PurchasePro.com

» see purchasepro.com as it lived, on the wayback machine

~ the obit ~

Nobody outside a purchasing department ever touched PurchasePro. It sold to hotels and casinos, which is about as far from a teenager on a 33.6k modem in Ankara as an internet company could get. I include it because the number is instructive: a business whose actual subject was bulk orders of towels, linens and soap was briefly worth more than four billion dollars, and the founder was worth 1.26 billion of that himself.

The underlying idea was not stupid. Las Vegas hotels buy enormous quantities of very boring things, and if you pool that demand across many properties you get better prices for everyone and a cut for whoever runs the pool. Charles E. Johnson Jr started the company in 1997 to be that pool. It went public on NASDAQ in September 1999, raised 48 million dollars, and the stock doubled on the first day of trading.

Three months later it touched 175 dollars a share. This was the exact peak of the business-to-business marketplace mania, when the argument was that every industry would move its procurement onto an exchange and the exchange would keep a percentage forever. Commerce One and Ventro and VerticalNet were all telling investors the same story at the same volume, and for about six months nobody asked what the revenue actually consisted of.

~ the rap sheet ~

~ the fraud ~

What it consisted of was software licenses, and the licenses were being sold in a way that did not survive daylight. Buyers were given purchase commitments in exchange, an arrangement the filings did not disclose, which turns a sale into something closer to a swap. When the quarters got tight the paperwork got worse. Contracts were backdated. Contracts were forged. First quarter 2001 revenue was eventually determined to be overstated by 37 percent.

The board pushed Johnson out in May 2001 as the accounting problems surfaced, and the paper fortune evaporated in the same month. The SEC brought stock fraud charges. His first trial collapsed into a mistrial after his own lawyers discovered he had forged emails and submitted them as evidence, which is a rare way to lose a case you have not lost yet. The second trial in November 2008 convicted him of stock fraud and obstruction of justice, and he was sentenced to eight years.

~ the funny part ~

PurchasePro's marketing deal with AOL was the part that stopped being funny for other people. AOL had agreed to distribute the platform and resell licenses, and the revenue booked on both sides of that relationship became one thread of the much larger investigation into AOL's advertising accounting. Several AOL executives were charged over it. AOL eventually settled for 210 million dollars, which is eighty-four times what the entire PurchasePro estate sold for.

So a Las Vegas company that wanted to sell hotel supplies online ended up leaving a mark on the books of the largest internet company in the world. Whatever else the B2B exchange era produced, it produced that.

~ the day it died ~

The Chapter 11 petition was filed in the United States Bankruptcy Court for the District of Nevada on 12 September 2002. In January 2003 the assets went to Perfect Commerce for 2.5 million dollars, roughly a sixteen-hundredth of the peak market value, and the platform continued for a while under a name almost nobody associated with the scandal.

The idea itself did not die and was never really the problem. Procurement did move online and it stayed there, quietly, inside Ariba and SAP and Coupa and a hundred systems nobody writes stories about. It just turned out to be an ordinary enterprise software business worth ordinary enterprise software money, not a four billion dollar one.

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