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Leonsis: I was not planning on selling Revolution Money

I had a long talk with Ted Leonsis on Wednesday night about American Express's $300 million purchase of Leonsis's Revolution Money, a PayPal-like online alternative-payment site.

I wrote a story in today's paper, which you can read by clicking here. But I wasn't able to squeeze some interesting things he said into the newspaper story, so I wanted to share them with you here today.

Let's be clear about this: This sale was probably Leonsis's best play for Revolution Money to continue growing. Trying to go up against the four big payment networks -- Visa, Mastercard, Amex and Discover is like trying to start your own auto company and go up against Toyota and Ford. The barriers to entry are very high and it's hard to overcome the trust hurdle -- complain as people do about their credit cards, they trust a name like Visa or Amex to handle their charges.

RevMoney will continue building online and mobile money transfer applications as it becomes part of Amex. In the best quote Leonsis gave me, he said, "We got their assurance they would not Borg the company," referring to the "Star Trek" alien species that assimilates every species it encounters with the chilling phrase, "Resistance is futile."

The highlights of our chat:

-- Leonsis said he wasn't initially looking to sell RevMoney. Instead, he said, about 45 days ago, he started contacting big financial institutions and card companies about licensing deals; essentially franchising RevMoney's person-to-person money-transfer technology and other applications to several buyers. While talking to Amex about the franchise idea, Amex came to realize it did not have a very strong strong digital platform or strategy and decided it would instead like to own RevMoney outright and exclusively. Hence, the $300 million purchase.

-- "Hopefully, we've learned a lot of lessons from past mergers," Leonsis told me, no doubt referring to the disastrous mega-merger between AOL and Time Warner a decade ago that is just now finally being unwound, with AOL set to spin off next month.

-- RevMoney had grown modestly on its own, but when the financial crisis hit last year, venture capital money started to dry up. Investors in RevMoney include Goldman Sachs, Morgan Stanley and Citi (which has had its own problems). RevMoney didn't have the funds to substantially grow its customer base, Leonsis said; hence the tie-up with Amex, which already has 90 million cardholders globally.

-- RevMoney's credit card business was 12 to 18 months away from profitability, Leonsis said.

-- Younger consumers are much more likely to accept online money-moving than their parents, Leonsis said, which is unsurprising. He said the older generation gets a credit card, then slowly learns how to use online services, such as checking their balances, making payments and so forth. The younger generation goes the other way: They use PayPal to, say, buy virtual characters for their games and, when they get older, they will qualify for a credit card. They go virtual-to-physical worlds, while their parents go, tentatively, the other way.

-- Leonsis gave me an illustration of how his Washington Capitals use RevMoney's 0.5 percent credit card to save money: Let's say a Caps season ticket holder decides to renew his or her tickets and tells the Caps to put the $10,000 on their Visa credit card, which charges the Caps a 3 percent processing fee.

The Caps ticket agent tells the ticket-buyer: "If you open a RevMoney credit card right now and charge your season tickets on that instead of Visa, we'll give you a free autographed Alex Ovechkin jersey." The Ovechkin jersey costs the Caps $125 to buy and the 0.5 percent processing fee to RevMoney amounts to $50.

With this deal, instead of being out $300 per season ticket-holder, the Caps are out only $175. Plus, RevMoney gets a new customer who's got a good enough credit rating to charge $10,000 worth of tickets. Leonsis said the Caps have delivered 2,500 new accounts to RevMoney this way.

-- Frank Ahrens
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By Frank Ahrens  |  November 19, 2009; 2:44 PM ET
Categories:  The Ticker  | Tags: Revolution Money, Ted Leonsis, Washington Capitals  
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