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THE DAY AHEAD: Prime time for

By Larry Dignan TDAIN ZDII

PurchasePro.com (Nasdaq: PPRO) has been toiling
away in relative business-to-business obscurity while
players such as Ariba (Nasdaq: ARBA), Commerce
One (Nasdaq: CMRC) and VerticalNet (Nasdaq: VERT)
hog the spotlight.

But that situation may change in the next few quarters
as the company rolls out a high-profile partnership with
America Online and continues to deliver strong revenue
growth. On Aug. 16, PurchasePro announced its "soft
launch" of AOL partnership. If the deal delivers (and
early results indicate it will), PurchasePro should be
ready for prime time.

PurchasePro, which jumped nearly 50 percent last
week, still has a market capitalization well below its
peers. Here`s a recap of why shares aren`t trading with
the B2B crowd. We`ll start with Charles Johnson Jr.,
chairman of the company, who doesn`t come from the
usual CEO factory. Johnson has a Southern drawl and
a lot of flare. Although Johnson sports blond hair and a
tan, you wouldn`t describe Johnson as your typical
Internet CEO. Johnson isn`t Harvard, but he is quite

PurchasePro, which is based in Las Vegas, also didn`t
have flashy IPO underwriters, which means there
weren`t big-time brokerages talking up the stock. Then
toss in the fact that PurchasePro revenue base is
relatively small -- it relies on transaction fees and
network effects from small- to mid-size businesses --
and you can see why the spotlight hasn`t hit

Quietly, however, analysts such as Lehman Brothers`
Patrick Walravens are starting to believe what
PurchasePro is preaching. "We think PurchasePro has
operated under the radar screen," said Walravens.

Johnson`s view on the B2B sector is that there are a lot
of software companies masquerading as exchange
players. Put simply, there`s a huge difference between
deferred revenue and recurring revenue. PurchasePro,
through partnerships with AOL, Office Depot and Sprint,
is building a critical mass of exchanges, which will all
be connected.

This "commerce community" will provide PurchasePro
with a recurring revenue stream from transactions and
hosting. Advertising revenue will be gravy. Contrast that
plan with Commerce One, which takes a large upfront
payment like a software vendor and builds exchanges,
most of which won`t be connected to each other.

Sounds interesting huh? The biggest problem with
PurchasePro`s model has been it is more theory than
reality. The next three quarters will tell the tale.

The company`s second quarter results gave an indicator
of where things are headed. In the second quarter,
PurchasePro reported a loss of 22 cents a share on
sales of $9.5 million, up 109 percent sequentially.
Walravens is projecting sales of $14.3 million in the
third quarter, and Johnson said he`s more than
comfortable with that target. PurchasePro is expected
to break even in the second quarter of 2001.

We recently spoke with Johnson about where the
company`s headed. Here`s what he had to say:

On the AOL partnership: The soft launch is under way
and PurchasePro will roll out new features over the next
two quarters. From the start, Johnson expects
PurchasePro to gain 4 million impressions from small
business users. "This opportunity is so much larger
than anyone expected," said Johnson. "It`ll give us a lot
of traction."

Johnson added that AOL is also using PurchasePro
internally. PurchasePro will also add AOL`s ease of use
and features such as instant messaging. The rollout will
occur in phases with a fully integrated product
completed early in the first quarter.

On the PurchasePro model: Johnson said in the next
few quarter, B2B watchers will begin to differentiate by
revenue growth and the type of revenue generated.
PurchasePro is linking up with companies that will use
its software to not only buy and sell goods, but become
a source of future participants. If PurchasePro
succeeds, its revenue model will be hard to duplicate.

"There`s a significant difference between recurring
revenue and deferred revenue," said Johnson. "In the
first quarter, our product will have the ability to reach a
critical mass of users and exchanges that will be linked
exchange to exchange.

"It`ll all be flushed out soon -- the companies that make
the most money wins the game."

Johnson added that he was "patiently impatient" with
Wall Street`s reaction to the company`s story.
PurchasePro realizes what it has, but investors are just
starting to come around, he said.

On the future of B2B: Johnson was upbeat about the
future for the industry, but did note that software
vendors posing as B2B companies could be hurt. He
said Ariba will emerge as one of the clear winners.

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