Braintree and PayPal
Or, Braintree’s Series Z
Disclaimer: I work for eBay Inc. More details below.
This morning, PayPal acquired Braintree for $800 million. The mobile payments space is rapidly growing, Braintree is rapidly growing, and PayPal has had a busy couple years in M&A (current CEO David Marcus came to his role via PayPal’s acquisition of Zong). Competition in this market is fierce and rumors have been swirling around a potential Braintree sale for weeks. PayPal has also announced Braintree will continue to operate independently.
This deal creates a mutually beneficial synergy (as you hope these kinds of things do). Margins for credit card processing are thin,as ex-Stripe employee Zachary Townsend highlighted this morning. PayPal has the best revenue mix in the mobile payments industry, thanks to longevity, cash and acquisitions (and Marcus’ new innovation agenda). Braintree, on the other hand, makes money on credit card processing— maybe not that much money.
This will allow Braintree to focus on what they do best: attracting great clients and developers, and serving that dev community amazingly well. Braintree has the best engineering reputation of any Platform-as-a-Service in payments and a damn good one in the general mobile engineering community, too. This has attracted the kind of young, high-growth companies that PayPal has had trouble getting in bed with: Airbnb, Github, Uber, TaskRabbit and more. Braintree can continue to provide devs best-in-class tools and support, which will in turn attract great clients. In exchange for bringing them into a satellite extension of PayPal’s fold, Braintree can stop sweating thin margins and gets support from PayPals’ revenue mix.
Think of the acquisition as Braintree’s Series Z. They can grow and focus on their core strategy, with less regard for tactical battles. Less revenue, more product. Observers are often surprised when later-stage, revenue-generating companies like Uber, Dropbox or Twilio raise Series B, C or D rounds. Do they really need more funding? Well, yes, they do. Because growth is everything, especially early on. I don’t just mean keeping the hockey stick up-and-to-the-right. Having the freedom to focus on strategic expansion, product development, and doing or building exactly what your company does best, is crucial to long-term health. And Braintree will never have to raise another round again.
Credit-card processing may not have provided Braintree the money they needed to focus on being Braintree in the short-term. Think of the revenue poured into the massive legislative issues that surround payments, and the revenue lost undercutting competitors’ pricing in tactical battles to secure costumers. PayPal has the benefits of maturity: their revenue sources are diversified. This allows Braintree the freedom to focus on their PaaS offering, and helps PayPal compete with Stripe and further shut the door on the enterprise market for Square.
I’m incredibly excited to see what the Braintree team builds next.
Disclaimer, continued:I’m a product manager on eBay Inc’s mobile platform team. I work on personalization and identity, have nothing to do with payments, and had no access to internal information about this deal. Everything I know was derived from reading public material.
Still, I’m happy to now be working under the same umbrella as the talented folks at Braintree.