasePro's software to other companies, which could create their own online marketplaces to buy and sell goods and services.
There was another way AOL made money: It earned $3 in performance warrants for each dollar of revenue it generated for PurchasePro under their marketing partnership. Under the agreement, the warrants gave AOL the right to buy shares in PurchasePro for $63 each. But with dot-com shares in decline, the two companies agreed to revise the deal in December 2000, according to a confidential AOL summary circulated to executives for their signatures.
As part of the revised arrangement, PurchasePro agreed to reduce the exercise price for each share of PurchasePro stock an AOL warrant could buy from $63 to a penny. AOL estimated it would earn $30 million in the quarter ended in December 2000 by exercising the warrants, according to internal company documents. AOL would buy PurchasePro stock for a penny per share and resell them at their market price.
The warrants were valuable to AOL because they were treated as ad and commerce revenue.
"$30MM [million] of revenue from performance warrants vesting in calendar Q4 [the December quarter] will be treated as advertising revenue," AOL stated in its executive summary of the deal.
For PurchasePro, a dot-com on the rise, the AOL partnership helped it to generate revenue and sell its software service.